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1
Q

<p><strong>What is included in Complete Set of Financial Statements?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Balance Sheet.</li> <li>Income Statement</li> <li>Cash Flow Statement.</li> <li>Statement of changes in equity.</li> <li>Notes to the Accounts.</li></ol>

2
Q

<p><strong>What are two major parts of an Annual Report issued by a company?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Financial Statements, and Auditor’s Report)</li> <li>Other Information (e.g. Directors’ Report)</li></ol>

3
Q

<p><strong>What is the difference between General Purpose Framework and Special Purpose Framework?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>1. General Purpose Framework is used for wide range of users.</p>

<p>2. Special Purpose Framework is used for specific users. [distribution of such F/S may be restricted]</p>

4
Q

<p><strong>Define Fair Presentation Framework?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>A framework that requires compliance with requirements of the framework <strong>and</strong> contains acknowledgment that, to achieve fair presentation, it may be necessary for management:</p>

<ul> <li>To provide disclosures in addition to specific requirements of framework or</li> <li>To depart from a requirement of framework</li></ul>

5
Q

<p><strong>How opinion is expressed in Fair Presentation Framework?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>In any one of following ways:</p>

<ol> <li>“financial statements give true and fair view in accordance with the framework”, or</li> <li>“financial statements are presented fairly, in all material respects, in accordance with the framework”.</li></ol>

6
Q

<p><strong>Define Compliance Framework?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Compliance framework is a financial reporting framework that requires compliance with requirements of the framework, and does not contain acknowledgements which are contained in fair presentation framework (regarding additional disclosures or departure from requirements of framework to achieve fair presentation).</p>

7
Q

<p><strong>How opinion is expressed in Compliance Framework?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>“financial statements are prepared, in all material respects, in accordance with the framework”.</p>

8
Q

<p><strong>Give one example of Fair Presentation Framework and Compliance Framework?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Fair Presentation Framework =IFRS<br></br>Compliance Framework = Tax Basis</p>

9
Q

<p><strong>Define Applicable Financial Reporting Framework?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>AFRF is the financial reporting framework adopted by management and Those Charged With Governance (TCWG), in preparation of financial statements considering legal requirements, nature of entity, nature of financial statements, and purpose of financial statements.</p>

10
Q

<p><strong>What is the difference between Management and TCWG?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Management means persons responsible for operational and managerial duties (e.g. CFO, CEO).</li> <li>TCWG means persons responsible for Overseeing the strategic direction and Accountability (e.g. Directors).</li></ol>

11
Q

<p><strong>How an audit is affected if Financial Reporting Standards are Supplemented by Local Laws?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Both become AFRF.</li> <li>Auditor shall comply with both.</li> <li>If both are in conflict, auditor shall comply with local laws.</li></ol>

12
Q

<p><strong>What is the difference between External and Internal Auditor?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Appointment (External auditor appointed by Shareholders, Internal by Directors)</li> <li>Reporting (External auditor reports to Shareholders, Internal to Directors)</li> <li>Independence (External auditor is independent of entity, Internal is not but he should be independent of management)</li></ol>

13
Q

<p><strong>What are different department/sources within the entity from whom evidence can be obtained?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Accounts and Finance Department (Sales System, Purchase System, Payroll System, Inventory & Fixed Assets System, Cash & Bank System)</li> <li>Human Resource Department (number of employments, increments, bonuses, joiners, leavers)</li> <li>Legal Department (detail of cases against company)</li> <li>Marketing Department (sale trend of products, selling commission)</li> <li>IT department (IT system relevant to F/S)</li> <li>Research & Development (activities in development phase)</li> <li>Internal Audit Department (monthly reports sent to TCWG)</li></ol>

14
Q

<p><strong>Give some examples when Internal Auditor will NOT be Independent of Management?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>If internal auditor reports to management (i.e. CFO/CEO).</li> <li>If internal auditor is a friend of management.</li> <li>If hiring, firing, promotion, job-description are decided by management.</li> <li>If internal auditor performs managerial functions.</li></ol>

15
Q

<p><strong>Define True and Fair View?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ul> <li>true means <strong>free from errors,</strong> and</li> <li>fair means <strong>free from undue bias</strong> in preparation or presentation of financial statements.</li></ul>

16
Q

<p><strong>What is the responsibility of Management and TCWG regarding Financial Statements?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>To prepare Financial Statements in accordance with AFRF.</li> <li>For design, implementation and operating effectiveness of internal controls.</li> <li>To provide auditor with all relevant information, additional information, and unrestricted access to persons within the entity.</li></ol>

17
Q

<p><strong>What is meant by Premise of an Audit?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Premise of an Audit means Management understands and acknowledges its responsibilities.</p>

18
Q

<p><strong>In addition to Overall Responsibilities, management also has some specific responsibilities (i.e. area specific). List some of them.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>For Going Concern.</li> <li>For Subsequent Events.</li> <li>For Related Parties.</li> <li>For Fraud.</li></ol>

19
Q

<p><strong>Give some examples of internal control activities performed by management.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Authorization</li> <li>Physical Counting of assets.</li> <li>Reconciliations.</li> <li>Segregation of duties.</li></ol>

<p><em>These activities can be performed in different areas.</em></p>

20
Q

<p><strong>What is auditor’s overall responsibility/objective?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ul> <li>To obtain <strong>reasonable assurance</strong> whether financial statements are free from <strong>material misstatement</strong>, and issue report, and</li> <li>To communicate matters which are required by ISAs (e.g. to directors, regulators).</li></ul>

21
Q

<p><strong>How can auditor justify if there is a misstatement even after his unmodified audit report?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Auditor can justify on two basis:<br></br>1. Misstatement is Immaterial.<br></br>2. Auditor has obtained reasonable assurance by performing all procedures required by ISAs, and this misstatement is due to inherent limitations of audit.</p>

22
Q

<p><strong>Give some examples of matters which are communicated to directors:</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Significant deficiencies in internal control.</li> <li>Modifications in audit report.</li> <li>Management Integrity Issues</li> <li>Auditor’s independence issues</li> <li>Non-Compliance with Laws and Regulations</li> <li>Withdrawal by auditor.</li></ol>

23
Q

<p><strong>Give some examples of Expectation Gap.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Auditor prepares financial statements.</li> <li>Auditor checks 100% transactions.</li> <li>Auditor provides absolute assurance.</li> <li>Auditor is responsible to prevent and detect fraud.</li> <li>Auditor is responsible to express opinion on internal controls.</li></ol>

24
Q

<p><strong>How Expectation Gap can be reduced?</strong></p>

<p>[Chapter 2]</p>

A

<ol> <li>Mentioning responsibilities in Engagement Letter and Auditor’s Report.</li> <li>Expanding and improving the format of auditor’s report.</li> <li>Implementation of regulations.</li> <li>Public awareness.</li></ol>

25
Q

<p><strong>Define Professional Judgment.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Professional Judgment is the application of Cumulative Audit Knowledge, Experience and Training (within the context of accounting, auditing, and ethical standards), to reach an appropriate course of action or conclusion during an audit.</p>

26
Q

<p><strong>Give examples of areas in which auditors applies Professional Judgment.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Risk assessment.</li> <li>Materiality.</li> <li>Audit procedures.</li> <li>Evaluating evidence.</li></ol>

27
Q

<p><strong>Define Professional Skepticism.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Professional skepticism is an attitude that includes:<br></br>(i) a questioning mind,<br></br>(ii) being alert to conditions which indicate possible misstatement, and<br></br>(iii) critical assessment of audit evidence.</p>

28
Q

<p><strong>What is the importance of applying professional skepticism in an audit.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Professional skepticism is necessary:</p>

<ul> <li>To identify risk of material misstatements.</li> <li>To critically assess audit evidence, and</li> <li>To determine sufficiency and appropriateness of audit evidence.</li></ul>

<p>Professional skepticism helps to avoid:</p>

<ul> <li>Overlooking unusual circumstances.</li> <li>Over-generalizing.</li> <li>Using inappropriate assumptions.</li></ul>

29
Q

<p><strong>Give some examples of situations when an auditor is not independent of its client?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>When auditor has financial interest (e.g. holds shares, obtains loan, business relationship)</li> <li>When auditor has personal relationship (e.g. family member works at client, Long association, Gift is accepted).</li> <li>When auditor has employment relationship (e.g. when auditor has been past employee of client)</li></ol>

30
Q

<p><strong>List some functions/roles/activities of IFAC.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>development of high-quality standards and guidance.</li> <li>facilitating the adoption and implementation of standards and guidance.</li> <li>promoting the value of professional accountants worldwide.</li> <li>speaking out on public interest issues.</li></ol>

31
Q

<p><strong>List Boards of IFAC.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>International Auditing and Assurance Standards Board(IAASB)</li> <li>International Ethics Standards Board for Accountants(IESBA)</li> <li>International Public Sector Accounting Standards Board(IPSASB)</li> <li>International Accounting Education Standards Board (IAESB)</li></ol>

32
Q

<p><strong>List some functions/roles/activities of IAASB:</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Develops and promotes standards for audit, review and related services.</li> <li>Provides facilitation in adoption and implementation of international standards.</li> <li>Issues International Auditing Practice Statements (IAPS).</li></ol>

33
Q

<p><strong>What are different types of engagement and different types of standards used for them:</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Audit Engagement à Performed as per ISAs (200 – 800 series)</li> <li>Review Engagement à Performed as per ISREs (2400 series)</li> <li>Assurance Engagements (other than Audit & Review) à Performed as per ISAEs (3000 series)</li> <li>Related Services à Performed as per ISRSs (4400 series)</li></ol>

<p></p>

<p><em>(Note this concept is optional for students)</em></p>

34
Q

<p><strong>What is the process of Developing and Issuing a new ISAs?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>A subject is selected.</li> <li>An exposure draft is produced, and distributed.</li> <li>Comments received, and amendments made.</li> <li>The new ISA is then published.</li></ol>

35
Q

<p><strong>What are different contents of an ISA.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Introductory Material, Objectives, Definition.</li> <li>Requirements.</li> <li>Application and Other Explanatory Material (including Appendices).</li></ol>

36
Q

<p><strong>What is the Authority/Status of ISAs.</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<p>Auditor has to comply with all requirements of all ISAs, unless it is not relevant or not practicable.</p>

37
Q

<p><strong>What shall be auditor’s course of action if requirement of an ISA is not practicable?</strong></p>

<p></p>

<p>[Chapter 2]</p>

A

<ol> <li>Auditor shall document reason.</li> <li>Auditor shall perform alternative procedures to obtain evidence.</li></ol>