Intro to Audit Flashcards
(15 cards)
What is the need for audit?
- audit is a systematic process performed objectively and independently.
- it evaluates evidence to ensure it aligns with the financial statements prepared by a company
- results are communicated through an audit report to interested users like shareholders, investors, banks and regulatory bodies in singapore.
What are different types of assurance services provided?
- Financial statement audit
- Internal audit
- Compliance
- Forensic
- Financial forecast
- Operational audit
Who are the different types of auditors?
- External Audit
- Internal Audit
- Government Audit
- Forensic Audit
What are the characteristics of companies that are exempted from Audit?
- if they are a small company
- private company in the financial year
- Meets at least 2 out of the 3 criteria for the immediate past 2 consecutive financial years
3 criterias:
- Total annual revenue >$10m
- Total Assets >$10m
- No. of employees >50
What is being audited?
- Financial statements
- items on the balance sheet
- items on the profit or loss statement - Ensure that accounting records are prepared in accordance to the relevant financial reporting framework
- SFRS (Singapore Financial Reporting Standards) e.g
What is the purpose of Audit?
for shareholders to maintain confidence and trust in the audit
What is the objective of audit?
To enable the auditor to express an opinion about whether the financial statements are prepared in all material respects, in accordance with an identified financial reporting framework.
Describe the responsibilities of the management
- Financial statements
Prepare the FS to give a true and fair view - Accounting Policies
Set accounting policies and accounting estimates - Fraud
Responsible to detect fraud
Describe the responsibilities of an auditor
- Financial Statements
Obtain reasonable assurance on whether financial statements are free from material misstatement whether caused by fraud or error - Accounting Policies
Assess the appropriateness of accounting policies used and reasonableness of accounting estimates - Fraud
Obtain reasonable assurance on whether financial statements are free from material misstatement whether caused by fraud or error
Identify the difference between fraud and error
it is intention
Fraud
- an intentional act by one or more individuals among the managements, who use deception to obtain illegal or unjust advantage
Error
- an unintentional misstatement in financial statements
What is the key characteristics of evidence obtained?
- Reliable (has to be appropriate)
- Knowledgeable independent source of the evidence
- Effectiveness of internal controls
- Mode of obtaining evidence
- Documentary evidence
- Original documents - Relevance ( has to be appropriate)
What are the management assertions for the balance sheet and profit or loss statement?
- Rights and obligations
Do the assets and liabilities belong to the company? - Completeness
Has everything been recorded in financial statements? Was anything left out? - Accuracy Valuation and allocation
Has everything been recorded at the correct amount? - Existence
Does it really exist? - Cut-off
Is the transaction recorded in the correct financial year? - Classification
are the transactions recorded in the correct accounts? - Occurence
Did the transaction really happen?
What are the Audit procedures for obtaining evidence, and explain them.
- recalculation/casting
to determine the mathematical accuracy of documents - Scanning
review the data for any significant or unusual items - inquiry
seek info from knowledgeable person inside or outside the entity - observation
process of watching a procedure performed - confirmation
get a written representation of info from a third party (legal parties) - analytical procedures
compare ratios, trends with budget, past year’s results, industry trends
What is the importance of audit documentation?
it is the auditor’s principal record of the audit, procedures performed, evidence obtained and conclusions reached.
it provides a basis for
- Review and inspection of quality of audit work
- Conclusions in the auditor’s report and that audit complies with SSA and applicable laws
what does it mean to take ownership of the audit documentation?
- audit documentation prepared by the auditor belongs to the auditor
- confidentiality and safe custody: Audit documentation must be retained by the auditor and can only be disclosed with the client’s consent or if required by a court order.
- duration of documentation retention:
Audit firms must set policies and keep audit documentation for at least 5 years from the date of the auditor’s or group auditor’s report
