ISA 200 Flashcards
(89 cards)
1
Q
What does ISA 200 stand for?
A
International Standards on Auditing 200 Overall objectives of the Independent Auditor and Conduct of Audit in Accordance with International Standards on Auditing
2
Q
What are Financial Statements?
A
Structured representation of Historical Financial Information
3
Q
F/s are structure representation of historical or future financial information?
A
Historical
4
Q
Structured representation of Historical financial information is?
A
Financial Statements
5
Q
What are general purpose F/s?
A
That are created for a wide range of users (purpose based)
6
Q
What are special purpose F/s
A
That are created for specific users (purpose based)
7
Q
What is a framework?
A
Criteria / basis used to create F/S
8
Q
What is a general purpose framework?
A
That is designed to meet needs for wide range of users
9
Q
What is a special purpose framework?
A
That is designed to meet needs for specific users
10
Q
What is Fair Presentation framework?
A
That
- requires compliance with requirements of the framework
- and also contains acknowledgement that to achieve fair presentation, management may need to provide disclosures in addition to requirements of the framework OR depart from a requirement of the framework
11
Q
What is Compliance Framework?
A
That
- requires compliance with the requirements of the framework
- and does not contain acknowledgements regarding additional disclosures or departure from the requirements of the framework to achieve fair presentation
12
Q
What are some examples of General Purpose Framework?
A
- IFRS
- IFRS for SMEs
- National Framework (US GAAP)
- XYZ Law of Jurisdiction X (4th, 5th schedules)
13
Q
If AFRF is other than IFRS, should jurisdiction of framework be referred in opinion?
A
YES.
14
Q
Can a specific user accept F/s prepared under General Purpose Framework?
A
YES.
15
Q
What are some examples of Special Purpose Framework?
A
- Regulatory Basis
- Tax Basis
- Cash Basis
- Contractual Basis
16
Q
Regulatory basis framework may be established by who, and to meet requirements of who?
A
- Established by regulator
- Meet requirements of regulator
17
Q
If Regulator-Established framework is to meet requirements of wide range of users, will it be a General Purpose or a Special Purpose Framework?
A
General Purpose Framework
18
Q
Tax basis framework may meet requirements of who?
A
Tax authorities, F/s may accompany tax return
19
Q
Cash basis framework may meet requirements of who?
A
Creditors
20
Q
Contractual basis framework established by who?
A
Individual parties in the terms of a contract
21
Q
If special purpose framework is used, which paragraph in report shall be used to explain basis of accounting?
A
EOM
22
Q
If special purpose framework is used, which paragraph in report shall be used to to inform restriction on distribution of report?
A
OM
23
Q
In Fair Presentation Framework, what is the wording of auditor’s opinion?
A
- “Financial statements give true and fair view in accordance with the framework”
- “Financial statements are presented fairly, in all material respects, in accordance with the framework”
24
Q
In Compliance Framework, what is the wording of auditor’s opinion?
A
- “Financial statements are prepared, in all material respects, in accordance with the framework”
25
If F/s prepared according to Compliance Framework are misleading, should Auditor accept the Audit?
If deficiencies in framework are identified during Audit, what should the Auditor do?
- Auditor should not accept audit.
- Request management to change framework and agree new terms
26
What is Applicable Financial Reporting Framework?
That is adopted by management to prepare F/s
27
Is AFRF required to be disclosed in F/s?
Yes
28
"Financial statements are prepared in accordance with AFRF" should this statement be disclosed if there is a departure from a requirement?
No
29
"Financial statements are prepared in accordance with AFRF" should this statement be disclosed if there disclosures in addition to requirements of AFRF?
Yes (maybe)
30
Can we use "Financial statements are in substantial compliance with IFRS" ?
No. That is Limited or Qualified language.
31
What is Management?
Persons responsible for "conduct of operations"
32
Is CFO part of management?
Yes
33
Is CEO part of TCWG?
No, he's part of management
34
What are Those Charged With Governance?
Persons responsible for "Overseeing the Strategic Direction" & "Accountability"
35
Can Management and TCWG be the same?
Yes, in sole-proprietorship or partnership
36
Are Directors TCWG?
Yes
37
Are Corporate trustees TCWG?
Yes
38
Is owner-manager TCWG?
Yes
39
What are responsibilities of management?
- The preparation and presentation of F/s in accordance with AFRF
- The design and implementation of Internal Controls necessary for preparation of reliable F/s
- To provide auditor with all relevant information, additional information requested by auditor, unrestricted access to all persons to obtain evidence
40
What is the "premise" on which audit is conducted? (Premise = conditions)
Audit is conducted on the "premise" that management is responsible (accepts its responsibility in engagement letter) for
- Those 3 responsibilities of management
41
What are the responsibilities / overall objectives of auditor?
- To obtain reasonable assurance that F/s are free from material misstatement
- To report on F/s
- To communicate, > as required by ISAs < (considering confidentiality principle.
42
List a few stakeholders
- Existing shareholders
- Prospective shareholders
- Creditors
- Tax authorities
- Government
- Donors
43
What is Expectation Gap?
Public perception of role and responsibilities of "EXTERNAL" auditor different (usually higher) from his statutory role and responsibilities
44
Give some examples of expectation gap?
- Auditor prepares financial statements
- Auditor checks 100% of transactions
- Auditor provides absolute assurance
- Auditor is responsible to detect fraud
- Auditor is required to express opinion on internal controls
- EOM, OM, Material Uncertainty related to Going Concern are modified opinions
45
What is the Scope of Audit?
Expressing opinion on F/s
46
Does scope of Audit include future viability / efficiency / effectiveness of management?
Hell no
47
List the levels of assurance?
- Limited Assurance
- Reasonable Assurance
- Absolute Assurance
48
What is limited assurance?
Moderate level of assurance expressed in negative form of conclusion "nothing has come to our attention that causes us to believe that F/s do not give true and fair view."
49
Limited Assurance is usually given in?
Review of historical F/s
50
What is reasonable assurance?
High, but not absolute, level of assurance expressed in positive form of conclusion "F/s give true and fair view in accordance with the framework."
51
Reasonable Assurance is usually given in?
Audit of historical F/s
52
What is absolute assurance?
That F/s are free from ALL misstatements.
53
Is it possible to give absolute assurance? If no, why?
No, because of inherent limitations of audit
54
Inherent limitations of audit cause what kind of evidence to be obtained?
Persuasive and not conclusive
55
What are the Inherent limitations of audit?
- Nature of F/s (estimates, judgements, uncertainties)
- Nature of audit procedures (management may not provide complete information, auditor does not have legal powers, fraud involving collusion, complex techniques, involving senior management are harder to detect)
- Time and cost limitation (Thus audit is planned in such a way that efforts are directed to risky areas, and sampling is used, however auditor cannot omit a required procedure)
- Some matters / assertions difficult to verify (Transactions with related parties, Non-compliance with Laws and Regulations, Going Concern basis)
56
To obtain reasonable assurance, auditor must obtain?
Sufficient Appropriate audit evidence
57
What is sufficiency of audit evidence?
Measure of quantity of evidence
58
What is appropriateness of audit evidence?
Measure of Quality of evidence
59
Sufficiency of audit evidence is affected by?
- Risk
- Quality
60
Appropriateness of audit evidence is affected by?
- Relevance
- Reliability
61
When and from where audit evidence can be obtained? (General, concept will be discussed further in ISA 500)
- Acceptance and continuance procedures
- During the current audit
- Previous audits
- Others (Quality control reviewer - ISA 220, Predecessor Auditor - ISA 510, Component Auditor - ISA 600, Internal Auditor - ISA 610, Expert - ISA 620, Service Auditor - ISA 402)
62
What is audit risk?
Risk that auditor expresses an inappropriate opinion when financial statements are material misstated.
63
What is audit risk the product of?
Risk of Material Misstatement x Detection Risk
64
What is Risk of Material misstatement?
Risk that F/s contain material misstatement prior to audit
65
What are the levels of Risk of Material Misstatement?
- Risk at F/s Level
- Risk at Assertion level
66
Does ROMM have components at F/s level?
No
67
Does ROMM have components at Assertion level?
Yes
68
What are the components of Risk of Material Misstatement at Assertion Level?
- Inherent Risk
- Control Risk
69
What is Inherent Risk?
Risk due to
- Nature of entity
- Its transactions
E.g.
- Risk of change in technology/fashion industry
- Declining industry,
- Lack of working capital to continue operations
- Risk of theft in precious and portable inventory
- Areas where estimates applied
70
What is Control Risk?
Risk due to weaknesses in internal control
E.g.
- No approval
- No Reconciliations
- No Segregation of duties
71
What is Detection Risk?
The risk that procedures performed by auditor will not detect a material misstatement in F/s - Either individually or when aggregated with other misstatements
72
How can detection risk be reduced?
- Adequate planning
- Competent personnel
- Professional skepticism
- Supervision and review of work performed
73
What are the 3 "essentials" for a "proper" conduct of audit?
- Professional Judgement
- Professional Skepticism
- Independence
74
What is Professional Judgement?
Application of Cumulative Audit Knowledge, Experience, Training (accounting, auditing, ethical standards), during n audit to reach an appropriate course of action or conclusion which is appropriate in the circumstances
75
What is Professional Skepticism?
An attitude that involves
- A questioning mind
- Being alert to conditions which indicate possible misstatement
- Critical assessment of Audit Evidence
76
What is Independence?
That auditor should be free to perform audit procedures without any
- bias (internal)
- influence (external)
Auditor should be free from:
- Financial relations with client
- Personal relations with client
- Employment relations with client
77
What is the process of developing and issuing ISAs?
- Subject selected for detailed study
- Exposure draft produced
- Approved by IAASB
- Distributed widely for public comments usually for a period of 120 days or more
- Comments and proposed amendments considered by IAASB
- New ISA published
78
What are the Contents of ISAs?
- Introductory Material, Objectives, Definitions
- Requirements
- Application and Other Explanatory Material (including Appendices)
79
Is Auditor permitted to apply an ISA before its effective date?
Yes
80
How much compliance with ISAs is necessary to obtain reasonable assurance?
To obtain reasonable assurance, it is compulsory for auditors to comply with all required procedures of all ISAs.
81
What are the exceptions to follow requirements of ISA?
A required procedure may not be performed if it is
- Not relevant
- No practicable
81
When shall auditor state compliance with ISAs in audit report?
Only if he has complied with all requirements of all ISAs relevant to audit.
82
If a procedure is not practicable, shall auditor document?
Yes
83
If a procedure is not practicable, what shall auditor document?
- Reason of departure from procedure
- Alternative procedures performed
84
Shall auditor comply with ethical requirements of Code of Ethics?
Yes
85
Code of Ethics requires auditor to comply with which fundamental principles of ethics?
1. Integrity
2. Objectivity
3. Confidentiality
4. Professional Competence and Due Care
5. Professional Behavior
86
Shall auditor comply with local requirements in addition to ISAs?
Yes
87
What is smaller entity?
- Sole-proprietorship
- Partnership
- Unlisted entities
88
Owner of small entities involved in management is called?
Owner - manager
