ISA 200 Overall Objectives of an Auditor Flashcards Preview

CFAP 06 AARS by Muhammad Asif, FCA > ISA 200 Overall Objectives of an Auditor > Flashcards

Flashcards in ISA 200 Overall Objectives of an Auditor Deck (33)
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1
Q

What are different types of Frameworks.

A
  1. General Purpose
  2. Special Purpose
  3. Fair presentation Framework
  4. Compliance Framework.
2
Q

Give some examples of General Purpose Frameworks.

A
  1. IFRS
  2. IFRS for SMEs
  3. National Framework (or Financial Reporting Framework of Jurisdiction X) e.g. US GAAP
  4. XYZ Law of Jurisdiction X
3
Q

Give some examples of Special Purpose Frameworks.

A
  1. Regulatory Basis
  2. Tax Basis
  3. Cash Basis
  4. Contractual Basis
4
Q

What will be impact on audit report if management uses Special Purpose Framework:

A
  1. Emphasis of Matter Paragraph in report (to explain basis of accounting)
  2. Other Matter Paragraph in report (to restrict distribution of report, if necessary)
5
Q

How auditor’s opinion is expressed in Fair Presentation Framework?

A
  1. “financial statements give true and fair view in accordance with the framework”, or
  2. “financial statements are presented fairly, in all material respects, in accordance with the framework”.

(Both phrases are equivalent)

6
Q

How auditor’s opinion is expressed in Compliance Framework?

A

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

7
Q

What shall be auditor’s course of action if Compliance framework is misleading/not acceptable.

A

Request management to change framework. If not changed, auditor shall not accept engagement (unless required by law).

8
Q

Management describes AFRF in following terms “Financial statements are in substantial compliance with IFRS”. Is it acceptable?

A

No, as it is partial compliance (qualifying/limiting language) of AFRF.

9
Q

What is the difference between Management and TCWG?

A
  • Management = persons responsible for conduct of entity’s operations (e.g. CFO, CEO).
  • TCWG = persons responsible for Overseeing the strategic direction and Accountability (e.g. Directors).
  • In some entities, Management and TCWG may be same.
10
Q

What are management’s responsibilities in an audit?

A
  • For preparation of financial statements in accordance with AFRF
  • For design and implementation of internal controls;
  • To provide auditor relevant information.
11
Q

What are auditor’s overall objectives in an audit?

A
  • To obtain reasonable assurance whether financial statements are free from material misstatement, and
  • To report on the financial statements, and
  • To communicate as required by the ISAs in accordance with the auditor’s findings.
12
Q

List some major stakeholders/users of an assurance report.

A
  • Existing or Prospective Shareholders.
  • A holding company.
  • Lenders.
  • Donors.
  • Tax Authorities.
13
Q

List some common examples of expectation gap.

A
  1. Auditor prepares financial statements.
  2. Auditor checks 100% transactions of entity.
  3. Auditor provides absolute assurance (i.e. he certifies or guarantees).
  4. Auditor is responsible to detect fraud.
  5. Auditor expresses opinion on internal controls.
  6. Emphasis of Matter, Other Matter Paragraph, and Material Uncertainty related to Going Concern Paragraph are modified opinions.
14
Q

What is included (and not included) in the scope of audit.

A

Scope of audit includes expressing opinion on Financial Statements. It may also include opinion on other matters (if required by local laws).

Scope of audit does not include assurance on future viability of entity, or efficiency/effectiveness of management.

15
Q

What are different levels of assurance.

A
  1. Limited Assurance.
  2. Reasonable Assurance.
  3. Absolute Assurance (not provided to clients).
16
Q

Give an example of engagement in which limited assurance is provided?

A

Review of historical financial statements. (ISRE 2400, or ISRE 2410)

17
Q

Give an example of engagement in which reasonable assurance is provided?

A

Audit of historical financial statements. (ISA 200 – 700)

18
Q

State some Inherent Limitations of Audit?

A
  1. Nature of financial statements (estimates, judgments and uncertainties are involved)
  2. Nature of audit procedures (Not complete information, No legal powers, Fraud)
  3. Time and Cost limitation
  4. Other difficult matters/assertions (Related Parties, NOCLAR, Going Concern)
19
Q

What characteristics should Audit Evidence possess?

A

It must be Sufficient (a measure of Quantity), and Appropriate (a measure of Quality).

20
Q

What are different sources of audit evidence?

A
  • Previous audits (provided it is still relevant).
  • Acceptance and Continuance Procedures
  • During the audit (inside or outside the entity)
  • Using Others (e.g. Predecessor Auditor, Component Auditor, Internal Auditor, Service Auditor, Expert, Quality Control Reviewer)
21
Q

Define Audit Risk.

A

Risk that financial statements include material misstatement and auditor expresses unmodified opinion.

Audit risk is a product of Risk of Material Misstatement and Detection Risk.

22
Q

Define “Risk of Material Misstatement”.

A

The risk that the financial statements contain material misstatements prior to audit.

23
Q

What is the difference between Risk of material misstatement at F/S level and at Assertion level?

A
  1. Risk at Financial Statement Level affects many assertions/areas.
  2. Risk at Assertion Level affects specific assertion in an area.
24
Q

Give some examples of Inherent Risks:

A

Risk due to nature of entity and its transactions e.g.

  1. Risk of theft in precious and portable inventory,
  2. Areas where estimates are applied,
  3. Risk of change in technology/fashion,
25
Q

Give some examples of Control Risks.

A

Risk due to weaknesses in internal control e.g.

  1. No approval,
  2. No Reconciliations,
  3. No segregation of duties.
26
Q

How Detection risk can be reduced?

A

Detection risk can be reduced by:

  • Adequate planning
  • Assignment of competent personnel.
  • Application of professional skepticism
  • Supervision and review of work performed.
27
Q

Define Professional Judgment.

A

Professional Judgment is the application of Knowledge and Experience during an audit to reach an appropriate course of action.

28
Q

Define Professional Skepticism.

A

Professional skepticism is an attitude that includes:

  • a questioning mind,
  • being alert to conditions which indicate possible misstatement, and
  • critical assessment of audit evidence.
29
Q

Is Independence required in every professional engagement.

A

No. Independence is required only for assurance engagements (e.g. audit, review, other reasonable/limited assurance engagements).

Independence is not required for non-assurance engagements. (e.g. Agreed upon procedures, Compilation engagements).

30
Q

Give some examples where an ISA or some of its requirements may not be relevant.

A
  • ISA 600 (if client does not have components/subsidiaries).
  • ISA 610 (if client does not have internal audit function).
  • ISA 620 (if F/S do not involve use of expert).
  • ISA 402 (if client does not use service organization).
  • ISA 705 (if an auditor expresses unmodified opinion).
  • ISA 265 (if no significance deficiencies in internal control).
  • ISA 501 (if entity has no segments).
31
Q

Is it allowed to comply with local laws in addition to ISAs during an audit?

A

Yes.

32
Q

What is the process of developing and issuing a new ISAs.

A
  1. Research and Consultation.
  2. Exposure Draft to Public.
  3. Comments.
  4. Approval.
33
Q

What are Contents of an ISAs.

A
  1. Introductory Material,
  2. Objectives,
  3. Definition.
  4. Requirements.
  5. Application and Other Explanatory Material
  6. Appendices.