Lecture 5 Flashcards Preview

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Flashcards in Lecture 5 Deck (21):
1

Assertions =

Representations by management, explicit or otherwise, embodied in financial statements

2

Auditors use assertions to

Reduce audit risk to acceptably low level

3

3 categories of assertions (ISA 500)

- Classes of transaction eg revenue, costs (PL captions > CEAP
- Account balances eg assets and liabilities (BS items) > CEAVOP
- Presentation and disclosure eg all financial statement notes > CEAVOP

4

Completeness

Is population complete? Right number of transactions? Risk of understatement

5

Existence

Does transaction/ balance exist or is population overstated?

6

Accuracy

Is the £ amount included in the accounts correct?

7

Valuation

Does amount included in accounts have right value?

8

Obligation & rights

Do FSs reflect company's rights and obligations?

9

Presentation

Are FSs appropriately presented, and disclosures expressed clearly?

10

Assertion rule creditors

No valuation aspect, what you owe = what you owe

11

Assertion rule cash

No valuation aspect

12

Assertion rule P&L items

Historic items have no valuation and ownership aspect

13

Assertion rule C & E

Can't both be significant risks for 1 item

14

Significant risks =

Areas where auditor considers material misstatement may exist either through fraud or error (identified and assessed risk)

15

Significant risk according to ISA 315

Assessed at assertion level for all categories of assertion. To test assertions we decide which are signif and do more work on these.

16

If significant risk account.. (2)

- Partner must sign off
- Must test controls

17

Areas which give rise to significant risk (3)

- Complex transactions/ outside normal course business
- Related party transactions
- Areas with significant judgment

18

ISAs indicate revenue..

Should have signif risk due to risk of fraud

19

Planning matrix

Lists all account balances, presentation and disclosure items and classes of transactions. Identifies audit approach to take.

20

To work out what to test

Use planning document and planning matrix

21

Benefit of controls approach

Controls can be tested in later part of year and rolled forward > logistically beneficial