Module 7 Substantive procedures Flashcards
(36 cards)
What is an Assertion?
Representations by those charged with governance that financial statements have been prepared in accordance with the applicable financial reporting framework
CRACE + P
What are the detailed assertions for balances?
- Completeness (C)
- Rights and obligations (R&O)
- Accuracy, validation and allocation (AVA)
- Classification (CL)
- Existence (E)
+
- Presentation (P)
What is Existence mostly associated with and what is its main risk?
Associated with Assets
Key risk: OVER statement of assets
What is the main risk associated with the assertion of Completeness?
Understatement of liabilities
(Some liabilities are missing)
OCCA + P
What are the (Transactions) Statement of profit or loss assertions?
OCCCA + P
- Occurrence
- Cut-off
- Completeness
- Classification
- Accuracy
+
- Presentation
2 things
What do assertions give the auditor?
1) A clear definition of specific audit objectives
2) A clearer demonstration of work done
Does the auditor test every balance and transaction?
NO
They will focus on those with a higher risk of material misstatement
What does appropriateness mean in relation to evidence?
Appropriateness is a measure of the quality of the audit evidence
What does relevance mean in relation to evidence?
Relevance relates to whether the evidence obtained addresses (is relevant to) the assertion being tested
What are the three sources of evidence?
1) Auditor generated
2) Client generated
3) Third party/externally generated
What is one of the key reasons auditors cannot give absolute assurance?
Is due to the use of sampling
What are sampling units?
Are the individual items making up a population
When deciding on testing, the decision regarding the selection of approach will be determined by:
1) The characteristics of the population (e.g handful of large items or large number of smaller items)
2) The risk of material misstatement (RoMM)
3) The audit efficiency of the approach
What are the methods available to auditors when using sampling?
- Random selection
- Monetary unit sampling (MUS)
- Haphazard selection
According to ISA (UK) 500, what are the techniques auditors can use to collect evidence?
- Inspection of records and documents or tangible assets
- Confirmation from a third party
- Analytical procedures
- Recalculation by the auditor to check mathematical accuracy
- Inquiry of client staff
- Observation of a process or procedure
- Reperformance of a process or procedure
What is the purpose of data analytics?
Seen as a means of improving audit quality
Substantive analytical procedures can generally provide the auditor with evidence over the following Balance assertions?
- Completeness
- Existence
- Accuracy, valuation and allocation
- Classification
Substantive analytical procedures can generally provide the auditor with evidence over the following Transaction assertions?
- Completeness
- Occurrence
- Cut off
- Accuracy
- Classification
What are the 5 analytical procedure techniques?
1) Comparison
2) Ratio Analysis
3) Reasonable tests
4) Trend analysis
5) Large and unusual items review
AEIOU
What are the evidence collection techniques?
- Analytical Procedures
- Enquiries
- Inspection
- Observation
- RecalcUlation
What is Benford’s Law?
A probability distribution for the likelihood of the first digit in a set of numbers.
(i.e the number 1 at the start of 10,345)
What is regression analysis?
A statistical method for estimating the relationship among variables based on past relationships
What is the dependent variable in regression analysis?
The variable that you are trying to understand or predict. This will be the account that is being audited
What is the independent variable in regression analysis?
A variable that may have an impact on your dependent variable
