revision Flashcards
what are the fundamental ethical principles?
integrity, objectivity, professional competence and due care, confidentiality, professional behaviour
what are the main ethical threats that an auditor must safeguard against?
self interest, self review, advocacy (promoting client), familiarity, intimidation
what powers are given to an auditor to carry out their work?
access to books and records
receive all information and explanations auditor deems necessary for audit
receive notice and attend meetings
notice and meetings to propose auditor removal
right to ask for meeting upon resignation
what are the overall objectives of an audit?
obtain reasonable assurance that the financial statements are free from material misstatement
report that the financial statements and communicate in accordance with ISA’s
what are the elements of the audit risk model?
inherent risk, control risk, detection risk
why do auditors send an engagement letter?
to establish whether the preconditions of an audit are there
to confirm there is an understanding between the auditor and management and those charged with corporate governance
what are the typical contents of an engagement letter?
confirm scope and objectives of audit
state responsibilities of the auditor
state responsibilities of management
identify the reporting framework
confirm basis of fees
state if management representatives will be required
request management confirm agreement of the letter
what objectives must an auditor meet to maintain appropriate quality in an audit?
audit must comply with professional standards and legislation
audit report issued is appropriate for the circumstances of the client
what are the responsibilities of the engagement partner regarding quality control of the audit?
ensure quality control standards are followed
ensure ethical standards are followed
maintain independence from client
ensure auditor is appointed correctly
check audit team have sufficient experience
review work carried out
appoint quality control reviewer
what are the qualities of good audit documentation?
provides sufficient appropriate record to support auditors report
provides evidence that the audit was planned in accordance with ISA’a and applicable legislation
why does the auditor produce audit documentation?
helps plan the audit
evidence that the work has been carried out
shows who produced the documentation
evidence to assist in planning of future audits
shows quality control standards have been followed
shows auditor complied with ISA’s and other relevant regulations
what are the auditors responsibilities regarding fraud?
determine if the financial statements have material misstatements caused by fraud
obtain evidence to decide whether material misstatement has occurred due to fraud
if fraud is found, report to management
what is the normal audit work regarding fraud?
maintain attitude and professional skepticism
found out how management assess fraud risk
assess risk of material misstatement due to fraud
evaluate evidence obtained
share concerns with those charged with corporate governance
what situations does the auditor report in a management letter?
controls are designed, implemented or operated in a way that will not prevent material misstatement
controls to prevent material misstatements are missing
what does the management letter say about each internal control deficiency?
explains the deficiency
descriptions on the potential effect of deficiency
suggest actions to overcome deficiency
what are the benefits of audit planning?
devote attention to appropriate areas of audit
identify and resolve problems in a timely manner
audit performed efficiently and effectively
select appropriate members of audit team
assist direction of audit
coordinates work with auditors and experts
what is the audit strategy?
overall approach to the audit:
audit scope, timing, direction
identifies risky areas for the attention of the audit
what us the audit risk model?
control risk x inherent risk x detection risk = audit risk
what are the four stages of assessing risk in an audit?
initial procedures to identify risk, i.e talk to management and analytical procedures
obtain information about the client and industry, assess inherent risk
obtain information about the clients internal control systems, assess control risk
determine where and whether a material misstatement could occur
in assessing internal controls systems, what are the internal control elements?
control environment
entity’s risk assessment procedures
information systems
control activities
monitoring of controls
what are the main control activities that an auditor can place reliance on?
performance reviews
application controls
general IT controls
physical controls
segregation of duties
authorization controls
why can audit procedures give an incorrect result?
sampling risk: sample chosen is not representative of the population
non sampling risk: the auditor applies audit procedures incorrectly
what are the audit assertions relating to the income statement?
occurrence - transaction actually occurred and belongs to the entity
completeness - all transactions are recorded
accuracy - amounts are recorded correctly
cut off - recorded in correct accounting period
classification - recorded in correct amounts
what are audit assertions relating to the statement of financial position
Existence - items actually exist
rights and obligations - entity owns the asset or has obligation to pay liability
completeness - all assets and liabilities are recorded
valuation and allocation - assets and liabilities in financial statements are at appropriate amount
