Section A Rote Flashcards
1
Q
Element of an assurance engagement (C)
A
Criteria
2
Q
Element of an assurance engagement (R)
A
Report
3
Q
Element of an assurance engagement (E)
A
Evidence
4
Q
Element of an assurance engagement (S)
A
Subject matter
5
Q
Element of an assurance engagement (3)
A
3 party relationship
6
Q
Definition of an external audit?
A
Gives an opinion on the financial statements of a company are fairly presented, independent
7
Q
How are operating licence and hygiene regulations effect according to ISA 250?
A
Don’t have a direct effect on FSs but can have a material effect
8
Q
When there’s no direct effect but possible material effect according to ISA 250?
A
Should perform specific audit procedures
9
Q
What is a reasonable assurance engagement?
A
A high but not absolute level of assurance
10
Q
Is a reasonable assurance assurance report positive or negative?
A
Positive
11
Q
Is a limited assurance assurance report positive or negative?
A
Negative
12
Q
Is a statutory audit reasonable or limited?
A
Reasonable
13
Q
Is a review of cash flow forecasts reasonable or limited?
A
Limited
14
Q
What is an engagement partner responsible for?
A
Direction, supervision, performance and review of an audit
15
Q
Is it a strength or deficiency if the audit team as a whole takes collective responsibility for the audit?
A
Deficiency
16
Q
Should chief internal auditor be part of the audit committee?
A
No
17
Q
Should executive director be part of the audit committee?
A
No
18
Q
Should non-executive director be part of the audit committee?
A
Yes
19
Q
What can give a bank confidence in lending money to a company (in terms of audit committee)?
A
Have at least one member who has relevant financial experience
20
Q
Benefit of data analytics over CAATs?
A
Do not require significant tailoring time as they are standardised
21
Q
Is not establishing an internal audit function a corporate governance deficiencies?
A
NO
22
Q
Elections and corporate governance deficiencies?
A
Directors should be subject to annual re-election
23
Q
How should board be composed in corporate governance?
A
At least 50% should composed of non-executive directors (excluding the chair)
24
Q
When there’s an absence of a member with relevant financial experience?
A
That mev bmber must be recruited
25
Responsibility of directors for internal controls? (annually shareholders)
To review internal controls annually, to report on internal control to shareholders
26
What are threats to fundamental principles? (S-I)
Self-interest
27
What are threats to fundamental principles? (S-R)
Self-review
28
What are threats to fundamental principles? (A)
Advocacy
29
What are threats to fundamental principles? (F)
Familiarity
30
What are threats to fundamental principles? (i)
Intimidation
31
When audit engagement partner and finance director go on holiday together, what are the risks?
Familiarity and self-interest. Rotation of audit partners
32
ACCA Code of Ethics of Conduct, in relation to audit team being offered 10% discount on mobile phones?
Should not be accepted, unless it is trivial and inconsequential
33
What services can audit firms provide to a firm?
If it does not assume a management responsiblity
34
What is a self-interest threat?
Risk of fianncial interest will inappropriately influence professional accountant's judgement/behaviour
35
Where do mandatory safeguards apply to?
Public interest entity audits
36
How is the scope of external auditor's work determined?
By the audit engagement partner
37
What must an audit be in terms of independence from the board?
Must be a completely independent exercise with no influence from the board
38
Is there a clear division between running the board of directors and running directors in a company's business?
YES
39
What does the head of the internal audit department report to?
The audit committee
40
What is the function of an internal audit department?
For review and monitoring
41
What is essential for a review of FSs in a limited assurance engagement? (large amounts analytical)
Enquire of management of large and unusual items in FSs
Perform analytical procedures to understand relationship between items and FSs
42
Is an assurance engagement limited or reasonable?
Reasonable
43
What is needed to provide an internal audit service to an audit client? (responsible)
Be responsible at all times for internal audit activities
Acknowledge responsibiltiy for processes of internal control
44
Evaluating the self-review threat (materiality FS)
The materiality of related FS amounts
45
Evaluating the self-review threat (misstatement)
Risk of misstatement of assertions related to FS amounts
46
Evaluating the self-review threat (reliance external internal)
Reliance that audit team will place in work of internal audit service
47
When is audit sampling in performing tests of details an inherent limitation of an audit?
When 100% of all balances and transactions need to be tested
48
What is a familiarity threat?
Been in charge for too long or a personal relationship
49
Why is a contingent fee not allowed?
As it's a self-interest threat
50
WHat is a contingent fee?
Paid when a specific outcome is achieved
51
When an audit engagement partner must be removed from the team?
For more than 7 years
52
If question says Code of Ethics and Conduct?
Focus on ethics
53
Who is external auditor appointed by?
The shareholders
54
Who is internal auditor appointed by?
The audit committee
55
When looking at valuation, what should I ask myself?
Does it change the NUMBER
56
In audit evidence, is external or internal evidence better for evidence?
External
57
Are lawyers > customers for evidence in a food poisoning case?
Lawyers are better
58
When there's an invoice-in-transit?
Agree to pre-year-end invoice
59
When there's cash-in-transit?
Agree to post-year-end cash book and bank statement
60
If accounts are not amended and there's a disagreement with client?
The report is modified (due to material misstatement or no evidence)
61
What conclusions are there in material misstatement?
Adverse or Qualified opinion
62
When is a material misstatement consdiered adverse?
If it is very very large
63
When an appropriate adjustment is made to a fnancial statement (audit opinion)
It is unmodified
64
What is a basis for qualified opinion paragraph done for?
Explain the limitation in relation to lack of evidence over inventory
65
Is a cash receipt more reliable than correspondence with lawyers when determining recoverability of a debt?
YES
66
What is the period in which management's assessment covers?
At least 12 months from date of the financial statements
67
Example of analytical procedures?
Proof in total
Compare to prior year
68
What is included within the engagement quality review?
Evaluation of all significant audit judgements
Evaluation of conclusions reached in formulating auditor;s report
69
What period does management assessment cover?
At least 12 months from date of the FSs
70
When there's receivables balance that is an irrecoverable debt (profit)
The profit is overstated
71
Auditor's responsibility in relation to subsequent events between auditor's report and fianncial statements are due to be issued?
Auditor discusses need for adjustments with management
72
How does an auditor attend an inventory count?
Observes client staff
Reviews procedures for identifying damaged, obsolete and slow-moving invnetory
73
Which evidence is the most reliable?
Independent 3rd party evidence
74
What is systematic sampling?
Involves having a constant sampling interval, starting point determined randomly
75
When is there a legitimate reconciling item? (issuance)
When it is issued before the year end
76
When supplier statement balance agrees to what is on the purchase ledger?
No further work is required
77
Most reliable way showing lodgments have been recorded?
Bank statement showing lodgments have been cleared by the bank
78
Why is asking for something not considered reliable?
As it is verbal evidence, not written evidence
79
Do auditors prepare financial statements?
NO, management do
80
1st step in planning of CAATs (objective)
Set objective of CAAT
81
2nd step in planning of CAATs (determine accessibility entity files)
Determine content and accessibility of entity's files
82
3rd step in planning of CAATs (types tested)
Define types of transactions tested
83
4th step in planning of CAATs (procedures performed)
Define procedures to be performed on the data
84
Should referencing the work of an external expert be included in an auditor's report?
NO
85
Is classification relevant to an audit programme for additions?
NO
86
How to calculate a bank overstatement?
Customer payments (after year end) - Cheques not posted (after year end)
87
Do GDNs before or after year-end determine when sales cut-off is applied?
Before year-end
88
DIfference between substantive and tests of controls?
Confirming understanding of control
Financial statements
89
When is amount considered material in ISA 320?
1% of total revenue
5% of profit before tax
90
What is meant by inherent risk?
Suspectibilty of an assertion about a class of transaction to a misstatement before considering any related materials
91
What is meant by control risk?
Suspectibilty of an assertion about a class of transaction to a misstatement before considering won't be prevented on a timely basis by entity's controls
92
What is meant by detection risk?
Reduce audit risk to an acceptablty low level. Is affected by samplnig and non-sampling risk
93
What does audit risk compose of?
ROMM and detection risk
94
Level of assurance in external audit?
Reasonable asurance
95
Level of assurance in review engagements?
Negative assurance - where nothing comes to their attention
96
Auditor and laws and regulations (non-compliance TCWG)
Auditor must report non-compliance to management and those charged with governance
97
Auditor and laws and regulations (procedures non-compliance FSs)
Audit procedures to help identify non-compliance with laws and regulations that have material impact on FSs
98
Auditor and laws and regulations (aware non-compliance act)
When auditor aware of non-compliance with laws they must obtain understanding circumstances occurred and effect on FSs
99
Auditor and laws and regulations (non material auditor opinion)
If non-compliance has material effect. Auditor must give qualified or adverse opinion
100
What is meant by a control environment? (control people overall foundation)
Influences the control consciousness of people and provides overall foundation for operation of other components
101
What is meant by an entity's risk assessment process? (iterative process risks)
An iterative process for identifying and analysing risks to achieve entity's objectives and form basis for determining risks managed
102
What is meant by an entity's process to monitor the system of internal control?
Continual process to assess effectiveness of internal control performance over time
103
What is meant by information system and communication?
Activities, policies and records designed to ensure transactions are accurate
104
What is meant by control activities?
Proper application of policies in all components of entity's of direct and indirect controls
105
ICEQs vs ICQs?
ICEQs are generally easier to apply to a variety of different systems than ICQs
106
What do ICEQs determine?
Whether there are controls which prevent or detect specified errors
107
What do ICQs determine?
Determines whether ocntorls exist which meet specific control objectives
108
Do internal auditors review financial statements?
No, audit committee does
109
Example of economy for the 3Es?
Lowest cost at which appropriate quantity and quality can be achieved
110
Example of efficiency for the 3Es?
Relationship between goods and services produced and resources used to produce them
111
Example of effectiveness for the 3Es?
Extent to which an activity is achieving its policy objectives
112
What is done first, tests of control or walkthrough tests
Perform tests of control
Perform walkthrough tests
113
Does scope being set by finance director reduce independence of internal audit department?
YES
114
What are general IT controls?
Disaster recovery procedures
Testing procedures using test data
115
What will result in no completeness of payables?
GRNs not be sequentially numbered, which makes it hard to trace
116
Revenue is overstated and effect on receivables?
Causes a decrease in receivables collection period initially
117
What assertion needs to be tested when talking about understatement of income?
Completeness
118
Is an auditor responsible for detecting or preventing an error according to ISA 240?
Detecting, not preventing
119
Is timetable for provision of accounting information included in an engagement letter?
NO
120
Is an auditor appointed by those charged with governance within the company?
NO
121
What isn't included in an agreement obtained by the auditor?
To prevent and detect fraud
122
What should be done first when accepting a nomination for an audit?
Communicate with the existing auditors
123
What should be done second when accepting a nomination for an audit?
Perform client screening procedures to assess risk => then ensure reisgnation of previous auditor has been previously conducted
124
What is inherent risk?
An item is misstated due to characteristics of that item
125
What is detection risk?
Auditor's substantive procedures don't detect MM
126
What is control risk?
Internal controls don't prevent or detect MM
127
What substantive procedure is inspect relevant purchase invoices for sample of assets on asset register?
Rights and obligations
128
Does management providing override apply to external or internal auditors?
To external auditors
129
What are information processing controls?
Processing of information in IT applications
130
What are general IT controls?
Support the continued proper operation of the IT environment
131
Observe the invoicing clerk to ensure prices are being matched. Which assertion?
Completeness
132
Difference between audit strategy and detailed audit plan?
Audit strategy is more general and high level
Detailed audit plan is more specific and actionable
133
Where does auditor set the performance materiality amount?
Lower than the materiality level for FSs as a whole
134
What is performance materiality used for?
Reduce risk of aggregated of uncorrected and undetected misstatements exceeds materiality for FSs as a whole
135
What forms the basis for audit strategy and detailed audit plan?
The risk assessment
136
Which assertion does review financial statement notes satisfy?
Review financial statement notes
137
Is materiality level included in audit plan or audit tender document?
The audit plan
138
What does an audit engagement letter do?
Outlines the terms and scope of the audit engagement
139
What procedures are usually done in an interim audit?
Analytical, tests of controls, updating risk assessments, substantive testing of transactions
140
What procedures are done in a final audit?
Detailed substantive testing of year-end balances are conducted. Finishing tests of control and substantive procedures
141
Are internal auditors separately liable for any material misstatements?
NO
142
How long must audit files be kept?
For five years
143
Is it acceptable to make administrative changes to an audit file after 60 day period?
Yes, but not procedural changes
144
Who designs the internal controls?
Governance, not auditors
145
An example of segragation in internal controls?
Tasks of taking orders, recording sales and receiving payment is allocated to three different staff members
146
is it acceptable to prepare and audit the financial statements of a listed company?
No, as it is a self-review threat
147
The request that the former engagement partner attends audit committee meetings (self-interest or familiarity threat)
Self-interest
148
if there's a personal relationship between the audit engagement partner and finance director?
It is a self-interest threat
149
Where does audit planning stop?
Continues until the completion of the current audit engagement
150
Where is determining appropriate materiality level carried out?
Overall audit strategy
151
Why can a prior year audit file not be a useful source of information?
System may have changed in the intervening period
152
Who does audit committee normally liaise with?
The auditors and directors
