Section A Rote (5) Flashcards
(146 cards)
1
Q
What is a conclusion expressed in negative terms?
A
Nothing has come to our attention. Therefore assurance ois limited
2
Q
When there’s limited assurance, how is an opinion expressed?
A
Negatively
3
Q
What level of assurance would normally be given to an audit of financial statements?
A
Reasonable assurance
4
Q
What level of assurance to a review of financial statements
A
Limited assurance
5
Q
What is professional scepticism?
A
To apply a questioning mind to information and evidence
6
Q
Who is ultimately responsible for ensuring that the annual financial statements of a listed company are prepared in accordance with IFRS and relevant legislation?
A
The board of directors
7
Q
What is the objective of an audit of financial statements of a company?
A
To provide assurance on credibility of the financial statements
8
Q
How are ISAs issued?
A
By IAASB
9
Q
Can ISAs override local legislation?
A
NO
10
Q
Who approves the appointment of a company’s auditor?
A
The shareholders
11
Q
The International Auditing and Assurance Standards Board (IAASB) is a standard-setting board of which of the following?
A
International Federation of Accountants
12
Q
Is having access to the company’s books, accounts and records a generally accepted right of an auditor
A
Yes
13
Q
Is to require from company officials any information and explanations on any matter whatsoever a generally accepted right of an auditor?
A
No
14
Q
Is to report to any legal authority any matter the auditor considers that authority needs to know a generally accepted right of an auditor?
A
No
15
Q
Is to attend any board or committee meeting a generally accepted right of an auditor?
A
No
16
Q
Is only a statutory auditor is allowed to carry out audits of companies?
A
Yes, in most jurisdictions
17
Q
Should all ISAs be applied in the course of an audit?
A
No
18
Q
What do ISAs require auditors?
A
To use their professional judgment when applying them not merely follow rules.
19
Q
Is auditor’s accountability and remuneration a principle of corporate governance?
A
No
20
Q
Is rights of shareholders a principle of corporate governance?
A
Yes
21
Q
Is board responsibilities a principle of corporate governance?
A
Yes
22
Q
Is risk management and internal control a principle of corporate governance?
A
Yes
23
Q
Is there should be a clear division of responsibilities between the leadership of the board and the leadership of the company’s business a provision of UK corporate governance code?
A
Yes
24
Q
Is all members of the board, excluding the chairman, should be independent non-executive directors a provision of UK corporate governance code?
A
No
25
Is executive director remuneration should be linked to corporate and individual performance a provision of UK corporate governance code?
Yes
26
Is all directors should be subject to annual re-election a provision of UK corporate governance code?
Yes
27
Who do audit committees normally liaise between?
The auditors and the directors
28
Who has ultimate responsibility for a company’s risk management and system of internal control?
The board of directors
29
What is the threat when the total fees from an audit client represent a large proportion of the firm’s total fees?
Dependence on that client and concern about losing it create a self-interest or intimidation threat
30
What is done when the fee level represents, or is likely to represent, more than 15% for two consecutive years? (issuance)
Determine whether a “pre-issuance review” might be a safeguard to reduce the threats to an acceptable level
31
What is the benchmark for a fee being considered a self-interest or intimidation threat for public interest entities?
15%
32
Should an auditor make a voluntary disclosure if an auditor knows or suspects his client is engaged in money laundering?
Yes
33
Should an auditor make a voluntary disclosure where disclosure is made to non-governmental bodies?
No
34
Should an auditor make a voluntary disclosure where it is in the public interest to disclose?
No
35
Should an auditor make a voluntary if an auditor suspects his client has committed terrorist offenses?
Yes
36
Accepting gifts could be considered to present which of the following threats?
Accepting gifts could indicate a self-interest threat, a familiarity threat, and/or an intimidation threat.
37
When will an action taken by a professional accountant only be considered a safeguard?
If it is effective
38
Is seeking advice from a third party a safeguard?
Yes
39
What is meant by independence of mind?
The state of mind permits the expression of a conclusion without being affected by influences that compromise professional judgment; and allows an individual to act with integrity and exercise objectivity and professional scepticism
40
Is assuring the ability and competence of the individual to carry out the work an example of independence of mind?
No
41
Is allowing an individual to act with integrity an example of independence of mind?
Yes
42
Is allowing an individual to exercise objectivity and professional scepticism an example of independence of mind?
Yes
43
Is permitting the expression of a conclusion without being affected by influences that compromise professional judgme
Yes
44
If a potential client has asked a firm to act as auditor to his company and want the audit to commence immediately as the financial statements are required by the bank? What should the auditor's response be?
Contact the previous auditors for professional clearance before they start work
45
Should objective and scope of the audit be included in an audit engagement letter?
Yes
46
Should results of previous audits be included in an audit engagement letter?
No
47
Should management's repsonsibilities be included in an audit engagement letter?
Yes
48
Should need to maintain professional scepticism be included in an audit engagement letter?
No
49
Is a review of the potential client’s commitment to internal controls part of the client screening process?
Yes
50
Is an assessment of the apparent integrity of the management of the potential client part of the client screening process?
Yes
51
Is establishing whether any conflict of interest exists part of the client screening process?
Yes
52
Is carrying out a full background check of the employees of the potential client part of the client screening process?
No
53
Should auditor revise terms of audit engagement if there has been a change of senior management at the client company?
Yes
54
Should auditor revise terms of audit engagement if new regulations have come into force which have direct implications for the client’s business practices?
Yes
55
Should auditor revise terms of audit engagement if the client has opened a second branch in a new location overseas?
Yes
56
What is meant by transfer information? (copy accounts and TB)
A copy of the last set of accounts and a detailed trial balance that supports those accounts
57
Does a copy of the last set of financial statements formally approved by the client part of transfer information?
Yes
58
Does a detailed trial balance that is in agreement with the financial statementst part of transfer information?
Yes
59
Does a working papers relating to the most recent audit of the client part of transfer information?
No
60
What is the advantage of using standardised working papers? (standard documentation audit)
Introduces a standard approach to the conduct and documentation of the audit
61
What is more likely to appear on the permanent audit file as opposed to the current audit file?
Engagement letter
62
How long does the ACCA recommend that audit working papers be retained?
A minimum of 7 years
63
Should audit working papers provide evidence that the financial statements of the client are correct?
No
64
Should audit working papers hold audit team accountable, assist in planning of audit and facilitate supervision and review of audit work?
Yes
65
Who do audit working papers belong to?
The auditor and are confidential
66
Does the client have the right to demand access to audit working papers?
NO
67
What can client require auditor to do (in relation to ownership of audit documentation)? (disclose third)
Require the auditor to disclose documents to third parties, only if the documents in question belong only to the client.
68
What is an audit programme? (instructions audit staff)
A clear set of detailed instructions on the work to be carried out by audit staff
69
What is an an internal control questionnaire? (detailed questions characteristics internal control)
A series of detailed questions to ascertain and evaluate all important characteristics of the system of internal control in operation
70
What is an IFRS/disclosure checklist? (disclosure compliance IFRS)
A list of disclosure and other requirements which must be met in order to ensure compliance with IFRS, statutes and listing rules
71
What is an audit manual?
A list of general instructions on the audit firm’s methods of auditing in each area and the firm’s general procedures
72
What can adequate audit planning not provide? (material misstatement)
Any assurance concerning the risk of the existence of material misstatement in a set of financial statements
73
What does audit strategy do?
Sets the scope, timing and direction of the audit.
74
What should auditor consider when developing an overall audit strategy? (evaluations materiality risk controls)
Preliminary evaluations of materiality, audit risk and internal control
75
What is the time frame of audit planning?
Begins shortly after the completion of the previous audit and continues until the completion of the current audit engagement.
76
What does performing preliminary engagement activities help ensure?
Auditor has considered events or circumstances which may adversely affect his ability to perform the audit engagement
77
Where is determining appropriate materiality levels carried out?
As part of the overall audit strategy, which sets the scope, timing and direction of the audit.
78
Is the company’s systems procedure manuals a best source of information about a company's financial systems?
Yes
79
Is the internal audit function’s system notes a best source of information about a company's financial systems?
Yes
80
Is the prior year audit file a best source of information about a company's financial systems?
No, as system may have changed in intervening period
81
Is the Inquiries made of company staff a best source of information about a company's financial systems?
Yes
82
When an audit client is a hi-tech company that has financial problems, a dominant chief executive, poor internal control and unusual transactions. What is the issue?
Increased audit risk
83
What is not a qualitative inherent risk factor?
Materiality
84
What should happen if inherent and control risk is high (detection and substantive procedures)
Low detection level and increased substantive procedures
85
Risks close to the upper end of the spectrum of inherent risk are known as?
Significant risks
86
What type of activity is the preparation of reconciliations?
Control activity
87
How to reconciliations link to monitoring process? (timely basis)
Management’s review to ensure reconciliations are prepared on a timely basis is an activity in the monitoring process
88
What is an advantage of using systems flowcharts to document internal controls
Flowcharts provide a visual depiction of a client’s activities.
89
What does an ICQ document?
Understanding of the design of the system of internal control
90
What are tests of controls required to assess?
Control risk
Effectiveness of the control environment
91
Comparing two or more items with each other is an example of which control activity?
Verification
92
What are inherent limitations of internal control? (Collusion, human error)
Collusion of two or more people
Human error
Management override
93
Why should the director’s loan from the company be tested?
As it is a statutory requirement to disclose the exact amount
94
What should be done for any balance/class of transaction greater than the performance materiality level?
Must be tested
95
What action should be taken for
"
As an audit team member with two years of experience, you were assigned to carry out a test of details on directors’ expenses. The result of the test showed that in several cases involving the same director, the Chief Financial Officer (CFO) had authorised the over payment of his expenses. Each expense item was less than the performance materiality level.
"
Discuss with senior member of the audit team, because of the potential fraudulent transactions
96
What is a material item?
Its omission or misstatement could influence the decisions of primary users of the finance statements
97
What happens to items that fall below the materiality threshold>
Can't be completely ignored and auditor must use judgment in dealing with such items (sampling or analytical procedures)
98
What is an appropriate starting point for determining maeriality for a property development company?
Assets
99
What does reviewing ICQ provide?
Information about control policies and procedures
100
Can ICQ provide information about actual transactions or events?
No, so unlikely to uncover non-compliance with laws and regulations.
101
Who should an auditor report this situation to?
"
An auditor has discovered a $1 million wages fraud by a director of a listed company. The amount is not material in relation to the company’s financial statements and the auditor has determined that the fraud does not constitute money laundering
"
To those charged with governance
102
Who is primary responsibile for detection of fraud?
Management and TCWG
103
What is the external auditor's responsibility? (reasonable)
Obtain reasonable assurance that the financial statements are free from material misstatement
104
What is the internal auditor's responsibiltiy?
The evaluation of risks based on audit plans and appropriate testing and must be alert to the signs and possibilities of fraud and error
105
Should internal auditors design internal controls?
No
106
How can internal auditors assist management?
Assist management through assessing the design of the internal controls to detect fraud and error and making recommendations for improvement.
107
What indicates an opportunity to commit fraud? (investors)
High expectations of investors
108
Is deprovisionising an access control?
Yes
109
Is the sales department matches a list of computer-generated invoices to copies of the manual input documents from which invoices are originated an information processing or general IT control?
Information processing
110
Is the personnel department reviews a monthly printout of all changes to payroll standing data which is then checked against manual records an information processing or general IT control?
Information processing
111
Is the sales system includes a sequence check on pre-numbered sales input documents received from the sales department an information processing or general IT control?
Information processing
112
Is the access to the computer network is authenticated through unique user IDs and passwords an information processing or general IT control?
General IT controls
113
What must a control for ensuring purchases aren't understated include?
Must include validating that all goods received have been invoiced
114
Does a control for invoices are authorised as matched with goods/services received notes before being recorded in the detailed purchases listing test for understatement or overstatement?
Overstatement
115
Which audit procedure does this relate to?
"
During the current year audit, the auditor tests a control by completing certain procedures that were done by the client as part of the internal control over the given transaction cycle.
"
Reperformance
116
When is the risk of material misstatement misstatement the same as inherent risk?
When the auditor does not intend to rely on the operating effectiveness of controls
117
What is done when evidence for a substantive audit test may not be available?
Auditor will need to place greater reliance on tests of internal controls related to the IT system
118
How should all significant deficiencies and other matters that are deemed of sufficient importance?
Should be reported to TCWG
119
When is a lack of sensitivity analysis only be significant?
If the accounting estimates were particularly subjective or complex rather than routine
120
Is an indication of areas in which the client can assist in improving audit efficiency included in the report to management?
Yes
121
Is constructive feedback on business systems, risk systems and risk management included in the report to management?
Yes
122
Are details of the audit work carried out to detect deficiencies included in the report to management?
No
123
Are details of additional extensive work that could have been carried out to try to detect further significant deficiencies included in the report to management?
No
124
How should all deficiencies identified as significant be communicated>
In writing to TCWG
125
How can the auditor ordinarily disclose any details of significant deficiencies? (Client)
Client managememt
126
Is unnecessary spending considered to be within the scope of a value for money (VFM) audit?
Yes
127
Is revenue opportunities considered to be within the scope of a value for money (VFM) audit?
Yes
128
Is financial reporting controls considered to be within the scope of a value for money (VFM) audit?
No
129
Is protection of assets considered to be within the scope of a value for money (VFM) audit?
Yes
130
Are companies required to implement and maintain an IA function?
Yes
131
Should IA report to the finance director?
No
132
Appointed by the audit committee relevant to external or internal audit?
Internal
133
Reports are publicly available to shareholders relevant to external or internal audit?
External
134
Review efficiency and effectiveness of operations to improve operations relevant to external or internal audit?
Internal
135
Express an opinion on the financial statements relevant to external or internal audit?
External
136
What is a value for money audit?
It is focused on assessing the economy, efficiency and effectiveness of asset expenditure
137
Who determines the scope of work of internal auditor?
Audit committee
138
Which of the following would increase this risk, and so indicate that more evidence should be collected for “sufficiency”? (deadline year end)
A reporting deadline which is sooner after the year end than usual
139
What is needed when auditing a highly automated system
Increased need for tests of control, as subtantive tests of details alone won't cut it
140
Which procedure does the below test?
"
the auditor selects a sample of payment vouchers and compares the dates on the vouchers to the dates the transactions were recorded in the purchase journal.
"
Cut-off
141
Comparing the date of purchase transactions to the dates they were recorded is an example of what assertion?
A cut-off test
142
What procedure isn't tested on an BS item?
Cut-off
143
What is recalculation?
Check on the mathematical accuracy of documents or records
144
What is observation?
Looking at a procedure or process being performed by others
145
What is enquiry?
Obtain information of knowledgeable persons, within the company or outside the company
146
What is reperformance?
Auditor’s independent execution of procedures or controls which were originally performed as part of the entity’s internal control
