Topics 1-5

Question 1

What is the objective of an audit?

Answer 1

To enable the auditor to express an opinion as to whether the financial report is prepared in accordance with applicable financial reporting frameworks.

Question 2

What is an assurance service?

Answer 2

Professional services that improve the quality of information for decision makers.

Question 3

Why undertake audits or assurance services?

Answer 3

Users want information they can trust, therefore the information must be:
-reliable
-accurate
-up to date
-prepared in accordance with the law
Therefore auditing and assurance services are used to reduce the information risk and improve the level of faith placed by users on the information contained within the reports.

Question 4

What is information risk?

Answer 4

the possibility that information upon which business relies on to make decisions may be unreliable, therefore the decisions made are inaccurate.

Question 5

What are the causes of information risk?

Answer 5

1. the numbers disclosed are not free from material error
2. the numbers are not disclosed correctly (in accordance with standards and other mandatory requirements)
3. the entity is not a going concern

Question 6

What is professional scepticism?

Answer 6

Guilty until proven innocent

Trust no one

Question 7

What is the auditing process?

Answer 7

Source documents
Processing of documents
preparation of reports

Question 8

What are the 6 steps to resolving an ethical dilemma?

Answer 8

1. obtain relevant facts
2. identify the ethical issue
3. Determine who is affected by the outcome and how
4. identify the alternatives
5. identify the consequences of each alternative
6. decide the appropriate actions

Question 9

What are some threats to independence?

Answer 9

Self-interest threat
self-review threat
advocacy threat
familiarity threat
intimidation threat

Question 10

What is APES110 about?

Answer 10

Code of Ethics for Professional

Accountants

Question 11

What are the fundamental principles of APES 110?

Answer 11

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour

Question 12

What are the 5 types of evidence/tests?

Answer 12

1. gaining an understanding of the internal control environment
2. testing of controls
3. testing of transactions
4. testing of balances
5. analytical review

Question 13

What is a going concern?

Answer 13

Assumes that the entity can continue to operate into the foreseeable future (defined as 12 months).

Question 14

What is a going concern?

Answer 14

Assumes that the entity can continue to operate into the foreseeable future (defined as 12 months).

Question 15

What are inherent risks?

Answer 15

A measure of the auditor’s assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of the internal control.

Question 16

What is internal control?

Answer 16

a process designed to provide reasonable assurance regarding the achievement of management’s objectives in the following categories:

1. reliability of financial reporting;
2. effectiveness and efficiency of operations; and
3. compliance with applicable laws and regulations

Question 17

What journals are included in the sales and collection cycle?

Answer 17

Sales journal
Cash receipts journal
General journal

Question 18

What balance sheet items are included in the sales and collection cycle?

Answer 18

Cash at bank
Trade accounts receivable
Other accounts receivable

Question 19

What Income statement items are included in the sales and collection cycle?

Answer 19

Sales
Sales returns and allowances
Bad debts expense
Allowance for doubtful debts

Question 20

What are management assertions?

Answer 20

Implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements.

Question 21

What are the 3 categories of management assertions?

Answer 21

• Assertions about classes of transactions and events for the period under audit
• assertions about account balances at period end
• assertions about presentation and disclosure

Question 22

What are the assertions about classes of transactions and events?

Answer 22

• occurrence
• completeness
• accuracy
• classification
• cut off

Question 23

What are the assertions about account balances?

Answer 23

• existence
• completeness
• valuation and allocation
• right and obligations

Question 24

What are the assertions about presentation and disclosure?

Answer 24

• occurrence and rights and obligations
• completeness
• accuracy and valuation
• classification and understandability

Question 25

Audit objectives: what does ACCEPT stand for?

Answer 25

Accuracy
Classification
Completeness
Existence
Posting & Summarisation
Timing

Also
Rights and Obligations
Realisable value
Presentation and disclosure