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tutorial Qs Flashcards

1
Q

auditors independence in relation to public company

A

agency theory occurs within public companies. so shareholders are reliant on auditors

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2
Q

auditors independence in relation to private companies with outside interest

A

management are shareholders usually. auditors ensure no conflict of interest

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3
Q

auditors independence in relation to small company

A

auditor give an outside perspective

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4
Q

why is an audit necessary?

A

all companies are required by statute to have an audit

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5
Q

effects of audit on a company

A

affect the staff, gives shareholders and investors assurance, highlights issues

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6
Q

stages of an audit process

A 
pre engagement
planning
accounting systems
controlling and recording
audit programmes
performance of the audit
reporting
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7
Q

difference between audit engagement partner and ethics partner

A

looks at audit engagement, planning of audit and threats
vs
looking at ethical policies and procedures, and communication

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8
Q

difference between audit plan and audit strategy

A

planning an audit involves establishing the overall audit strategy

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9
Q

typical audit engagement acceptance procedure

A 
integrity of client, 
competency of firm, 
ethical consideration, 
communication, 
issue engagement letter
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10
Q

responsibilities of the auditor

A

//

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11
Q

auditors responsibility in relation to fraud

A

//

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12
Q

principle types of threats to auditors objectivity

A 
self interest
self review
management
advocacy
familiarity
intimidation
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13
Q

whats included in an audit engagement letter

A

addressee
terms of engagement
contents of letter
fees and billing arrangements etc

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14
Q

things new auditor discusses with old auditor

A

reason for leaving
any specific issues
summary of working paper
enquire about companys management

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15
Q

issues you need to examine when taking on a new audit

A

integrity of management
special circumstances
independence
competency to do audit

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16
Q

plan an audit

A

business review
evaluate risks
review internal controls
determine strategy

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17
Q

controlling an audit

A

direction and supervision of managers
role of partners and managers
procedures

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18
Q

documenting audit work

A

record everything
remove work once its been completed from list
no uneccesary info kept
all working papers confidential

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19
Q

define materiality

A

a matter is material if its omission or misstatement will reasonable influence the decision of an auditors report

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20
Q

why is materiality important

A

audit = opinion on truth and fairness of FS

need precision to come to an opinion, material matters take away from this precision

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21
Q

materiality profit

A

5 - 10% of profit

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22
Q

materiality turnover

A

0.5 - 1% of turnover

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23
Q

materiality net assets

A

5 - 10% of net assets

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24
Q

materiality in relation to tests of controls

A

materiality in regards to certain matters may lead to all of the samples being checked rather than a small amount

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25
materiality in relation to P and L account
looks at turnover / profit materiality
26
materiality in relation to BS items
looks at net asset materiality
27
property, plant and equipment risks
ownership, existence, completeness, valuation
28
PPE ownership
doubts on ownership, forced removals, held in other country
29
PPE existence
cant do physical inspection, cant access area of PPE (oil rig)
30
PPE completeness
held in lots of places, p and e produced internally and not capitalised
31
PPE valuation
cant establish useful life, purchased in fx | revaluation issues
32
assessing high level audit risk tangible fixed assets
property deeds are susceptible to fraud, difficult to determine asset lives and balance sheet value (as opposed to asset value)
33
assessing high level audit risk | stock
stock can be moved, stock can affect gross and net profit, difficult to calculate complete stock as it consists of raw materials
34
assessing high level audit risk trade debtors
may be overstated, inaccurate doubtful debt provisions
35
assessing high level audit risk | trade creditors
match invoice to records of goods, always need confirmation of goods
36
assessing high level audit risk | contingencies
confirmation of liabilities may not be available due to pending matters
37
what is audit risk
the risk the auditors may issue an unqualified opinion on financial statements
38
advantages of narrative notes
easy to use and understand
39
disadvantages of narrative notes
not useful with complex controls
40
advantages of questionaires
easy to prepare, cost effective, simple to complete
41
disadvantages of questionaies
controls may be misunderstood or misstated
42
limitations of an audit
ISA 200, inherent limitations, natural of reporting, nature of audit procedures
43
auditors responsibility to communicate in regards to deficiencies
use written methods to communicate any deficiencies found and in a timely basis
44
define audit risk
inappropriate opinion on FS
45
define inherent risk
susceptibility of a misstatement that could be material or combined to be material
46
define control risk
a misstatement isnt prevented by a control
47
define detection risk
a misstatement isnt detected by a control
48
key features of a good internal control system
``` competent, reliable defined areas of responsibility segregation of duties adequate documents independent checks ```
49
procedures usually used to audit internal controls
inspection, observation, enquiries, documents etc
50
explain mail being opened
ensure mail doesnt go to other employees, ensure mail is accounted for correctly
51
explain maintenance of a register
reconcile balance on register, attend a physical check of fixed assets, select samples from register
52
explain bank reconciliation
verify cash book against bank statements, enquire how often bank reconciliations are done, confirm differences have been shown, auditor should reperform reconciliations
53
explain passwords in an accounting system
observation of password procedure, verification theyve been regularly changed by an authorised official
54
risk present for cash and remittances in the post
stolen monies at post office, cash handled by too many people, post office handling information isnt given
55
audit tests for cash and remittances in the post
trace sales records track money using postal services print out of lodgements from bank and duplicate company records to find discrepancies
56
weaknesses in regards to internal control systems of payments to creditors
multiple cheque books, authorisation of payments, who signs cheques, cancelled cheques destroyed
57
SEVEN AUDIT OBJECTIVES
``` completeness accuracy valuation cut off existence rights and obligations presentation and disclosure ```
58
factors taken into account when assessing reliability of evidence
source, nature, independence of provider, qualifications of provider, reliability in the past, auditors knowledge of area in question
59
5 audit procedures in regards to P and L
turnover, ensure accuracy cost of sales, look at cut off procedures payroll costs, look at payroll accruals bank interest charge, look at bank statements, bad debt charge, look at collectability of amounts outstanding
60
general inherent risks of fixed assets
risk of impairment rising, risk in estimating depreciation or useful life, risk of unused assets and assets in course of construction
61
use analytical review in fixed assets
compare to budget, | calculate average depreciation, review repairs and maintenance
62
audit procedures implemented before stock count attendance
contact client for instructions book staff to attend stock count ascertain where stock is being held prepare audit programme for the count
63
why is observation of physical inventory count essential?
proper cut off depends on physical inventory observation and is so important
64
what info should the auditor obtain during physical inventory count
sales cut off and purchases cut off
65
lower of cost and net realisable value
lower of the goods purchase cost adjusted for shipment and handling costs less all further costs the be incurred in the selling and distribution of the cost
66
errors in stock take
items should be recounted stock supervisor should be allowed to amend for errors in the system all amendments should be done by an independent senior person
67
debtors audit procedures
select sample of debtors and obtain 3rd party confirmation look at bad debt provisions update accounting systems for any changes reconcile debts to the ledger from FS
68
set out follow up procedures for audit assistant
detailed review of any other procedures taken after year end
69
set out 3 general considerations for assessing reliability of audit evidence
source of evidence, internal / external document vs written authentication method, fax vs email
70
audit objectives in relation to creditors
liabilities are accurate, contingent liabilities are properly treated adequate provision has been made
71
procedures in regards to creditors
review of liabilities, confirmations or letters review legal solicitors letters post balance sheet reviews
72
purpose of audit procedures in relation to suppliers
existence, rights and obligations, valuation, occurrence and completeness
73
what is sufficient evidence?
quantity of evidence, enough to form an opinion
74
what is appropriate evidence?
relevance and reliability, secure enough to come to an opinion
75
audit procedures regarding going concern
``` key financial ratios pending major legal procedures net liability position arrears or dividends inability to obtain new financing ```
76
auditors responsibilities, period end to auditors report
obtain sufficient evidence, non adjusting events should be disclosed, add adjusted events adjusted
77
auditors responsibilities, auditors report to financial statements
auditors dont have responsibility to do anything once their reports published establish any amendments discuss with directors consider implications upon the report
78
auditors responsibilities, financial statements to presentation to members
auditors have no obligation to do anything | consider amendments, discuss matters and discuss whether issues occurred before or after the auditors report
79
analytical advantages
cost effective, helps with comparisons
80
analytical disadvantages
doesnt taken into account adjustments
81
example of analytical
comparing financial ratios | looking at trends etc

1 Audit (5 decks)

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