audit useful set

Card Set Information

audit useful set
2015-10-20 06:02:51
audit useful set

audit useful set
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  1. 3 Causes of information risk
    • Accessibility of information (Cannot access the underlying data)
    • Conflicting interests or goal inconsistencies between information provider and information users
    • Complex and voluminous of information
  2. Advantages of Auditing
    • Reducing information risks
    • Enhancing credibility of financial information (management is also one intended user)
    • Ensuring that management performs its stewardship function (using their assets in proper manner)
    • Reducing agency risks
    • Providing reliable information for the participants of capital market
  3. Limitations of Auditing
    • Nature of financial reporting
    • Accessibility of audit evidence
    • Time limit to complete an audit at a reasonable cost
    • Variation in the judgment about sufficient and appropriate audit evidence
  4. Assurance engagement is… Assurance is …term than Audit
    • an engagement in which a (1) practitioner (2) expresses a conclusion designed to enhance the degree of confidence of the (1) intended users other than the (1) responsible party about the (3) outcome of the evaluation or measurement of (4) a subject matter (identifiable, capable of consistent evaluation or measurement) against (5) criteria .;
    • a more inclusive
  5. Responsibilities of External Auditors
    • Be independent of the audit client and comply with ethical requirements
    • Plan and perform an audit with an attitude of professional skepticism and exercise appropriate professional judgment
    • Carry out audit procedures in accordance with auditing standards and relevant legislation
    • Obtain sufficient appropriate audit evidence to form audit opinion
  6. As required by the Code of Ethics, the auditors should
    • maintain independence from their client
    • duty to act in a professional manner
    • Provide a reasonable level (cannot be negligent) of care while performing the audit function
  7. Professional judgment: details(5pt)
    • Materiality and audit risk
    • Nature (AR -> confirmation or vouching), timing (when to observe stock take) and extent (how many samples) of audit procedures to be performed
    • Whether sufficient appropriate audit evidence has been obtained
    • Evaluating judgments in applying accounting standards and accounting estimates (reasonableness)
    • Draw conclusions based on evidence obtained
  8. Professional skepticism: Details(4pts)
    • Questioning contradictory evidence
    • Considering reliability of evidence
    • Evaluating sufficiency and appropriateness of audit evidence
    • Take into account past experience of the honesty and integrity of management
  9. Responsibilities regarding fraud
    • Evaluate whether sufficient and appropriate audit evidence regarding the assessed RMM due to fraud has been accumulated
    • Communicate to management and those charged with governance, where appropriate, about matters relating to the fraud on a timely basis
    • Document the significant decisions and RMM due to fraud and also the responses (including audit procedures performed) in response to such risks
  10. Effective corporate governance mechanism helps to:
    • Ensure the strategic guidance of the company, the effective monitoring of management by the board and the board’s accountability to the company and the shareholders
    • Protect and facilitate the exercise of shareholders’ rights, ensure the equitable treatment of all shareholders and recognise the rights of stakeholders and promote transparent and efficient markets
    • Ensure the timely and accurate disclosure of important matters
  11. a good corporate governance system will ensure…(5pts)
    • Appropriate composition of directors with sufficient relevant experience (will ensure the directors are qualified)
    • Integrity is a fundamental requirement in choosing directors
    • There is appropriate level of independence
    • There is a code of conduct for employees to follow
    • The board of directors will have some committees to make important decisions
  12. An effective audit committee has the following benefits (4pt)
    • Increase public confidence in the credibility of the company’s financial reports
    • Help directors to discharge their responsibilities
    • Strengthen the independent position of a company’s external auditor
    • Ensure the effectiveness of the internal audit function
  13. functions of the audit committee
    • Helps to ensure the quality of financial information of the company
    • Reviews internal controls
    • Enhances the effectiveness of the internal audit function
    • Promotes the independence of external auditors
  14. Five Fundamental Principles of the CoE
    • Integrity
    • Objectivity
    • Professional competence and due care
    • Confidentiality
    • Professional behavior
  15. Threats to Compliance with the FP (5pts)
    • Self-interest threats
    • Self-review threats
    • Advocacy threats
    • Familiarity threat
    • Intimidation threats
  16. Safeguards to Minimise the Threats - created by the professional bodies, legislation or regulation (5)
    • Educational, training and experience requirements
    • Continuing professional development requirements
    • Professional standards
    • Professional or regulatory monitoring and disciplinary procedures
    • External review
  17. created by the employer - Firm-wide (3)
    • Documented policies and procedures about the compliance with the fundamental principles
    • Leadership of the firm that stresses the importance of compliance with the fundamental principles
    • Quality control policies and procedures implementation and monitoring
  18. created by the employer - Engagement-specific (3)
    • Having a professional accountant who was not a member of the team to review the work performed
    • Consulting an independent third party
    • Rotation of senior assurance team personnel
  19. Assertions about Classes of Transactions and Events (5)
    • Occurrence - have been occurred
    • Completeness - have been recorded
    • Accuracy - correct amount
    • Cut-off - correct accounting period
    • Classification- properly classified and recorded in the proper accounts
  20. Assertions about Account Balances(4)
    • Existence
    • Completeness
    • Rights and obligations - rights to assets and liabilities
    • Valuation and allocation - valuation or allocation adjustments are appropriately recorded
  21. Assertions about Presentation and Disclosures(4)
    • Occurrence and rights and obligations
    • Completeness
    • Classification and understandability
    • Accuracy and valuation
  22. Def: inherent risk
    The chance of the FS contains errors due to nature of the item the nature of client and the nature of the economy
  23. Def: assertions
    Definition: Representations by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur
  24. Def: Detection Risk (DR)
    The risk that the procedures performed by the auditor will not detect a misstatement that exists
  25. Information is material if …
    omitting it or misstating it could influence decisions that users make on the basis of financial information
  26. The auditor’s judgment on the sufficiency of audit evidence is influenced by the following factors (4)
    • RMM
    • Quality of the audit evidence (reliability)
    • Experience from previous audit (if the client is new, gather more evidence)
    • Sampling method selected (if random sampling is not used, you may need to gather more evidence)
  27. The reliability of information to be used as audit evidence is influenced by(4)
    • Source of audit evidence (where does it come from – inside [e.g. client generated document] or outside of the company [e.g. bank statement, more reliable])
    • Nature of audit evidence (written vs. oral evidence) (original vs. photocopies)
    • Effectiveness of client’s internal controls
    • Qualification of information provider (who provided the information – is it objective, does he have the knowledge)
  28. Relevance of audit evidence is affected by
    • The purpose of audit procedures
    • The assertions under consideration
    • Timing of collecting the evidence
  29. Materiality is considered by auditor during various stage of audit. Comment.
    • Planning stage – determine the amount of evidence needed
    • Evaluating findings – misstatements identified, projected, combined and compared with the preliminary judgment about materiality set during the planning stage
    • End of audit – considers it because it affect opinions
  30. Analytical procedures are useful to the auditor at different stages of the audit (3) + elab
    • Risk assessment and planning- Identify unusual areas to focus on
    • Testing of transactions and account balances- Not all the accounts are tested using test of details due to Time concern
    • Overall review of financial statements and audit completion- Identify anything unusual after all adjustments and all remaining unusual area are explained
  31. Analytical procedures include the consideration of:
    • Comparisons of the entity’s financial information with prior periods, anticipated results or industry averages
    • Relationship among or between elements of financial statements (ratio analysis) or between financial and non-financial information
  32. Evaluating the IA Function - The external auditor needs to evaluate (3)
    • Organisational status and objectivity of the internal audit function
    • Competence of the internal audit function
    • Approach of planning and performing the internal audit assignment