An Introduction to Auditing
1-21 [LO 2] Why do you have t
Client Acceptance and Continuance and
Preliminary Engagement Procedures
1. [LO1] The risk of client misconduct is concerned with managements reputation
2. [LO1] An auditors professional competence is directly related to
Completing the Integrated Audit and Reporting
[LO 1] The final phase of the audit occurs after the report date.
2. [LO 1] The auditor obtains representations from management and attorneys prior to
issuing the audit report.
Legal Environment Affecting Audits
1. [LO 1] Audit risk is experienced by all auditors.
2. [LO 1] Audit risk only applies to auditors who audit public companies.
3. [LO 1] Audit failure only occurs if the client goes bankrupt.
Substantive Procedures and
the Financial Statement Audit
[LO 1] The first step in substantive testing is assessing internal control.
2. [LO 1] The substantive testing is organized around the transaction cycles.
3. [LO 2] Incorrect
Audit Planning and Risk Assessment
1. [LO1] The audit plan documents detailed information about audit procedures to be performed on
2. [LO2] Scaling the audit refers to fitting the audit work into the proper context in
Auditing Revenue Processes: Sales, Billing, and
Collection in the Health-Care Provider and Retailing
1. [LO 1] A company must either purchase or manufacture the goods it sells, and it must
have the human resources to produ
Planning and Testing Operating Effectiveness of
Internal Control over Financial Reporting
1. [LO 1] In selecting controls to test, the auditor chooses those designed to prevent the
2. [LO 1] Discussions with client pers
the financial statement
Non-adjusting eventsare those that are indicative of conditions that arose after the balance
Planningmeans developing a general strategy and a detailed approach for the expected nature,
timing and extent of the audit. Th
ADVANCED AUDITING AND ASSURANCE 486
A disclaimer of opinionis expressed when the possible effect of a limitation on scope is so
material and pervasive that the auditor has no
To understand accounting one must understand:
The attributes of good information
Process of measuring and communicating information
The decision-making process
Users of information
The above points are briefly discussed below:
Users of informat
Arrangement concerning the involvement of other professionals in the receivership will be
discussed and how the various persons dealing with the receivership will work together
and ensure that each persons responsibility is understood as well as lines of
Matters that an auditor who has been appointed a receiver or liquidator
should discuss with the appointing authority before accepting the
It is important for the auditor when entering into a contact to act as a liquidator or r
Fundamentality. When a matter is fundamental then it is considered so crucial to the view given
by the accounts that it can render them totally misleading or meaningless.
Going concerncan be said to be that the financial statements assume that the enterpr
prepared student. A tabular approach would be ideal.
An insurance contract may be defined as a contract whereby, a person or a company (the insurer)
agrees, in return for a premium, to pay a sum of money to a person or company (the insured) on
- use appropriate techniques from statistics and operations research
- take into account human element in all activities
- be aware of economic logic in all transactions and activities
A clear distinction must be brought out, at this point, between manage
the interests of others, e.g. Creditors and employees.
The auditor should be of integrity and should not be biased in his work and should not
also allow himself to be influenced by others. Any members in the receivership who have
represents 10% of the turnover, in case of any eventuality this can be paid for.
The directors willingness to make further disclosures on the tax inquiry indicates that
they are ready to face any eventuality that may arise out o the inquiry.
instructions of password users who has not changed their password within the stipulated
Should have built into the system a, mechanism for the system to close down automatically
if a wrong password is entered more than 3 times.
Similarly it should
The responsibility for the preparation and presentation of the financial statements in
accordance with the applicable financial reporting framework is that of the management
of the entity with oversight from those charged with governance.
The auditor is r
(ii) Arriving at an opinionin the financial statements
In expressing an audit opinion, the auditor provides uses of financial statements with
reasonable assurance that the financial statements are free from material misstatements.
In other words, the enga
in financial and operating policy decisions of the investee but is not control or joint control over
An engagement letterdefines clearly the extent of the auditors responsibilities and so minimise
the possibility of any misunderstanding bet
(iii) Increased cost of working such as renting other premises temporarily
These losses are called consequential loss. It is possible to take out an insurance policy to cover
against consequential losses.
ANSWERS TO THE EXAM QUESTIONS
ADVANCED AUDITING AN
payment selection criterion. They should have been supporting documents attached
to them. A list should be prepared and it should have the written authority for the
transfers to be effected in the form of a signature by the cheque signatories and this
= Net profit + Insured standing charges or Sales x 100
* The net profit excludes income from investments etc.
Calculate the loss of profit on short sales by applying rate of profit (as computed in step 3.
2) to the sales lost (as computed in step 1). This
point of view.
Error -usually occurs as a result of the inherent variability in the system used to record
data. Other sources include incorrect methods of data collection and measurement,
loss of data and failure to process some data.
Indemnity period cannot surpass 12 months from date of fire.
5. Rate of gross profit: The rate of gross profit earned on the turnover during the financial
year before the financial year in which the fire took place
6. Annual Turnover: The turnover during