Introduction to Audit.pptx

7/29/2019 Introduction to Audit.pptx

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ACCA PAPER F8


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There are five elements in assurance

engagement.

Three party relationship An appropriate subject matter

Suitable criterion

Sufficient Appropriate Evidence

A written assurance report


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Practitioner

A responsible party: Party responsible for

information and assertions

Intended users: for whom the report is

prepared


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Financial performance

Non financial performance- the key

indicators of effectiveness and efficiency

Physical characteristics- Capacity of facility System and processes- Internal control

systems

Behavior- Corporate governance and

compliance


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Identifiable- capable of consistence

evaluation against the identified criteria

Such that the information about it can be

subjected to procedures for gathering

sufficient appropriate evidence.


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Relevance

Completeness

Reliability

Neutrality

Understandibility


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Professional skepticism

Sufficient, appropriate evidence

Sufficient = Quantity

Appropriate = Quality


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The system by which companies are governed

and controlled

AGM

Accounts once a year Audited once a year

Directors board meetings


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Fairness

Disclosure and transparency

Independence

Probity, honesty

Responsibility and accountability

Reputation

Judgment Integrity


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Fundamental principles

Threats

Safeguards


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Integrity- straightforward and honest

Professional competence- current

developments, legislations and industrial

techniquesConfidentiality

Professional behavior- comply with the law

and avoid any action which discredits the

professionObjectivity- avoid biasness, conflict of

interest and undue influence


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Self interest

Self review

Familiarity

Advocacy

Intimidation

Management


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Own shares in company

Ex partner

Family or personal relationships

Loans and guaranteesOverdue fees

Contingent fees

High percentage fees Low-balling

Recruitment for the client


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Recent service

Other services

Preparing accounting records

Taxation services Valuation services


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Where the assurance firm has a relationship

with the client.


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Where an assurance firm promotes a point of

view where subsequent objectivity is

compromised.


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Where assurance firm is deterred from acting

properly.


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Legal and ethical

Adequate resources

The fee

Investigate directors Audit risk

Accounting reporting framework

Money laundering Expertise

Credit rating of client

Communicate with previous auditors


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Auditors and Management responsibilities

Written evidence of auditors acceptance

Sent to BOD prior to audit

Identifies any reports to be producedadditionally


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Objective of audit

Management responsibilities

Applicable reporting framework

Test natureUnrestricted access to records

Confidentiality of reports

Planning Fees

Internal audit


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Access to information

Information and explanations

General meetings

Right to speak in general meetings Right to receive proposed regulations

Right to resign before audit completion

Right to have information about accountscirculated in AGM


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Resolution at each general meeting ( re-

appointment not automatic)

Secretary of state


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Written notice and statement of

circumstances

Information to regulatory authority

Information to members of the company

Auditors can require directors to call EGM

Explanation by the auditor


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Special notice to auditor

Auditors can explain as why they should remainin office

If resolution passed, notify to regulatoryauthority

Auditors must deposit statement of

circumstances at company's office + regulatoryauthority

Explanation at general meeting


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Plan audit work effective manner

General strategy Detailed approach

Planning objectives are Important areas

Potential problems

Work completed expeditiously

Proper staff

Coordination with other parties

Review


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ISA 315

Total Risk =

Business Risk

Financial Risk

Operational Risk

Compliance Risk

Audit Risk= risk of inappropriate opinion


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Risk of material misstatement

AR = IR X CRX DR

Detection Risk

Sampling risk Non sampling risk


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IR Companys susceptibility to

misstatement

CR misstatement will not be prevented,detected or corrected

DR failure of the auditor to detect the risk


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IR

Complex transactions

Inexperienced staff

Cash based business

Pressure to perform


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CR

Control environment

Design of internal control

Operation of internal control


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Auditors experience

New client

Time/fee pressure

Poor planning

Industry knowledge


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Ratio analysis, comparison with previous

years, industry standards, budgets.

Risk assessment

Are FS consistent with our understanding ofentity

Source of substantive testing eg do figures

look reasonable


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Ratio Analysis

Reason

Artefact

Test

Implications Bad debt provision

Others effects discounts


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Financial reporting level

Misappropriation of assets

Managers responsible for prevention or

detection of fraud Auditors should be aware of material

misstatement due to fraud.


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Accuracy

Completeness

Cut off

AllocationClassification and understandibility

Occurrence

Valuation

Existence

Rights and Obligations


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Analytical procedure

Enquiry and confirmation

Inspection

Observation

recalculation


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Sufficient Appropriate

External better than internal evidence

Direct is better than indirectWritten better than oral

Originals better than copies


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Experts (lawyers, estate agents)

Internal auditors

External auditors

Should be

Qualified

Experienced

Independent

professional


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Evaluation of systems ( Analytical

procedures, Enquiry, Inspection, Observation)

If suitable controls exist

Controls must be operative

Otherwise

Substantive procedures


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what can go wrong/ how we can stop it?

Control environment culture

Control procedures

Risk assessment procedures

Information systems

Monitoring controls


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Segregation of duties

Comparison

Authorization

Accounting reconciliationsComputer controls

Arithmetic controls

Physical

Maintaining trial balance and control

accounts


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Control objective: unauthorized overtime

cannot be paid

Procedure: all time sheets are authorized bymanagers.

Tests: inspect time sheets, enquiries of the

wages department, trace large payments ofwages back to time sheets.


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Enquiries

Inspection

Observation

Re- calculation

Introduction to Audit.pptx

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