See also ACCA F8 Flashcards: Set 1 | Set 2 | Set 4 |
What audit assertions relate to transactions?
The audit assertions relating to transactions are:
* Occurrence
* Completeness
* Accuracy
* Cut off
* Classification
What sort of audit report should be issued if going concern doubts are fully disclosed in the financial statements.
The audit report should contain an emphasis of matter paragraph drawing users’ attention to the note relating to going concern. This is not a qualification because the financial statements are as right a they can be.
Is cut-off correct if an item is included in closing inventory, if a goods received note has been issued, but no supplier invoice has been received or accrued for?
Cut-off is incorrect. If an item is included in closing inventory it needs to be accounted for in purchases. Therefore debit purchases and credit either payables or purchases reserve.
What are the audit assertions relating to year end balances?
The audit assertions relating to year end balances are:
* Existence
* Rights and obligations
* Completeness
* Valuation
* Allocation
In an accounting system, all credit notes issues are authorised by the chief accountant.
Is this an example of a control objective, a control procedure or a control test?
This is an example of a control procedure.
The control objective is that credit notes are issued only for legitimate reasons; the test of control would be inspecting the credit notes for the manager’s signature.
What is the correct accounting treatment of a contingent liability where the outflow of resources is probably not required?
Disclose but do not make a provision.
Define a non-adjusting event.
A non-adjusting event is one that relates to conditions that arose after the date of the statement of financial position.
ISA 315 categorises audit assertions into three groupings. What are those groupings?
ISA 315, Audit evidence divides assertions into
* Transactions and events
* Account balances
* Presentation and disclosure
What are the five inherent limitations to internal control?
* Human error
* Collusion
* Bypass of controls
* Costs of control > benefits
* Non-routine transactions for which no system has been developed.
What is the correct treatment of a contingent asset where the inflow of economic benefits is not probable?
No disclosure; no provision.
In an ICEQ does the answer ‘No’ imply that a control is present or absent?
In an ICEQ the answer ‘No’ implies that a control is present.
For example “Can unauthorised overtime be paid?”
Answer = ‘No’ means overtime payments are controlled.
Define an adjusting event
An adjusting event is one which provided evidence of conditions that existed at the date of the statement of financial position.
What are the two types of receivables circularisation?
Positive: where everyone should reply whether or not the balance is in agreement.
Negative: where only those disagreeing with the balance should reply.
Is cut-off correct if an item is included in closing inventory, a sales despatch note has not been issued and no sales invoice has been issued.
This is correct and is the normal position for closing inventory.
What are the audit assertions relating to presentation and disclosure?
The audit assertions relating to presentation and disclosure are:
* Occurrence
* Rights and obligations
* Completeness
* Classification and understandability
* Accuracy
* Valuation
Define a contingent liability
A contingent liability is a possible liability arising from past events…. existence confirmed by future events
Auditors routinely report internal control matters to management in a management letter.
What are the normal three headings (or columns) in such letters?
The nature of the weakness, the possible consequence of the weakness, how to fix the weakness.
What are the general methods for testing controls?
Enquiries, including management views, as to whether controls are operating
Inspection eg of signatures on documents
Observation eg watching goods received being counted
Re-calculation and re-performance eg reperforming a bank reconciliation to ensure that it was properly carried out.
In an ICQ does the answer ‘Yes’ imply that a control is present or absent?
In an ICQ the answer ‘Yes’ implies that a control is present. For example “Is all overtime authorised by a manager?” Answer = ‘Yes’ means overtime payments are controlled.
For how long after the date of the statement of financial position should going concern be assessed?
12 months
Is cut-off correct if an item is not included in closing inventory, no goods received note has yet been issued, but a supplier invoice has been received and processed?
Cut-off is incorrect. If the item is not in inventory because it has not been received, it should not be in purchases and payables
In a computer system, what is meant by the term ‘standing data’?
Standing data (also known as reference data) does not change often.
For example, wage rates or customer addresses.
However, this data is often accessed and used, so an error in standing data can cause many other errors.
To whom should the auditor report (a) significant control deficiencies and (b) other weaknesses?
(a) Significant deficiencies should be communicated to those charged with governance. Defined as: when a control is designed, implemented, or operated… is unable to prevent or detect misstatements on a timely basis, or such a control is missing
(b) Other weaknesses should be communicated to management
What are the three methods that can be used to record and document accounting systems?
* Narrative notes,
* Flowcharts,
* Questionnaires (ICQs and ICEQs).
What sort of audit report should be issued if going concern doubts are not fully disclosed in the financial statements.
The audit report will be qualified because the financial statements contain a material misstatement by not disclosing the going concern problem.
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