FIA FAU
FIA FAU Foundations in Audit Flashcards
Explain the agency relationship that creates the need for an audit.
What is the nature and purpose of an external audit?
List things auditors do NOT do.
Give the main advantages of having an audit.
Give the main disadvantages of an audit.
What do proper accounting records typically consist of?
What are the components of a set of financial statements, and what does the audit opinion cover?
Explain what 'true' and 'fair' mean in the audit opinion.
What is reasonable assurance, and why is it not a guarantee?
What is the expectations gap?
Identify the main elements of the independent auditor's report.
What does the Opinion paragraph state, and what does the Basis for Opinion confirm?
State the statutory rights of an auditor.
What are the auditor's principal duties?
Who can remove an auditor, and what rights does the auditor have when leaving office?
Who is bound by the ACCA Code of Ethics and Conduct, and what happens on breach?
What is the conceptual framework approach to ethics?
List the five fundamental principles of the ACCA Code.
Define integrity and objectivity.
Define professional competence and due care and professional behaviour.
When may an auditor disclose confidential client information?
Why is independence so important even though it is not one of the five principles?
Name the five categories of threat to compliance with the fundamental principles.
How must an auditor address a threat once identified?
Give examples of self-interest threats and how they are dealt with.
Give examples of self-review threats and the safeguards.
Give an example of an advocacy threat and how to address it.
Give examples of familiarity threats and the safeguards.
Give examples of intimidation threats and how they are addressed.
What is the reasonable and informed third party test?
Why does the auditor's responsibility for confidentiality matter in practice?
Which bodies regulate auditors?
What do IFAC's two key boards, IAASB and IESBA, do?
Explain the purpose and scope of ISAs.
Do ISAs override national law?
What factors should an auditor consider before accepting a new audit engagement?
What steps should a firm take before agreeing to become auditor of a new client?
Explain the professional clearance process with the outgoing auditor.
What is the purpose and content of an engagement letter?
What must a claimant prove for an auditor to be liable in negligence?
What did the Caparo case establish about the auditor's duty of care?
What did the Bannerman case add about liability to third parties?
How can auditors limit their liability and reduce negligence risk?
Why can an audit give only reasonable, not absolute, assurance? Give the inherent limitations.
Describe the three stages of an audit.
Why and how does the auditor obtain an understanding of the entity and its environment?
Give factors that increase the risk at a client and warrant extra audit attention.
Why is planning necessary? Give the benefits.
Distinguish the overall audit strategy from the audit plan.
What are analytical procedures, and when must they be used?
Define materiality and the ways information can be material.
State the common materiality benchmarks.
What is performance materiality and why is it set?
State the audit risk model.
Define inherent risk and control risk, and what together they form.
Define detection risk and how the auditor reduces it.
In the risk-based approach, which risk can the auditor control, and how does it respond to high risk?
Define professional scepticism.
Define professional judgement and when it is applied.
Is it the auditor's responsibility to detect fraud?
What are the two general audit approaches in responding to assessed risk?
What is the purpose of tests of controls, and what kind of evidence do they give?
Distinguish tests of controls from substantive procedures.
What are the two types of substantive procedure?
If, during the audit, controls are found not to be operating effectively, what does the auditor do?
What three things does a management letter (report on control deficiencies) explain?
Why can substantive procedures be reduced but never eliminated, even with good controls?
Why can a combined approach be efficient, and roughly how many control instances are tested?
When might a fully substantive approach (even 100% testing) be chosen despite good controls?
What are assertions, and why are they important?
List the assertions about classes of transactions and events.
List the assertions about account balances (period end).
Which assertions are common to both transactions and balances, and which are unique to each?
Name the procedures to obtain audit evidence (the 'AEIOU').
Distinguish inspection, observation, external confirmation, recalculation, reperformance and enquiry.
Explain sufficient and appropriate audit evidence.
What factors affect the quantity of audit evidence required?
State the reliability hierarchy of audit evidence.
Define audit sampling and why it is used.
Distinguish statistical from non-statistical sampling.
Describe the sample selection methods.
Which selection methods are suitable for statistical sampling, and which are not?
What is stratification, and why is it used?
Distinguish sampling risk from non-sampling risk.
How is sampling risk reduced, and how is non-sampling risk reduced?
What factors affect the sample size for tests of controls and for tests of detail?
What is the internal audit function, and what is its main role?
To whom should internal audit report, and why does this matter?
Give examples of the functions of an internal audit department.
What three criteria must be met before the external auditor can use the work of internal audit?
Distinguish a management's expert from an auditor's expert.
What must the auditor evaluate before relying on an expert's work?
What are automated tools and techniques (ATTs / CAATs), and what are the two main types?
What is audit software, and what can it do?
What is test data, and what does it test?
Contrast audit software and test data in one line each.
What is data analytics in an audit, and give example uses.
Give the advantages and disadvantages of ATTs to the auditor.
Distinguish a control objective, a control activity and a test of control.
Describe the three methods of documenting an accounting system, and when each suits.
Distinguish an ICQ from an ICEQ.
Compare the skill and flexibility of ICQs and ICEQs.
What is a walk-through test, and what is it for?
Give the reasons for maintaining audit documentation.
Distinguish the permanent audit file from the current audit file.
What should each audit working paper show?
Describe the review hierarchy over audit working papers.
Distinguish an engagement quality review (a "hot review") from a cold review.
At which stage are the accounting system and controls usually documented and tested?
What is the function and objectives of a system of internal control?
Name the five components of a system of internal control.
What is the control environment?
Why does the risk assessment process matter, and why must controls evolve?
How does the information system contribute to internal control?
List the main types of control activity.
What is segregation of duties and why is it effective?
Distinguish general IT controls from application (information processing) controls.
What is monitoring of controls?
Why is internal control important to the auditor?
How and to whom must the auditor communicate control deficiencies?
What is the format of a management letter (report to management on deficiencies)?
What should every accounting system aim to ensure, and what is an audit trail?
Outline the key controls in the sales and trade receivables system.
Outline the key controls in the purchases and trade payables system.
Outline the key controls in the wages and salaries (payroll) system.
How do controls over tangible non-current assets differ from other purchases?
Give typical controls over inventory and over bank and cash.
By what four methods can the auditor test controls?
Give an example test of control for sales, purchases, payroll and non-current assets.
Give four control objectives for a purchases and payables system.
When are substantive procedures carried out, and what is the link to audit objectives?
Why is the audit of inventory often an area of high inherent risk?
What is the auditor's role at an inventory count, and what does the auditor do?
How does an auditor's test count support the completeness and existence assertions?
How is inventory valuation (lower of cost and NRV) audited?
State the correct cut-off treatment for goods received/despatched around the year end.
What substantive procedures verify cash and bank?
How is a receivables circularisation (external confirmation) performed, and which assertions does it test?
Distinguish a positive from a negative confirmation request.
How is the valuation of receivables audited?
What is the key assertion for trade payables, and how is it audited?
What substantive procedures verify tangible non-current assets for each assertion?
How is a contingent liability accounted for and audited?
What is the auditor's duty regarding subsequent events up to the date of the report?
Distinguish an adjusting from a non-adjusting event, with examples.
What procedures does the auditor perform for subsequent events?
Define the going concern assumption and its significance.
Give indicators of going concern problems.
What procedures does the auditor perform in a going concern review?
What is the purpose of written representations?
When are written representations necessary, and can they replace other evidence?
Distinguish the auditor's report from the audit opinion.
What is an Emphasis of Matter paragraph, and does it modify the opinion?
What is a Material Uncertainty Related to Going Concern section?
What are the two circumstances that lead to a modified opinion?
What is the difference between a matter that is material but not pervasive and one that is pervasive?
When is a qualified 'except for' opinion given?
When is an adverse opinion given, and when a disclaimer?
Summarise the four opinion outcomes in the modification matrix.
How does the report differ when going concern doubt is disclosed versus not disclosed?
Card 1 of 160. Question side.