CPA Advanced Level
Advanced Auditing and Assurance flashcards
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Complete Flashcard Reference
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What separates an assurance engagement from a non-assurance engagement?
An assurance engagement ends in a conclusion that enhances the intended users' confidence in a subject matter. A non-assurance engagement, such as agreed-upon procedures or a compilation, gives no such conclusion at all.
What does a key audit matter communicate, and what does it not?
It is a matter that, in the auditor's judgement, was of most significance in the audit of the current period, selected from the matters communicated to those charged with governance. It shows users where the auditor focused most attention and why. It does not say anything is wrong and is never a substitute for a modified opinion or a material uncertainty paragraph.
In Caparo Industries plc v Dickman, to whom did the House of Lords hold the statutory auditor's duty is owed?
To the company and its shareholders as a body, so that they can exercise informed control of the company. Not to an outsider, such as a prospective takeover bidder, who relies on the audited accounts for a purpose the audit was never intended to serve.
Why is a contingent fee on an audit engagement not allowed?
It ties the auditor's pay to the outcome of the engagement, or of a transaction the audited figures affect. That gives the auditor a personal financial stake in a particular conclusion, a direct self-interest threat incompatible with the objectivity an audit opinion needs.
Profit before tax is KES 40,000,000, materiality is set at 5% of it and performance materiality at 75% of materiality. What are the two figures, and why is the second lower?
Overall materiality = 40,000,000 x 5% = KES 2,000,000. Performance materiality = 2,000,000 x 75% = KES 1,500,000. It is set lower so that the aggregate of uncorrected and undetected misstatements is unlikely to exceed overall materiality.
How does the auditor's report respond to going concern conclusions?
Material uncertainty, adequately disclosed: unmodified opinion plus a material uncertainty related to going concern section. Material uncertainty, not adequately disclosed: qualified or adverse opinion. Going concern basis wholly inappropriate: adverse opinion, however good the disclosure.
How do IT general controls differ from application controls, and why does the difference matter?
IT general controls cover the IT environment as a whole: access, change management and operations. Application controls are specific to individual programs or transactions. Weak ITGCs undermine reliance on even well-designed application controls, because nothing assures the programs have stayed unchanged.
How does a forensic audit differ from a statutory audit?
Statutory audit: required by law every period, general reasonable assurance on the financial statements as a whole. Forensic audit: triggered by a specific suspicion, narrow and deep in scope, aimed at findings usable as legal evidence.
What are the eight components of a firm's system of quality management under ISQM 1?
1. The firm's risk assessment process. 2. Governance and leadership. 3. Relevant ethical requirements. 4. Acceptance and continuance. 5. Engagement performance. 6. Resources. 7. Information and communication. 8. Monitoring and remediation.
Which Kenyan regulators have an interest in audited financial statements, and which audits does each relate to?
Central Bank of Kenya: banks and other financial institutions. Insurance Regulatory Authority: insurers. Capital Markets Authority: listed entities. Retirement Benefits Authority: pension schemes.
What does the practitioner do in an agreed-upon procedures engagement and in a compilation engagement?
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What conclusion goes with reasonable assurance, and what with limited assurance?
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What is the policy behind exempting certain small companies in Kenya from statutory audit?
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What is the auditor's objective in an audit of financial statements?
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What is the three-fold test for a duty of care set out in Caparo?
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How does an auditor's liability in contract differ from liability in tort?
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What are the fundamental principles of the IESBA Code?
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What are the five categories of threat to the fundamental principles?
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What threat arises when an audit firm provides significant non-assurance services to its audit client, and what safeguards apply?
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How is professional scepticism linked to an auditor's professional liability?
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What does a firm assess before accepting or retaining an audit client?
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How do listed and non-public entities differ in appointing auditors?
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What is a significant risk, and how is a high-risk area audited?
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Overall materiality is KES 2,000,000. What is the threshold for individually trivial misstatements if the firm sets it at 5% of materiality, and what is it for?
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What do data analytics tools add to an audit?
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What rules govern keeping and archiving audit working papers?
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Why are related party transactions hard to audit, and who is responsible for identifying related parties?
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Name procedures that test the completeness of management's related party list.
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How are going concern responsibilities split between management and the auditor?
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Revenue KES 60,000,000 and cost of sales KES 42,000,000 this year; revenue KES 50,000,000 and cost of sales KES 32,500,000 last year. What does the gross margin show?
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Receivables are KES 12,000,000 on credit sales of KES 60,000,000. What is the collection period, and what does a rise from 50 days suggest?
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What are a group audit, a component auditor and group reporting instructions?
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What is the distinguishing audit focus for a bank, a general insurer and a SACCO?
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Whose work might an auditor use, and what must be evaluated first?
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What role does the audit committee play in the audit process, and why does its composition matter?
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What assurance can a practitioner give on prospective financial information?
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A fleet of 30 vehicles earns KES 300,000,000; the forecast is KES 480,000,000 from 40 vehicles. How should the 60% growth be tested?
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How does a highly automated environment change the audit approach?
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Against what are public sector entities often assessed in a performance audit?
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What is predication, and why is it assessed before accepting a forensic investigation?
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What duties of an expert witness does The Ikarian Reefer set out?
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Why does Hedley Byrne v Heller matter to a forensic report prepared for litigation?
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May a forensic accountant give an opinion on a suspect's guilt or innocence?
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What is an engagement quality review under ISQM 2, and how does it differ from an ICPAK peer review?
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What is the auditor's responsibility for other information such as the Chairman's statement?
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What standard of work did Re Kingston Cotton Mill Co (No 2) set for auditors?
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What must an auditor do on meeting suspected money laundering during an engagement, and why is that not a breach of confidence?
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What do the IAASB, the IESBA and IFAC each do?
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What is the audit expectation gap?
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The auditor cannot attend an inventory count in person. What alternatives are there?
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How to revise with these cards
- Answer out loud or on paper before you turn the card: recalling is what fixes it.
- Go through the deck in short sessions of ten to fifteen minutes, every day.
- Shuffle once you know the order, so you are not answering from memory of the sequence.
- When a card catches you out, read the chapter it links to, then try the topic in a past paper.