CPA Intermediate Level
Auditing and Assurance flashcards
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What is the objective of an audit of financial statements under ISA 200?
To enable the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework, and to report and communicate as the ISAs require. The opinion adds credibility. It does not certify accuracy, and management stays responsible for preparing the statements.
What are the five fundamental principles of the Code of Ethics for Professional Accountants?
Integrity: straightforward and honest. Objectivity: no bias, conflict of interest or undue influence. Professional competence and due care. Confidentiality. Professional behaviour: comply with the law and avoid conduct that discredits the profession.
How do members remove an auditor before the end of the auditor's term under the Companies Act, 2015?
By ordinary resolution, but only with special notice: twenty-eight days' notice to the company, and a copy sent to the auditor at once. The auditor may have written representations circulated with the notice of the meeting or read out at it, and may attend and be heard.
What are the components of audit risk, and which one does the auditor control?
Audit risk = inherent risk x control risk x detection risk. Inherent and control risk together are the risk of material misstatement. Inherent and control risk exist independently of the audit. Detection risk depends on the auditor's own procedures, so it is the only lever: a higher risk of material misstatement means a lower detection risk, through more or better substantive work.
What are the five components of internal control?
1. The control environment. 2. The entity's risk assessment process. 3. The information system relevant to financial reporting. 4. Control activities, such as authorisation, segregation of duties and physical controls. 5. Monitoring of controls.
What do sufficiency and appropriateness of audit evidence each mean?
Sufficiency: the quantity of evidence, which rises as the assessed risk rises and falls as the quality of evidence improves. Appropriateness: the quality of evidence, made up of relevance to the assertion tested and reliability. Neither substitutes for the other: a lot of poor evidence is not enough.
What is the difference between sampling risk and non-sampling risk?
Sampling risk: the risk that a conclusion drawn from a sample differs from the conclusion if the whole population were tested. It can be managed to an acceptably low level, never eliminated. Non-sampling risk: the risk of a wrong conclusion for reasons unrelated to sampling, such as an inappropriate procedure or misread evidence. It exists whether or not sampling is used.
How does ISA 705 (Revised) decide between a qualified opinion, an adverse opinion and a disclaimer?
Material misstatement: qualified if material but not pervasive; adverse if material and pervasive. Unable to obtain sufficient appropriate evidence: qualified if material but not pervasive; disclaimer if material and pervasive.
What must the external auditor evaluate before using the work of internal audit under ISA 610?
1. How far the function's organisational status and policies support its objectivity. 2. The function's level of competence. Then the specific work used: was it adequately planned, supervised, reviewed and documented? Responsibility for the opinion always stays with the external auditor.
What is the difference between auditing around, with and through the computer?
Around: test inputs against outputs, treating the processing as a black box. Suits a simple, low-risk system. With: use audit software and analytics to perform procedures on client data. The common approach in practice. Through: test the client's processing logic directly, with test data or embedded facilities. Needed for complex, high-risk systems or a lost audit trail.
Why can an audit give only reasonable, and never absolute, assurance?
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What are the five elements of an assurance engagement?
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What level of assurance and form of conclusion does an audit, a review and an agreed-upon procedures engagement give?
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What are the five threats to independence, with an example of each?
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How should an accountant respond to a threat to a fundamental principle?
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What is professional clearance, and what does it guard against?
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What does the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 require on auditor rotation, and why?
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Who appoints a company's auditor under the Companies Act, 2015?
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What did Re Kingston Cotton Mill Co (No 2) and Caparo Industries plc v Dickman decide about auditors?
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What are the preconditions for an audit under ISA 210?
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What must an audit engagement letter contain under ISA 210?
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What is a significant risk, and what makes a risk significant?
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How do the overall audit strategy, the audit plan and the audit programme differ?
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What is materiality, and what is performance materiality?
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What is ISA 230's test of whether audit documentation is adequate?
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What goes on the permanent audit file, and what on the current file?
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How quickly must the final audit file be assembled, and how long must it be kept?
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Why can no system of internal control give more than reasonable assurance?
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How is the operating effectiveness of a control tested?
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What does ISA 265 require when the auditor finds deficiencies in internal control?
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What are the main functions of an audit committee?
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What are the three elements of the fraud triangle?
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What separates an error from a fraud under ISA 240?
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What is teeming and lading?
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Who is responsible for preventing and detecting fraud and error?
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How does forensic accounting differ from a statutory audit?
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What are the assertions about classes of transactions and events?
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What makes audit evidence more reliable?
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What is the role of written representations under ISA 580?
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At which three stages of the audit are analytical procedures used?
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What is the difference between an emphasis of matter paragraph and a key audit matter?
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What is the difference between an adjusting and a non-adjusting subsequent event?
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How does the auditor's conclusion on going concern affect the report?
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What types of audit does the Public Audit Act, 2015 provide for?
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How are the Auditor-General's reports published under section 39 of the Public Audit Act, 2015?
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What is the difference between general IT controls and application controls?
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What are live test data, dead test data, an integrated test facility and an embedded audit module?
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Why might the auditor need a service organisation control report when a client keeps its records with a cloud provider?
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What are the three uses of data analytics in an audit?
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How did the audit approach develop from the early audit to today's risk-based audit?
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Does an unqualified audit opinion mean the auditor prepared, or guarantees, the accounts?
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How do interim, continuous and final audit work differ, and when is each used?
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What does ISAE 3000 (Revised) cover, and what must its report make clear?
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What is the difference between an attestation engagement and a direct reporting engagement?
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What preconditions must be present before a practitioner accepts an assurance engagement?
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What must a firm consider under ISQM 1 before accepting or continuing a client relationship?
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Before the audit is finished, management asks to change it to a review. How should the auditor respond under ISA 210?
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What is the difference between a risk of material misstatement at the financial statement level and at the assertion level?
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Why is the risk-based audit approach now the standard method, and what are its drawbacks?
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How does the auditor prioritise the risks identified at the risk assessment stage?
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What benefits does adequate audit planning bring under ISA 300?
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Why does a new audit client usually cost more to plan than a continuing one?
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What should the auditor do on finding a misstatement, or a broken-down control, part way through the audit?
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How do the results of interim work affect the final audit?
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Who owns the audit working papers, and how far does an auditor's lien for unpaid fees go?
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What are the eight components of a firm's system of quality management under ISQM 1?
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How does a test of design differ from a test of operating effectiveness and from a walkthrough?
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How does a risk-based internal audit plan differ from a fixed, calendar-driven audit cycle?
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What is internal check, and how does it differ from internal control?
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Which two categories of laws and regulations does ISA 250 (Revised) distinguish, and what must the auditor do for each?
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What are the main types of forensic investigation, and which category of fraud is most common, and which most costly?
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How are the proceeds of a fraud traced and recovered?
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Which Kenyan statutes support the recovery of the proceeds of fraud and corruption?
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What does Derry v Peek establish, and why does it matter to a forensic investigation?
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How does the auditor revise the audit when fraud is identified or suspected?
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What did the High Court decide in Petition No. 388 of 2016 about the Auditor-General's independence?
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Under the Public Audit Act, 2015, what must happen after an Auditor-General's report reaches Parliament or a county assembly?
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What are the auditor's responsibilities for subsequent events in each of ISA 560's three periods?
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How can the audit trail be lost in a computerised system, and how does the auditor respond?
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Why do master files and standing data need controls of their own?
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What specific audit risks does a business trading substantially online raise?
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Besides the provider's own controls, what should the auditor consider when a client's records are held in the cloud?
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