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Chapter 1 AA
ACCA AA Sep23 Exams
| Question | Answer |
|---|---|
| What is the main objective of an audit? | To express an opinion on whether the FS are prepared within an acceptable FR framework |
| What is the objective of an auditor? | To get reasonable assurance that the statements are free from material misstatement so they can express an opinion on the audit |
| What do the auditors give an opinion on? | If the FS are 'presented fairly' or give a 'true and fair view' |
| What is the agency theory and why? | Directors run the co on behalf of the SH who are sceptical of the FS so they appoint agent (auditor) on their behalf to perform statutory audit which adds creditability |
| Who do management have accountability to? | The Shareholders |
| What is an Assurance Engagement? | One which a practitioner aims to get sufficient evidence to express a conclusion which will increase the confidence of the intended users other than the responsible party about the outcome of measurement |
| Who are the intended users in an assurance engagement? | The Shareholders |
| What are some examples of an assurance engagement? | Statutory audit, review of effectiveness of internal controls, review of compliance and review of cash flow forecasts which will be used for bank for funding |
| what is the acronym for the 5 elements of assurance engagement? | CREST |
| What does CREST stand for? (5 elements of audit engagement)? | Criteria Report Evidence Subject Matter Three Party Relationship |
| What does 'criteria' stand for in audit engagement? | That the subject matter is evaluated/measured against the criteria to get an opinion |
| What does 'report' stand for in audit engagement? | A written report on opinion to the intended user with the practitioners opinion in the form of reasonable or limited assurance |
| What does 'evidence' stand for in audit engagement? | Evidence needs to be gathered to support the level of assurance which has been given |
| What does 'subject matter' stand for in audit engagement? | That the data needs to be evaluated (e.g. financial performance, behaviour) |
| What does 'three party relationship' stand for in audit engagement? | Between the intended user, practitioner and responsible party |
| What is the first step in conducting an assurance engagement? | Agreeing the scope of work which needs to be performed with the client |
| What is the second step in conducting an assurance engagement? | Formalising the terms of the engagement in a contract (engagement letter) |
| What is the third step in conducting an assurance engagement? | Planning work based on the risk and level of assurance required |
| What is the fourth step in conducting an assurance engagement? | Obtaining sufficient appropriate evidence which the conclusion will be based on |
| What is the fifth step in conducting an assurance engagement? | Performing an overall review and forming an opinion |
| What is the sixth step in conducting an assurance engagement? | Issuing an assurance report to the client as per the pre-agreed format |
| What are some of the benefits of an assurance report? | - Enhances creditability as independent - Reduces management bias - Any non-standard opinion draws attention to risk - Relevance of information is improved due to expertise and knowledge of assurance |
| What is reasonable assurance? | The highest level given, it is not absolute. It is always expressed as a positive matter (confidence) |
| How is reasonable assurance gathered? | By understanding the entity, assessing and responding to the risk, and drawing conclusions |
| Example of a positive matter (reasonable assurance) | 'In our opinion, internal control is effective, in all material aspects, based on XYZ criteria' |
| When would reasonable assurance be given? | In a statutory audit |
| What is limited assurance? | Not as high, it is a moderate level. It is expressed as a negative matter (lacks confidence) |
| When is limited assurance given? | Anything other than a statutory audit |
| What is an example statement of limited assurance? | 'Based on out work described in the report, nothing has come to our attention that causes us to believe that internal control is not effective, in all material respects, based on XYZ criteria' |
| Why is assurance given by auditors limited? | Because they use judgement when deciding what procedures to use and conclusions to draw |
| What is assurance? | The process of where someone is trying to provide a level of comfort to someone else about a subject matter |
| What is accountability? | The quality which is required/expected to justify actions and decisions which suggest willingness to accept responsibility for ones actions |
| What is stewardship? | The duties and obligations of a person who manages another persons property |
| Who are agents? | The people employed or used to provide a particular service |
Created by:
leisha0904
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