CA (Chartered Accountancy) Final: Advanced Auditing, Assurance and Professional Ethics Syllabus

Final: Advanced Auditing, Assurance and Professional Ethics syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Final: Advanced Auditing, Assurance and Professional Ethics in CA (Chartered Accountancy), not a summary of it.

1. 1

   Audit Planning and Standards on Auditing

   4 topics

   • Quality Control and Engagement Standards
     • SQC 1 and overview of SAs
   • Risk Assessment and Response
   • Audit Evidence and Using Work of Others
     • Experts, internal auditors and component auditors
   • Audit Completion and Reporting under SAs
     • Key audit matters and modified opinions
2. 2

   Specialised and Sectoral Audits

   4 topics

   • Audit of Banks and Insurance Companies
   • Audit of Non-Banking Financial Companies
   • Audit of Public Sector Undertakings
   • Audit of Consolidated Financial Statements
3. 3

   Specialised Areas of Assurance

   4 topics

   • Internal Audit, Management and Operational Audit
   • Due Diligence, Investigation and Forensic Accounting
   • Audit under Digital and Automated Environment
     • Use of data analytics and CAATs
   • Audit of Items related to Tax and Special Reports
4. 4

   Professional Ethics and Regulation

   4 topics

   • Code of Ethics and Professional Conduct
     • Fundamental principles and conceptual framework
   • Schedules to the Chartered Accountants Act, 1949
     • Professional and other misconduct
   • Independence, Confidentiality and Threats
   • Disciplinary Mechanism

Final: Advanced Auditing, Assurance and Professional Ethics flashcards for CA (Chartered Accountancy)

19 of 61 cards from the Final: Advanced Auditing, Assurance and Professional Ethics deck — real questions with worked answers.

1. What is the objective of an audit of financial statements as per SA 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, thereby enhancing the degree of confidence of intended users. It also requires the auditor to obtain reasonable assurance about whether the statements as a whole are free from material misstatement, whether due to fraud or error.

2. Define 'reasonable assurance' as used in the SAs.

   A high, but not absolute, level of assurance. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. It is not absolute because of inherent limitations of an audit (use of judgement, testing, inherent limitations of internal control, and persuasive rather than conclusive evidence).

3. What does SQC 1 deal with, and to whom does it apply?

   SQC 1 (Standard on Quality Control 1) deals with a firm's responsibilities for its system of quality control for audits and reviews of historical financial information, and other assurance and related services engagements. It applies to all firms of Chartered Accountants in respect of such engagements.

4. List the six elements of a firm's system of quality control under SQC 1.

   1) Leadership responsibilities for quality within the firm (tone at the top); 2) Ethical requirements; 3) Acceptance and continuance of client relationships and specific engagements; 4) Human resources; 5) Engagement performance; 6) Monitoring.

5. Under SQC 1, for how long must audit engagement documentation be retained?

   The retention period for audit engagements is ordinarily no shorter than seven years from the date of the auditor's report, or, if later, the date of the group auditor's report.

6. Define 'audit risk' and state its components (the audit risk model).

   Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is a function of the risks of material misstatement and detection risk: $$\text{Audit Risk} = \text{Inherent Risk} \times \text{Control Risk} \times \text{Detection Risk}$$ where Inherent Risk $\times$ Control Risk = Risk of Material Misstatement.

7. Distinguish between Risk of Material Misstatement (RMM) and Detection Risk.

   RMM is the risk that the financial statements are materially misstated prior to audit; it exists independently of the audit and comprises inherent risk and control risk (entity's risks). Detection risk is the risk that the auditor's procedures will not detect a material misstatement; it is a function of the effectiveness of the audit procedures and is controllable by the auditor.

8. What is the relationship between detection risk and the assessed risk of material misstatement?

   They are inversely related. The higher the assessed RMM, the lower the detection risk that can be accepted, requiring more persuasive audit evidence (more extensive/effective procedures). The lower the RMM, the higher the detection risk that can be accepted.

9. Under SA 315, what does 'risk assessment procedures' include?

   Procedures to obtain an understanding of the entity and its environment, including its internal control, to identify and assess risks of material misstatement. They include: (a) inquiries of management and others; (b) analytical procedures; and (c) observation and inspection. They do not by themselves provide sufficient appropriate evidence on which to base the opinion.

10. What are the five components of internal control under SA 315?

    1) The control environment; 2) The entity's risk assessment process; 3) The information system relevant to financial reporting and communication; 4) Control activities relevant to the audit; 5) Monitoring of controls.

11. Per SA 320, define 'performance materiality' and state why it is set.

    Performance materiality is the amount(s) set by the auditor at less than materiality for the financial statements as a whole, to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the statements as a whole. It provides a margin/buffer for the risk of aggregation of individually immaterial misstatements.

12. Under SA 330, what is the auditor's response to assessed risks at the assertion level?

    The auditor designs and performs further audit procedures whose nature, timing and extent are responsive to the assessed RMM at the assertion level. These comprise: (a) tests of controls (when relying on operating effectiveness of controls), and (b) substantive procedures (substantive analytical procedures and tests of details), which are mandatory for each material class of transactions, account balance and disclosure.

13. Define 'sufficient appropriate audit evidence' per SA 500.

    Sufficiency is the measure of the quantity of audit evidence (affected by assessed RMM and quality of evidence). Appropriateness is the measure of the quality of evidence—its relevance and reliability in supporting the conclusions on which the opinion is based. The higher the risk and lower the quality, the more evidence is needed.

14. State the general hierarchy of reliability of audit evidence per SA 500.

    Reliability is higher when: evidence is from independent external sources; internally generated evidence is from effective controls; obtained directly by the auditor (e.g., observation) rather than indirectly; in documentary form (paper/electronic) rather than oral; and provided by original documents rather than photocopies/facsimiles.

15. What is an 'external confirmation' under SA 505, and name its two types?

    An external confirmation is audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper or electronic form. The two types are: (a) positive confirmation request (reply required whether they agree or disagree), and (b) negative confirmation request (reply only if the party disagrees).

16. Under SA 510 (Initial Audit Engagements – Opening Balances), what must the auditor obtain evidence about?

    Whether opening balances contain misstatements that materially affect the current period's statements; whether appropriate accounting policies reflected in opening balances have been consistently applied (or changes properly accounted for and disclosed); and whether prior period closing balances have been correctly brought forward.

17. When can an auditor use the work of an auditor's expert, and what does SA 620 require regarding objectivity?

    When expertise in a field other than accounting/auditing is necessary to obtain sufficient appropriate evidence (e.g., valuations, actuarial). SA 620 requires the auditor to evaluate the expert's competence, capabilities and objectivity; for an external expert, objectivity inquiries include interests and relationships that may create threats. The auditor remains solely responsible for the audit opinion and does not divide that responsibility.

18. Under SA 610, in what areas can the external auditor NOT use the work of internal auditors involving judgement?

    The external auditor cannot use internal audit work for areas involving significant judgements (e.g., assessing significant risks, evaluating significant accounting estimates) where greater judgement is involved, higher RMM exists, or there is lower objectivity/competence of internal audit. The external auditor must not use internal auditors to provide direct assistance for such judgemental/significant-risk areas.

19. Define a 'component auditor' and 'significant component' under SA 600/SA 706 group audit context.

    A component auditor is an auditor who, at the request of the group engagement team, performs work on financial information related to a component for the group audit. A significant component is one identified by the group team that is of individual financial significance to the group, or that is likely to include significant risks of material misstatement of the group financial statements due to its specific nature or circumstances.

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