ICAP CAF CAF-8: Audit and Assurance Essentials Syllabus

CAF-8: Audit and Assurance Essentials syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for CAF-8: Audit and Assurance Essentials in ICAP CAF, not a summary of it.

1. 1

   Audit Framework and Assurance Concepts

   3 topics

   • IAASB and external audit
   • Assurance and non-assurance engagements
   • Responsibilities of management, TCWG and auditors
2. 2

   Engagement, Quality Control and Ethics

   4 topics

   • Agreeing terms of audit engagements
   • Quality control procedures
   • Appointment, removal and qualification of auditors
   • Code of Ethics
3. 3

   Planning and Audit Documentation

   4 topics

   • Audit strategy and detailed audit plan
   • Preliminary engagement activities
   • Interim and final audit
   • Audit documentation and working papers
4. 4

   Risk Assessment and Materiality

   4 topics

   • Audit risk and its components
   • Understanding the entity and its environment
   • Materiality
   • Fraud and error
5. 5

   Audit Evidence

   6 topics

   • Sufficient and appropriate audit evidence
   • Financial statement assertions
   • External confirmation
   • Analytical procedures
   • Audit sampling
   • Substantive procedures
6. 6

   Internal Controls and CAATs

   4 topics

   • Internal control components and limitations
   • Documentation and walkthrough tests
   • Test of controls over transaction cycles
   • Computer assisted audit techniques and IT controls
7. 7

   Finalization and Reporting

   6 topics

   • Written representations
   • Going concern
   • Evaluation of misstatements
   • External audit report
   • Review engagements
   • Sustainability reporting and disclosures in assurance

CAF-8: Audit and Assurance Essentials flashcards for ICAP CAF

22 of 60 cards from the CAF-8: Audit and Assurance Essentials deck — real questions with worked answers.

1. What does IAASB stand for and what is its primary role?

   International Auditing and Assurance Standards Board. It is an independent standard-setting body that develops International Standards on Auditing (ISAs) and related standards on assurance, quality control and ethics, to enhance the quality and consistency of audit and assurance practice worldwide.

2. Define an external audit.

   An independent examination of, and expression of an opinion on, the financial statements of an entity by an appointed auditor, in order to report whether the financial statements give a true and fair view (or are fairly presented) in accordance with the applicable financial reporting framework.

3. What are the three parties to an assurance engagement?

   (1) The practitioner (the assurance provider), (2) the responsible party (who prepares the subject matter), and (3) the intended users (for whom the report is prepared).

4. What are the five elements of an assurance engagement?

   (1) A three-party relationship, (2) appropriate subject matter, (3) suitable criteria, (4) sufficient appropriate evidence, and (5) a written assurance report.

5. Distinguish between a reasonable assurance and a limited assurance engagement.

   Reasonable assurance reduces engagement risk to an acceptably low level and gives a positive (high but not absolute) conclusion (e.g. statutory audit). Limited assurance reduces risk to a level acceptable in the circumstances but higher than reasonable, and gives a negative conclusion (e.g. a review).

6. Give the form of conclusion in a positive vs negative assurance report.

   Positive (reasonable assurance): 'In our opinion the financial statements give a true and fair view...'. Negative (limited assurance): 'Nothing has come to our attention that causes us to believe the statements are not prepared, in all material respects, in accordance with...'.

7. What is a non-assurance engagement? Give two examples.

   An engagement that does not provide a conclusion designed to enhance users' confidence about subject matter. Examples: agreed-upon procedures engagements and compilation engagements (also tax and management consulting services).

8. Why can an audit never provide absolute assurance?

   Because of inherent limitations: use of judgement and sampling (testing, not 100% checking), inherent limitations of internal control, the possibility of collusion/management override and fraud, and the fact that most audit evidence is persuasive rather than conclusive.

9. State the responsibilities of management in relation to financial statements.

   To prepare financial statements in accordance with the applicable framework, to design, implement and maintain internal control to enable preparation free from material misstatement, to prevent and detect fraud and error, and to provide the auditor with access to information and explanations.

10. What does TCWG stand for and what is their responsibility?

    Those Charged With Governance. They are persons with responsibility for overseeing the strategic direction of the entity and the entity's accountability, including overseeing the financial reporting process (e.g. the board of directors or audit committee).

11. State the auditor's principal responsibility regarding the financial statements.

    To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to express an opinion on whether they are prepared, in all material respects, in accordance with the applicable financial reporting framework.

12. What is the purpose of an engagement letter, and which ISA governs it?

    It records and confirms the auditor's acceptance of the appointment, the objective and scope of the audit, the respective responsibilities, and the form of any reports. It is governed by ISA 210, 'Agreeing the Terms of Audit Engagements'.

13. List the principal contents of an audit engagement letter.

    The objective and scope of the audit; the responsibilities of the auditor; the responsibilities of management; identification of the applicable financial reporting framework; and reference to the expected form and content of reports to be issued.

14. Per ISA 210, what two preconditions for an audit must the auditor establish before accepting?

    (1) That the financial reporting framework to be applied is acceptable, and (2) that management acknowledges and understands its responsibilities (for the statements, internal control, and providing access/information) — the 'premise' on which an audit is conducted.

15. On a recurring audit, when should the auditor send a new engagement letter?

    Only when circumstances require it — e.g. a change in management or ownership, a change in legal/reporting requirements, a revised or special engagement scope, or indications management misunderstands the audit's objective and scope. Otherwise it may simply remind the client of existing terms.

16. What is the objective of quality control at the engagement level (ISA 220)?

    To ensure the audit complies with professional standards and legal/regulatory requirements, and that the auditor's report issued is appropriate in the circumstances — through leadership, ethics, acceptance/continuance, engagement performance, monitoring and direction/supervision/review.

17. What is an Engagement Quality Control Review (EQCR) and when is it required?

    An objective evaluation of significant judgements and conclusions, performed by a reviewer not on the team, completed before the report is dated. It is required for listed entity audits and other engagements for which the firm determines a review is needed.

18. Name the elements of a firm's system of quality control under ISQC 1.

    (1) Leadership responsibilities for quality, (2) relevant ethical requirements, (3) acceptance and continuance of client relationships, (4) human resources, (5) engagement performance, and (6) monitoring.

19. How is the auditor normally appointed and removed in a company?

    Appointed by the members (shareholders) by ordinary resolution at the annual general meeting; the first auditor may be appointed by the directors. Removed by the members by ordinary resolution before expiry of term, with special notice and the right of the auditor to make representations.

20. State key qualifications/eligibility requirements to act as a company auditor.

    The auditor must be a member of a recognised professional accountancy body and hold a practising certificate, must be independent of the entity (not an officer or employee, nor a partner/employee of one), and not be otherwise disqualified by law.

21. What rights does a removed or resigning auditor have?

    The right to receive notice of and attend the meeting at which the matter is dealt with, to make written/oral representations to members, and (on resignation) to issue a statement of circumstances connected with the resignation.

22. Name the five fundamental principles of the IFAC/ICAP Code of Ethics.

    Integrity, Objectivity, Professional competence and due care, Confidentiality, and Professional behaviour.

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