Institute of Financial Accountants (IFA) Qualifications Audit, Assurance and Professional Ethics Syllabus

Audit, 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 Audit, Assurance and Professional Ethics in Institute of Financial Accountants (IFA) Qualifications, not a summary of it.

1. 1

   The Concept and Need for Assurance

   3 topics

   • Nature, objectives and scope of assurance engagements
     • Reasonable versus limited assurance
     • The five elements of an assurance engagement
   • The statutory audit and its regulatory framework
     • Audit exemption thresholds for small companies
     • Appointment, removal and resignation of auditors
   • The expectation gap and the value of audit
2. 2

   Planning and Risk Assessment

   4 topics

   • Understanding the entity and its environment
     • Business risk and inherent risk
   • The audit risk model
     • Inherent, control and detection risk
     • Materiality and performance materiality
   • Audit strategy and the audit plan
   • Analytical procedures in planning
3. 3

   Internal Control and Audit Evidence

   4 topics

   • Evaluating internal control systems
     • Components of internal control
     • Tests of controls and walkthroughs
   • Audit evidence and assertions
     • Sufficiency and appropriateness of evidence
     • Financial statement assertions
   • Substantive procedures over key balances
     • Receivables, inventory and payables testing
   • Audit sampling and documentation
4. 4

   Completion and Reporting

   4 topics

   • Subsequent events and going concern review
   • Written representations and the audit file review
   • The auditor's report
     • Unmodified and modified opinions
     • Emphasis of matter and key audit matters
   • Reporting to those charged with governance
5. 5

   Professional Ethics and Integrity

   4 topics

   • Fundamental ethical principles
     • Integrity, objectivity and professional competence
     • Confidentiality and professional behaviour
   • Threats and safeguards framework
     • Self-interest, self-review and advocacy threats
     • Familiarity and intimidation threats
   • Independence in assurance engagements
   • Resolving ethical conflicts and reporting obligations

Audit, Assurance and Professional Ethics flashcards for Institute of Financial Accountants (IFA) Qualifications

19 of 77 cards from the Audit, Assurance and Professional Ethics deck — real questions with worked answers.

1. What is an assurance engagement?

   An engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of intended users (other than the responsible party) about the outcome of the evaluation or measurement of a subject matter against criteria.

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

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

3. Distinguish a reasonable assurance engagement from a limited assurance engagement.

   Reasonable assurance reduces engagement risk to an acceptably low level and gives a positive (reasonable, not absolute) conclusion (e.g. an audit). Limited assurance reduces risk to a level acceptable but greater than for reasonable assurance, giving a negative-form conclusion (e.g. a review).

4. What is the objective of an external (statutory) audit?

   To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement (whether due to fraud or error), enabling the auditor to express an opinion on whether they give a true and fair view (present fairly) in accordance with the applicable financial reporting framework.

5. What is the difference between the positive and negative forms of conclusion in assurance?

   A positive form (reasonable assurance) states 'in our opinion the financial statements give a true and fair view'. A negative form (limited assurance) states 'nothing has come to our attention that causes us to believe the subject matter is materially misstated'.

6. In the UK, which Act governs the statutory audit and which body oversees audit regulation?

   The Companies Act 2006 governs the statutory audit requirement; the Financial Reporting Council (FRC) is the UK regulator overseeing auditing standards and audit firm monitoring.

7. Which companies in the UK may be exempt from a statutory audit?

   Small companies that meet at least two of three thresholds (turnover, balance sheet total and average employees below the small-company limits), subject to no shareholders holding 10% or more requiring an audit and the company not being ineligible (e.g. not a PIE or regulated entity).

8. What is the 'expectation gap' in auditing?

   The difference between what users of financial statements believe auditors do (or should do) and what auditors actually do and are responsible for under auditing standards.

9. Give three ways the expectation gap can be reduced.

   Expanded/explanatory auditor's reports (e.g. key audit matters), clearer engagement letters explaining responsibilities, and public education about the auditor's role and the inherent limitations of an audit.

10. Why can an audit never provide absolute assurance? Name the inherent limitations.

    Use of judgement, use of testing/sampling rather than 100% examination, inherent limitations of internal control, the nature of audit evidence being persuasive rather than conclusive, and the possibility of collusion or management override of controls.

11. State the audit risk model formula.

    $$\text{Audit Risk} = \text{Inherent Risk} \times \text{Control Risk} \times \text{Detection Risk}$$

12. Define inherent risk.

    The susceptibility of an assertion about a class of transactions, account balance or disclosure to a misstatement that could be material, before consideration of any related controls.

13. Define control risk.

    The risk that a material misstatement in an assertion will not be prevented, or detected and corrected on a timely basis, by the entity's internal control.

14. Define detection risk and explain how the auditor controls it.

    The risk that the auditor's procedures will not detect a misstatement that exists and could be material. The auditor controls it by altering the nature, timing and extent of audit procedures; it is the only component the auditor can directly influence.

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

    They are inversely related. The higher the assessed risk of material misstatement (inherent $\times$ control risk), the lower the detection risk must be set, requiring more/stronger audit procedures.

16. What does 'risk of material misstatement' (RoMM) comprise?

    It is the combination of inherent risk and control risk at the assertion level: $\text{RoMM} = \text{Inherent Risk} \times \text{Control Risk}$. It exists independently of the audit.

17. Define materiality in the context of an audit.

    Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. It has both quantitative and qualitative aspects.

18. What is performance materiality and why is it set below overall materiality?

    Performance materiality is an amount set below overall materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality, providing a margin for undetected errors.

19. Give common benchmarks and typical percentage ranges used to calculate overall materiality.

    Profit before tax (about 5%), revenue or total expenses (about 0.5%–1%), and total assets or gross assets (about 1%–2%).

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