CA Final PAPER 3: ADVANCED AUDITING, ASSURANCE AND PROFESSIONAL ETHICS Flashcards

24 sample cards from the PAPER 3: ADVANCED AUDITING, ASSURANCE AND PROFESSIONAL ETHICS deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. State the audit risk model formula.

   Audit Risk (AR) = Inherent Risk (IR) x Control Risk (CR) x Detection Risk (DR). The first two together form the Risk of Material Misstatement (RMM = IR x CR), which the auditor assesses; detection risk is what the auditor controls through nature, timing and extent of procedures.

2. Define inherent risk, control risk and detection risk.

   Inherent risk: susceptibility of an assertion to a misstatement that could be material, before considering controls. Control risk: risk that a material misstatement will not be prevented/detected and corrected on a timely basis by internal controls. Detection risk: risk that the auditor's procedures will not detect an existing material misstatement.

3. What is the objective of SA 265 (Communicating Deficiencies in Internal Control)?

   To communicate appropriately to TCWG and management deficiencies in internal control that the auditor has identified during the audit and that, in the auditor's professional judgment, are of sufficient importance to merit their respective attentions.

4. Under SA 265, distinguish a 'deficiency in internal control' from a 'significant deficiency'.

   A deficiency exists when a control is unable to prevent/detect-and-correct misstatements on a timely basis, or a needed control is missing. A significant deficiency is a deficiency or combination of deficiencies that, in the auditor's professional judgment, is of sufficient importance to merit the attention of TCWG.

5. Under SA 330, what are the two types of further audit procedures the auditor designs in response to assessed risks?

   1) Tests of controls (to evaluate operating effectiveness of controls in preventing/detecting material misstatements), and 2) Substantive procedures (tests of details and substantive analytical procedures to detect material misstatements at the assertion level).

6. Under SA 330, what are the two categories of overall responses to assessed risks at the financial statement level?

   Overall responses include: emphasizing professional skepticism to staff; assigning more experienced staff or those with special skills; providing more supervision; incorporating unpredictability in procedures; and making general changes to the nature, timing or extent of audit procedures.

7. Under SA 700, what are the elements/headings of an unmodified independent auditor's report?

   Title; Addressee; Opinion; Basis for Opinion; Going Concern (if applicable); Key Audit Matters (for listed); Responsibilities of Management/TCWG for the FS; Auditor's Responsibilities for the Audit; Other Reporting Responsibilities; Signature; Place; Date; and UDIN/membership details.

8. What are 'Key Audit Matters' (KAM) under SA 701?

   KAM are those matters that, in the auditor's professional judgment, were of most significance in the audit of the current period's financial statements. They are selected from matters communicated with TCWG.

9. For which entities is communication of Key Audit Matters mandatory under SA 701?

   Communicating KAM is required for audits of complete sets of general purpose financial statements of listed entities, and when the auditor otherwise decides to or is required by law/regulation to communicate KAM.

10. Under SA 705, what are the three types of modified opinions and the circumstances driving each?

    1) Qualified opinion ('except for') - misstatements are material but not pervasive, OR inability to obtain evidence where possible effects are material but not pervasive; 2) Adverse opinion - misstatements are both material and pervasive; 3) Disclaimer of opinion - inability to obtain sufficient evidence where possible effects are both material and pervasive.

11. Under SA 705, what is the matrix linking the nature of the matter to the auditor's judgment about pervasiveness?

    Material but NOT pervasive: Misstatement -> Qualified; Inability to obtain evidence -> Qualified. Material AND pervasive: Misstatement -> Adverse; Inability to obtain evidence -> Disclaimer.

12. Distinguish an Emphasis of Matter (EOM) paragraph from an Other Matter (OM) paragraph under SA 706.

    An EOM paragraph refers to a matter appropriately presented/disclosed IN the financial statements that is of such importance it is fundamental to users' understanding. An OM paragraph refers to a matter NOT presented/disclosed in the financial statements that is relevant to users' understanding of the audit, auditor's responsibilities, or the report.

13. Under SA 710, distinguish 'corresponding figures' from 'comparative financial statements'.

    Corresponding figures: prior period amounts/disclosures are included as an integral part of the current period FS, read only in relation to current figures; the audit opinion refers only to the current period. Comparative financial statements: prior period amounts/disclosures are for comparison but the opinion refers to each period for which financial statements are presented.

14. Under SA 720, what is 'other information' and the auditor's responsibility for it?

    Other information is financial or non-financial information (other than the audited FS and auditor's report) included in an entity's annual report. The auditor reads it to identify material inconsistencies with the FS or the auditor's knowledge; the auditor does not audit or express an opinion on it but must report if a material misstatement of the other information exists.

15. What does SA 600 (Using the Work of Another Auditor) say about the principal auditor's responsibility?

    When the principal auditor uses the work of another (component) auditor and bases their opinion on the FS as a whole, the principal auditor is responsible for forming and expressing the opinion. The principal auditor is NOT responsible for the work of the other auditor except where there is reason to believe such work cannot be relied upon, provided due care was exercised.

16. What is the difference between SA 800, SA 805 and SA 810 (Special Considerations)?

    SA 800: audits of complete financial statements prepared per a special purpose framework. SA 805: audits of single financial statements or specific elements/accounts/items of a financial statement. SA 810: engagements to report on summary financial statements derived from audited financial statements.

17. Distinguish SRE 2400 from SRE 2410 (Review engagements).

    SRE 2400: engagements to review historical financial statements performed by a practitioner who is NOT the auditor of the entity. SRE 2410: review of interim financial information performed by the independent auditor of the entity. Both provide limited (negative) assurance, primarily through inquiry and analytical procedures.

18. What level of assurance is provided under SRS 4400 (Agreed-Upon Procedures) and SRS 4410 (Compilation Engagements)?

    Both provide NO assurance. SRS 4400 (AUP): the practitioner reports factual findings of agreed-upon procedures, with users drawing their own conclusions. SRS 4410 (Compilation): the practitioner uses accounting expertise to assist management in preparing/presenting financial information, expressing no opinion or conclusion.

19. What type of assurance does SAE 3400 (Examination of Prospective Financial Information) provide regarding assumptions and presentation?

    The auditor provides negative (limited) assurance on whether the assumptions provide a reasonable basis for the prospective financial information, and positive (reasonable) assurance that the PFI is properly prepared on the basis of those assumptions and presented in accordance with the relevant framework. A caveat regarding achievability of results is included.

20. What is the subject matter of SAE 3402 and SAE 3420?

    SAE 3402: assurance reports on controls at a service organisation (the service auditor's report on description, design and operating effectiveness of controls). SAE 3420: assurance engagements to report on the compilation of pro forma financial information included in a prospectus.

21. What are CAATs and give common examples used in digital auditing.

    Computer Assisted Audit Techniques (CAATs) are tools/techniques using the computer as an audit tool. Examples include test data (test packs), integrated test facility (ITF), parallel simulation, audit software/generalized audit software (GAS) for data extraction and analysis, and embedded audit modules (SCARFs).

22. In digital auditing, distinguish 'auditing digitally' from 'digital auditing'.

    Auditing digitally refers to using technology (CAATs, data analytics, AI, remote tools) to perform a traditional audit more efficiently. Digital auditing refers to auditing digital/automated processes and controls (the digital ecosystem of the auditee itself), addressing risks arising from digitised business operations.

23. In the audit of consolidated financial statements, what are 'permanent consolidation' adjustments versus 'current period consolidation' adjustments?

    Permanent consolidation adjustments are made at the first time of consolidation and recur, e.g., determination of goodwill or capital reserve, and the parent's share in pre-acquisition profits/reserves. Current period consolidation adjustments relate only to the current period, e.g., elimination of intra-group transactions and unrealised profits, and adjustments for harmonising accounting policies.

24. In a group audit, what is a 'component auditor' and a 'significant component'?

    A component auditor is an auditor who performs work on the financial information of a component for the group audit. A significant component is one identified by the group engagement 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/circumstances.

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PAPER 3: ADVANCED AUDITING, ASSURANCE AND PROFESSIONAL ETHICS flashcards FAQ