PIPFA Audit, Assurance and Ethics Flashcards

24 sample cards from the Audit, Assurance and Ethics deck

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

1. Name the four types of audit opinion.

   Unmodified (unqualified) opinion, qualified opinion, adverse opinion, and disclaimer of opinion.

2. When is an 'unmodified opinion' given?

   When the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework (i.e. they give a true and fair view).

3. What two circumstances lead to a modified opinion?

   (1) The financial statements are materially misstated; or (2) the auditor is unable to obtain sufficient appropriate audit evidence (a limitation of scope).

4. Distinguish a qualified opinion from an adverse opinion / disclaimer (based on pervasiveness).

   Qualified ('except for') = misstatement or inability to obtain evidence is material but NOT pervasive. Adverse = misstatements are material AND pervasive. Disclaimer = inability to obtain evidence is material AND pervasive (no opinion expressed).

5. What does 'pervasive' mean in the context of audit opinions?

   Effects that are not confined to specific elements of the FS; or if confined, represent a substantial proportion of the FS; or, for disclosures, are fundamental to users' understanding of the FS.

6. What is an 'Emphasis of Matter' paragraph?

   A paragraph in the auditor's report referring to a matter appropriately presented or disclosed in the FS that, in the auditor's judgement, is of such importance that it is fundamental to users' understanding. It does NOT modify the opinion.

7. List the principal elements of an unmodified auditor's report under ISA 700.

   Title; addressee; Opinion section; Basis for Opinion; (Going Concern if relevant); Key Audit Matters (listed entities); responsibilities of management/TCWG; auditor's responsibilities; other reporting responsibilities; auditor's signature; engagement partner name; auditor's address; and date.

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

   Those matters that, in the auditor's professional judgement, were of most significance in the audit of the current period's financial statements. They are selected from matters communicated to those charged with governance and reported in the auditor's report of listed entities (ISA 701).

9. List the five fundamental principles of professional ethics for accountants (IESBA Code).

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

10. What does the fundamental principle of 'integrity' require?

    To be straightforward and honest in all professional and business relationships.

11. What does 'objectivity' require?

    Not to compromise professional or business judgements because of bias, conflict of interest, or undue influence of others.

12. What does 'professional competence and due care' require?

    To attain and maintain professional knowledge and skill at the level required to provide competent professional service based on current developments, and to act diligently in accordance with applicable technical and professional standards.

13. What does the principle of 'confidentiality' require, and when may information be disclosed?

    To respect the confidentiality of information acquired through professional/business relationships and not disclose or use it for personal advantage. Disclosure is permitted when there is legal/professional right or duty to disclose, or with proper authority.

14. What does 'professional behaviour' require?

    To comply with relevant laws and regulations and avoid any conduct that the professional accountant knows or should know might discredit the profession.

15. Name the five categories of threats to compliance with the fundamental principles.

    Self-interest, self-review, advocacy, familiarity, and intimidation threats.

16. Define the 'self-interest' threat with an example.

    The threat that a financial or other interest will inappropriately influence judgement or behaviour. Example: holding shares in the audit client, or a contingent fee arrangement, or fee dependence on one client.

17. Define the 'self-review' threat with an example.

    The threat that the firm will not appropriately evaluate the results of a previous judgement or service performed by the firm/individual on which it now relies. Example: auditing financial statements the firm itself prepared, or valuing assets it now audits.

18. Define the 'advocacy' threat with an example.

    The threat that a professional accountant will promote a client's or employer's position to the point that objectivity is compromised. Example: acting as the client's advocate in litigation or promoting its shares.

19. Define the 'familiarity' threat with an example.

    The threat that, due to a long or close relationship, an accountant will be too sympathetic to a client's interests or too accepting of its work. Example: a long-serving engagement partner, or a close family member in a key client role.

20. Define the 'intimidation' threat with an example.

    The threat that an accountant will be deterred from acting objectively because of actual or perceived pressures, including undue influence. Example: threat of dismissal/replacement over a disagreement, or threat of litigation.

21. What are 'safeguards' against threats to ethical principles?

    Actions, individually or in combination, that the accountant takes to effectively reduce identified threats to compliance with the fundamental principles to an acceptable level.

22. Give examples of safeguards created by the profession, legislation or regulation.

    Educational/training and experience requirements for entry; continuing professional development; corporate governance regulations; professional standards; and professional/regulatory monitoring and disciplinary procedures.

23. How should fee dependence on a single audit client be safeguarded?

    Where total fees from a client (or its group) represent a large proportion of total firm fees, safeguards include reducing dependency, engaging an external quality (pre- or post-issuance) review, and consulting a professional/regulatory body; required disclosure to those charged with governance.

24. Why does providing certain non-assurance services to an audit client create a threat?

    It can create self-review and self-interest threats (and sometimes advocacy/management threats), because the firm may end up auditing its own work or becoming too aligned with management; for listed/public interest entities such services are often prohibited.

What this deck covers

Audit, Assurance and Ethics flashcards FAQ