Audit process

• What is the title of Unit 7 in the study material?

  THE AUDIT PROCESS
• What are the methods to obtain audit evidence?

  • Inspect records
  • Observe a process or procedure
  • Make enquiries
  • External confirmation from a third party
  • Recalculate mathematical accuracy
  • Analytical procedures

  
• What are the two main types of audit procedures mentioned?

  Risk Assessment Procedures and Substantive Procedures
• What is the purpose of Test of Controls in the audit process?

  To evaluate the operating effectiveness of a control in preventing or detecting material misstatements
• What are Substantive Procedures designed to detect?

  Material misstatements
• What is the difference between interim and year-end audit procedures?

  Interim testing requires evidence for the remainder of the period
• What is more reliable, external audit evidence or internally generated evidence?

  External audit evidence obtained directly by the auditor is better
• What type of evidence is considered more reliable: written or oral?

  Written evidence
• What does the formula for Audit Risk (AR) include?

  AR = IR × CR × DR

  
• If the Risk of Material Misstatement (ROMM) is assessed as HIGH, what should the auditor do?

  Lower Detection Risk

  
• What are the steps involved in the audit process?

  1. Engagement Activities
  2. Planning the Audit
  3. Obtaining Audit Evidence
  4. Evaluation, Concluding and Reporting

  
• What is the objective of the Engagement Activities step?

  To determine the acceptability of new clients or consider changes in circumstances of existing clients
• What is the objective of Planning the Audit?

  To plan the audit so that the audit work will be performed effectively

  
• What is the objective of Obtaining Audit Evidence?

  To obtain sufficient appropriate audit evidence on which to base the audit opinion

  
• What is the objective of Evaluation, Concluding and Reporting?

  To perform an overall review of the financial information and issue the Audit Report and Audit Opinion

  
• What does an Audit Opinion enhance and what does it not guarantee?

  Enhances:

  • Credibility of the financial statements

  Does Not Guarantee:

  • Future viability of the entity
  • Efficiency or effectiveness of management
• What is the significance of pervasive issues in an audit opinion?

  Pervasive issues are fundamental to users’ understanding of financial statements
• What should be considered during client investigation in Engagement Activities?

  Independence of the auditor and integrity of the client and its management
• What is established through an engagement letter?

  The terms of the engagement
• What is the result of planning activities in the audit process?

  Overall Audit Response / Overall Audit Strategy and Detailed Audit Plan

  
• What combination of procedures is performed during the Obtaining Audit Evidence phase?

  Test of Controls and Substantive Procedures

  
• What is the objective of the Evaluation, Concluding and Reporting phase?

  To evaluate all differences and conclude on the fair presentation of the financial information
• What is the purpose of substantive analytical procedures?

  To detect material misstatements
• What should auditors do if they assess the ROMM as high?

  Lower Detection Risk
• What is the formula for Audit Risk (AR) in terms of ROMM and DR?

  AR = ROMM × DR

  
• What is the relationship between Audit Risk (AR), Inherent Risk (IR), Control Risk (CR), and Detection Risk (DR)?

  AR = IR × CR × DR

  
• What does lowering Detection Risk involve?

  Emphasizing professional skepticism and increasing supervision of the audit team
• What is the significance of external audit evidence?

  It is considered more reliable than internally generated evidence
• What type of audit evidence is preferred: original documentation or photocopies?

  Original documentation is more reliable
• What should auditors consider when obtaining external evidence?

  Bank balances, accounts receivable, inventories, and property title deeds
• What is the purpose of analytical procedures in the audit process?

  To analyze financial information and detect material misstatements

  
• What is the role of professional skepticism in the audit process?


  To ensure auditors remain questioning and critical of the evidence obtained
• What is the importance of communication with the existing or predecessor auditor?

  To gather insights on the client's integrity and potential risks
• What is the significance of the audit report?

  It provides an opinion on the fair presentation of financial statements
• What does the audit opinion NOT guarantee?

  It does not guarantee the future viability of the entity
• What is the role of the auditor in evaluating the financial information?

  To perform an overall review and conclude on fair presentation
• What is the purpose of the audit opinion?

  To enhance the credibility of the financial statements
• What is the significance of the terms of the engagement established through an engagement letter?

  They outline the responsibilities and expectations of both the auditor and the client
• What is the objective of the audit procedures performed during the planning phase?

  To assess risks and develop an overall audit strategy

  
• What is the importance of evaluating all differences in the financial information?

  To ensure fair presentation and compliance with accounting standards