ACCT 2161 Auditing Revision guide semester 2 2012

When you use this revision guide, please remember these following rules: 1. This is just a guideline. It only intends to improve your revision process. It certainly does not intend to cover everything in the exam. It is very possible that some questions, which are not covered in this revision guide, may appear in the exam. 2. You should refer primarily to other material, such as textbook, lecture notes and class exercises. 3. When you use this guideline, try to understand the fundamental principles and please dont try to memorize the information.

Topic 3B- Management assertions and audit objectives

Define management assertions and the related audit objectives Describe management assertions related to class of transactions, balances and presentation and disclosures List out and describe general transaction related audit objectives, balance related audit objectives and presentation and disclosure audit objectives Understand specific audit objectives and how they are linked to general audit objectives and management assertions

Topic 4 Audit evidence and Planning (Chapter 5 and 6)

AUDIT EVIDENCE Nature of evidence Any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria The use of evidence is not unique to auditors: It is also used extensively by scientists, solicitors and historians Audit evidence decisions Audit procedures: Detailed instruction for the collection of audit evidence Sample size: Is likely to vary from audit to audit Items to collect: Which items in the population to test Timing: Can vary from early in the accounting period to long after it has ended Audit program: List of audit procedures for an audit area or an entire audit Usually includes sample sizes, items to select and timing of the tests Most auditors use computers to prepare them

ACCT 2161 Auditing Revision guide semester 2 2012

Persuasiveness of evidence ASA 500 requires the auditor to obtain sufficient appropriate evidence to support the opinion issued Two determinants of the persuasiveness of evidence: Competence Sufficiency Competence (reliability) Degree to which evidence can be considered believable or worthy of trust Relevance: Relevant to the audit objective Independence of provider: Outside evidence is more reliable than inside evidence Effectiveness of clients internal controls: Evidence is more reliable when controls are effective Auditors direct knowledge: Evidence obtained directly by the auditor is more competent than indirect evidence Qualifications of individuals providing the information Degree of objectivity: Objective evidence is more reliable than evidence requiring considerable judgment Timeliness: Can refer to either when it is accumulated or to the period covered by the audit Sufficiency Sufficiency of evidence is measured primarily by the sample size the auditor selects Factors determining the appropriate sample size: o Auditors expectation of misstatements o Effectiveness of clients internal controls Individual items tested also affect the sufficiency of evidence: e.g. items with large dollar values and items with a high likelihood of misstatement Types of audit evidence Understand the nature and purpose of different types of evidence, their relative reliability, their relative costs. Physical examination Confirmation Documentation Observation Inquiries of the client Re-performance Analytical procedures AUDIT PLAN Discuss the importance of an audit plan Understand issues to be considered in making client acceptance decisions and perform initial audit planning. Gain an understanding of the clients business and industry. Understand the purposes of the analytical procedures used in the audit plan Understand the purposes of audit documentation and to organize audit documentation

ACCT 2161 Auditing Revision guide semester 2 2012

Topic 5- Materiality and risks
Explain the meaning of risk analysis in auditing Explain the meanings of different types of risks considered by auditors and the risk model and the factors affecting each type of risks Explain how each component of the risk model relate the actual audit tests performed by auditors Explain the concept of materiality and how its affecting audit plan and audit procedures done by auditors Describe the procedures done in planning the audit and the outcome of an audit plan Explain different types of tests done by auditors and the factors affecting the nature and extent of each of the tests Understand the relationship of transactions related audit objectives and balance related audit objectives

Topic 6 Internal Control and Control risk (chapter 8)

Understand responsibility of managers and auditors regarding internal control Understand the components and sub-components of an internal control system Understand the audit procedures regarding internal control system. Distinguish those that are compulsory and not compulsory under Auditing standards. Describe the specific procedures auditors use to understand clients internal control system Describe the factors that affect the level of control risk assessed by auditors Explain the factors that affect the extent of TOC done by auditors and the implication of TOC on other audit tests Describe the procedures used for test of controls Describe a management letter and its purpose Identify typical controls applied in the major cycles e.g Acquisition and Payment cycle, Sales and collection cycle.

Exercises: required exercises, additional exercises on Blackboard, ex. 8.28.

Topic 7: Overall Audit plan (chapter 11)

Use the five types of audit tests to determine whether financial statements are fairly stated. Select the appropriate types of audit tests. Understand the concept of evidence mix and how it should be varied in different circumstances. Compare and contrast transaction-related audit objectives and balance-related audit objectives. Integrate the four phases of the audit process.

Additional exercises: 11.24, 11.25, 11.27

Topic 8 Audit of sales and collection & Acquisition and Payment cycles
Identify the typical transactions and accounts for the sales and collection cycle/ Acquisition and Payment cycles Identify the typical functions and key controls (and the related audit objectives) within the sales and collection/acquisition and payment cycles.

ACCT 2161 Auditing Revision guide semester 2 2012

Understand the approach to auditing the sales and collection/Acquisition and Payment cycles Understand and distinguish different types of tests applied in each specific account/transaction in each cycle. Understand the specific risks and audit tests done for each class of transactions/account balances in the cycles o Design test of controls and STOT for each cycle o Design analytical procedures for each cycle o Design procedures to do TODB for each cycle

Additional exercises: 12.33; 12.34; 14.23, 14.24

Topic 9 Completing the audit

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Describe the tests auditor performs related to presentation and disclosure audit objectives. Understand the concepts of contingent liabilities as opposed to other liabilities Under stand the concepts of commitments Understand the importance of the procedures to review for contingent liabilities and commitments in an audit Describe how to account for contingent liabilities and commitments in the financial reports, and procedures for review of contingent liabilities and commitments. Understand the purposes and implication of a post-balance date review for subsequent events and understand why those events are accounted for in the current year financial statements Describe the final steps in the evidence-accumulation segment of the audit. Describe how the auditor integrates the audit evidence gathered, and evaluate the overall audit results. Identify the auditors responsibilities when facts affecting the audit report are discovered after its issuance.

Additional exercises: 15.26, 15.33. (Note: the above exercises are only additional exercises. You are still supposed to do and revise all materials that have been set out during the semester including in-class exercises, additional exercises posted on Blackboard and tutorial questions listed in the course timetable)