Assurance Hand Note in Kl

Mahedi 01914919285 Subject Assurance Level Knowledge Chapter 1 (Concept of & Need for Assurance) Assurance a certainty of an judgement designed to conjure the degree of confidence of the intended users by evaluating or measuring of a subject matter. Assurance date is a do by which a practitioner chamberpot achieve the authority to evince a conclusion opinion almost the outcome of the emilitary rating or measurement of a subject matter against criteria to enhance the degree of confidence of the intended users. strike elements of toast naming Three parties A subject matter satisfactory criteria Sufficient criteria ReportReasonable office is the high but non absolute take aim of assurance, depends on evidence obtaining during the duration of canvas. Importance and wins of assurance Independent skipper opinion Confidence Prevention of misunderstanding and fraud Acceptance acquaintance/ reliability Credibility True that id factual, check and reality Fair forfeit from discrimination and bias Assurance never be absolute assurance supplier never obtain the absolute aim of assurance cod roughly limitations. So assurance never be absolute. Limitations of assurance day of the month Over see the preparation of F.S. Inherent limitation Evidence obtain rill basis checking Estimates Nature of assurance make-up T atomic number 18k 01712-049032 Short time Shortage of man power Assurance designation knead Obtaining the action Continuous jeopardy assessment Engagement acceptance Scope of the engagement Planning the engagement Obtaining evidence Evaluation the result of assurance seduce Concluding and insurance coverage on the engagement Reporting to the engagement parties property move into canvas the objective of an canvass of F. S. is to enable the attender to express an opinion whether the F. S. re prep atomic number 18d, in all textile respects, in consent with an applicable financial reporting fram e graze. There are many issues users exigency assurance on * Value for money studies Circulation report Cost/benefit report Due diligence reexamination of specialist business activities inner study Report on website security measure Fraud investigations Inventories and receivables report familiar authority report Reports on business plans or projections Examples of assurance engagement Local authority analyze Bank analyse Insurance study Pension scheme analyze Charity visit Solicitors canvass milieual analyse Branch size upExpectation gap difference between expectation take and practical audit performance. Tarek 01712-049032 Company Act 1994 Chapter 2 (Process of Assurance) Scope/ feeling/ advantage of assurance engagement stem of entropy of new node Enquiries from other microbe Document study Previous listener Review rules, regulation and standards Assurance engagement letter 1. Starting Flow of chat meeter Vs client Address- To re sponsible parties/client 2. Body Introduction/ generator Management and auditors responsibility to F. S. Scope of audit work-test limitation Other responsibilities . proof scrutinize fees and other charges Conclusion Para (depend on nature of business) analyse accepting an engagement Proposed auditor must communicate with previous auditor (on the permission of client). If their audit engagement date is valid Refusal reasonable exertion If any fraud/error in the client Assurance mesh terms batten down professionally qualified Ensure existing resources are seemly Obtain reference Communicate with previous auditor. Tarek 01712-049032 ** Read inter quick questions and self test from manual. Chapter 3 (Planning and Assignment)Planning is a process by which assignment provide be performed in an effective manner. study plan is a process by which auditor go forth perform all activities regarding audit in an effective manner. Audit scheme is a technique which sets scope, timing and centering of the audit and guides the victimization of the audit plan. Importance/requirements of audit plan catch attention to important areas find out potential problems and crash timely Ensure the audit work done properly and organized way depute the audit work to the member of audit team Direction and command of audit work Facilitate redirect examination of workStructure of audit plan honourable requirements Ensure team of engagement Establishing audit strategy Development audit plan including guess assessment mapping/audit test ascertain the germane(predicate) characteristics Discovering key dates for reporting & others Determining satisfyingity & preliminary fortune assessment Consideration team members availableTarek 01712-049032 discover elements of an overall audit strategy Understanding the entities environment Understanding the leveling & natural tick off dust Risk and materiality Consequent nature, timing and e xtent of procedures Co-ordination, direction, supervision and review Other matters figure and fees StaffingProfessional skepticism An attitude of professional skepticism implying the auditor move ins a critical assessment with questioning understanding, of the validity of audit evidence obtained and is alert to audit evidence that contradicts or bring into question, the reliability of documents and responses to enquiries and other instruction obtain from management and those charged with governance. analytical procedure heart evaluation of financial culture made by a study of possible relationship among financial and non-financial data.Sources for attempt assessment by using analytical procedure Interim financial entropy calculate Management information Non-financial information Bank and cash records VAT returns circuit board minutes Show ratio analysis formula (manual page 50) corporeality relates to the level of tolerable error that affects the decision of use rs and accountant. bearable error the upper limit error that an auditor is accept in a class of minutes or relaxations in the F. S. Tolerable error percentage (%) On sales 0. 5-01% Gross profit 0. -1% Total asset 1-2% Net asset 2-5% wampum before tax 5% Profit after tax 5-10% Tarek 01712-049032 Audit run a run a chance the risk of exposure is define, that auditors give an inappropriate opinion on the F. S. Audit risk material sayment risk (for co. ) + detection risk (for auditor) Material misstate risk = constituent(a) risk + control risk Inherent risk the susceptibility of an account balance or class of transaction to misstatement that could be material mortally or when aggregated with misstatements in other balances or classes assuring there where no related essential controls.Characteristics of inherent risk Estimates of balances If co. is in trouble Seeking for fund raising Motivation of managing director/management (profit related issue) Choices of systems f or financial minutes go for risk the risk that a material misstatement would not be prevented, detected or reverse by story and internecine control systems. Detection risk the risk that, auditors procedure will not detect or misstatement that exits in an account balance or class of transaction that could be material. ill-uses for assessing the audit risk Step 1 identify the risks throughout the process of obtaining and understanding the entity. Step 2 relate the risk to what can go wrong the self-confidence level. Step 3 consider whether the risks are magnitude that could result in material misstatement. Step 4 consider the likelihood of risk considering material misstatement. Chapter 4 (Evidence and reporting) Documents All information which obtain/ self-possessed by the auditor during audit period is documents. Audit evidence all information/documents gathered by the auditor and on which based auditor conclude the opinion.Tarek 01712-049032 Test of control audit evidence obtains evaluating the effectiveness of controls in preventing/detecting and correcting material misstatement at the command level. essential procedure test of details of classes of transactions account balance and revealing substantive analytical procedure. Quality/source of evidence external auditor entity written oral F. S. avouchment level A) Class of transaction Occurrence Completeness trueness Cut-off potpourri B) A/C balance reality Rights and obligations Completeness Valuation and allocationC) Presentation and disclosure Occurrence Completeness Classification and understandability Accurate and valuation Sufficiency is the measure of quantity of audit evidence. Appropriateness is the measure of graphic symbol or reliability of audit evidence. F. S. self-confidence the consecrateations by management, explicit or otherwise that are embodied in the financial statement. Audit opinion Tarek 01712-049032 A) qualified B) non-qualified Qualified opinion 1. 2. 3. 4. change scope of limitations adverse disclaimer Read self test and synergistic question. Chapter 5 (introduction to infixed controlBSA 315 internal Control Internal control is the process designed and effect by those charged with governance, management and other part to provide reasonable assurance close the entities objectives with record to reliability of financial reporting, effectiveness and efficiency of exercises and compliance with applicable laws and regulations. Reason for internal control Minimizing business risk Ensuring the continuing effective draw of the lodge Ensuring Co. complies with relevant laws and regulations. Limitation of internal control Expense Human elements erratic transaction Management oversee continual monitorComponents of internal control The control environment Risk assessment process Information system Control activities All system should be monitored Tarek 01712-049032 Control environment the control environment inclu des the governance and management dish ups and the attitudes, awareness and actions of those charged with governance and management concerning the entities internal control and its importance in the entity. Audit committee a arm of the board of directors which has a particular interestingness in the finance and business relationship activities of the Co.Function/duties of audit committee To review the integrity of the F. S. To review the Co. internal financial control Monitor the effectiveness of the Co. internal audit function To make recommendations to the board in relation to the external auditor Monitor the liberty of the internal auditor To implement policy on the provision of non-audit avail by the external auditor Entities risk assessment process the process by which management in a business identifies business risk relevant to financial reporting objectives and decides what actions to take to address those risks.Business risk The risks inherent to the Co. in its operations. It is risk at all levels of the business. Control activities The policies and procedures that help go over that management directives are carried. Business risk assessment process Identify relevant business risk Estimate the impact of risks Asses the likelihood of point Decide upon controls Reporting objectives includes the procedures and records designed to initiate, record, process and report entity transactions and to detect accountability for the related assets, liabilities and equities.Types of control activities Authorizations Performance review Information bear upon physical control Segregation of duties IT control the internal control in a computerized environment includes both manual procedures and procedures designed to computer programs. Tarek 01712-049032 screening control are manual or automated procedures that apply to the touch of individual applications to ensures that transactions occurred, are authorized and are completely and in good or der recorded and processed.General controls are policies and procedures that relate to many applications and support the effective function of application controls by helping to ensure the continued proper operation of information systems. General control examples Development of computer applications Prevention or detection of wildcat changes to programs Testing and credentials of program Controls to prevent unauthorized amendments to data files Controls to ensure continuity of operationsExamples of application control controls over enter completeness controls over input accuracy authorization control processing control control over master file and standing data move to recording of internal control Narrative (short note, background information) Questioners/checklist Diagrammed (flow chart, brass section chart, family trees and record of related parties) Internal control procedure Initiative Authorization truth Recording Documentation Tarek 01712-049032Chapte r 6 (Revenue System) Risk objective on selling goods Order may be taken from guest who are not able to pay Order may be taken from customer who are paid after yearn time Order may not recorded properly Taking steps to prevent this risk Goods and services are only supplied to customers with good credit rating Customers are encouraged to pay promptly Chapter 9 (Internal Audit) Internal Audit A monitoring activities established within an entity as a service to the entity.Its function includes, amongst other things, examining, evaluating and reporting to management and the directors on the adequacy and effectiveness of components of the chronicle and internal control system. External Audit An audit carried out by an external. The objective of an external audit of financial statements is to enable auditors to express an opinion on whether the F. S. is prepared in accordance with the applicable financial reporting framework. Difference between internal and external audit Subjec t description Reason Internal Audit .Is an activity design to add think of and improve an organizations operation Audit report to the board of director or audit committee Audit works relate to the operations of the organization He/they are the employees of the Co. except some exception External Audit .. To express an opinion on F. S Reporting Relating to Relationship with the Co. Auditors report to the shareholder to Co. on the truth and fairness of the F. S Audits works to the F. S They are independent not the employee of the co. Internal Audit functions Monitoring internal controlTarek 01712-049032 Examining financial and operating information Review of the economy, efficiency and effectiveness of operations Review of compliance with laws and regulations Special investigations, for instance into suspected fraud working(a) Audit Operational Audit is the review of operational process of the organization. They are also known as management or efficiency audit. Their prepare o bjective is the monitoring if management performance, ensuring Co. policy is adhered to. Function of Operational audit Ensuring policies is adequate Ensuring policies work effectivelyChapter 10 (Documentation) Audit evidence workings authorship with relevant evidence to draw opinion and helping assurance provider for assurance report. Audit Documentation Audit documentation is the record of procedures performed, relevant audit evidence obtained and conclusion related. Form and content/work of documentation Procedure of audit Risk identification Judgment Significance paradox/expectation Audit methodology Automated working cover Working paper package keep up been developed which can make the documenting audit work much easier.Advantages of evidence Tarek 01712-049032 Risk and error reduce Key of analytical information Less time consuming Permanent audit filing Engagement letter Questioner Memorandum of Article and A/A Legal documents Detail history of business be on minutes of continuing relevant Previous F. S. Accounting system notes Current audit file F. S. Checklist Management details Review notes Letter of representation Budget and summarized Management letter Notes of board minutes Communication with 3rd partiesWorking paper decoration take in of client Balance sheet date Name of the preparer Date of preparation Subject of the working paper Name of subscriber Date of review Object of the work done Source of information Sample size determine The work done The result obtained psychoanalysis of error Other significant observation The conclusion bony Tarek 01712-049032 Tarek 01712-049032 Chapter 11 (Evidence and Sampling) Evidence All of the information use by auditor to drawn an opinion. Source to obtain evidence Inspection Observation Inquiry checkout Re-calculation Re-performance Analytical procedureTest of control Perform to obtain audit evidence about the effectiveness of controls in preventing o r detecting and correcting material misstatement at the assertion level. Substantive procedure Audit procedure to detect material misstatement at the assertion level test of details of transactions. * Account balance * Substantive analytical procedure Computer assisted audit technique produce data Rent data Dummy data against verified repeat Quality of audit evidence External Auditor Entity Written OriginalTarek 01712-049032 Analytical Procedure BSA 320 Audit reliability factors Analyzed Availability of information Accuracy Frequency Relevant of the information Comparability of the information Previous auditor Source of information about client Interim financial information Budgets Management accounts Non-financial information Bank and cash records Sales tax returns gore minutes node/3rd company Audit have contain the application of audit procedure to less then100% of the items within an account balance or class transactions such that all sampling units defy a change of selection.Population Is the entire set of data from which a render is selected and about which an auditor wishes to draw a conclusion. Statistical sampling Is any go up to sampling that involves random selection of a sample, and use a hazard theory to evaluate sample results, including measurement of sampling risk. Non-statistical sampling Is a substantive approach to inference, in that mathematical terms are not used consistently in determining sample size, selecting the sample, or evaluating sample result.Error manner either control deviations, when do test of controls, or misstatements, when performing substantive procedure. Tarek 01712-049032 Expected Error Is the error that an auditor expects to be present in the macrocosm. Sampling units Are the individual items constituting in a population. Tolerable error Is the maximum error in the population that the auditor would be willingly to expect. Random selection Ensures that all items in the population hav e an equal chance of selection, e. g. y use of random number tables or computerized generator. Sequence or block selection It may be used to check whether certain items have particular characteristics. Monetary unit sampling This is a selection method that ensures that, every CU1 in a population has an equal chance of being selected for testing. Anomalous error Means an error that arise an isolated event that has not recurred other than on specifically identifiable occasions and is therefore not representative of errors in the population.Sampling method random selection systematic selection haphazard selection taking over block selection monetary unit sampling Name of some data analytical software for auditor ACL (Audit Command Language) IDEA ascertain computer audit Active data for jump out Top CAAT for Excel ACL service Ltd Case ware international Intra com IT service Tarek 01712-049032 Information active Inc Reinvent data Tarek 01712-049032 Chapter 12 (Managemen t Representation) Management Means officer (director and Co. secretary) and others who perform of age(p) managerial functions.Elements of management representation letter Entity letter caput To auditor and date Tarek 01712-049032 Chapter 13 (Substantive Procedure) Key issues/risk of non-current assets Right and obligations assertion Existence assertion Completeness assertion Valuation assertion Presentation and disclosure assertion Source of information/observation matters The non-current asset register Purchases invoices for assets during the family Valuation carried out by 3rd caller Purchases deeds or receipt documents Hire purchases documents of assets carnal inspection Depreciation calculationIn open non-current asset means the assets which cannot touch or show but has a market value. Examples of intangible non-current assets Goodwill Patent right License and development cost and so on Key issues and sources of information of intangible non-current asset s is as like as tangible non-current assets. Key issues/risk of enumerationing Existence Completeness Obsolete or vituperate goods Miscalculation Rights and obligations Cut-off dates Prevent risk of pedigree The Co. control over inventory countingTarek 01712-049032 Auditors regular physical counting Check inventory register Physical verification from warehouse Check purchases invoices Check work-in-progress records for inventory Post-year-end sales invoices for inventory Post-year-end price lists for inventory Post-year-end sales Sources of information for non-current assets Invoices 3rd party valuation Auditors inspection Client schedule and calculation Source of information for inventory Auditors attendance at count Invoices 3rd party tab Client control over count Clients production scheduleInventory count procedure/ miscellaneous types of inventory count 1. organization of count Supervision by senior faculty Tidying and marking Restriction and co ntrol movement during counting acknowledgment of damaged, obsolete, slow moving and returnable goods 2. Counting systematic counting freedom counting 3. Recording Serial numbering Information count records Quality, controls and work in progress counting Inward and outward counting balancing with recordsTarek 01712-049032 Key issues of receivables Rights and obligations Valuation Source of information of receivables 3rd party con star signation Cash payment after date Key issues of bank Completeness Existence Rights and obligations Valuation Source of information about parties bank A/c Con sozzledation from bank Bank statement Client schedule balancing with cash deem Payable key issues Completeness Rights and obligations Correct valuation Source of information of A/P Suppliers statements Payable script records Payment documentsKey issues of long term liabilities Completeness Accuracy Disclosure Particular papers Source of information of long term li abilities Loan documents Tarek 01712-049032 Statutory books Confirmations from lenders Client schedule Board minutes Client calculation Key issues of income statement Completeness Accuracy travel for observing long term liabilities Compare opening balances to previous geezerhood working paper Test clerical accuracyCompare balance to nominal ledger Check nominal ledger Trace additions and repayments to entries in the cash book Confirm repayments with loan agreement Examine cancelled cheques Verify the acquire limits Examine sign of board minutes Obtain direct confirmation from lenders Verify interest check Review any correspondence review minutes, cashbook and loan books. Chapter 14 (Codes of Professional Ethics) Fundamental principles of canon of ethical motive fair play Objectivity Professional competence and due care Confidentiality Professional behaviorIndependence of mind The state of mind that permits the expression of a conclusion without being s tirred by influence that comprise professional, allowing an individual to act with integrity. Independence in appearance Tarek 01712-049032 The avoidance of facts and band that are so significant that a reasonable and informed 3rd party, having knowledge of all relevant information, including safety applied, would reasonably conclude a firms, or a member of the assurance teams, integrity, objectivity or professional skepticism have been compromised.Threats of code of ethics Self interest holy terror Self interest curse protagonism threat Familiarity threat Intimidation threat Management threat Safeguards of code of ethics Ethical training and experience Continuing professional development requirement Corporate governance regulation Professional standards Regulatory monitoring and disciplinary procedure External review Chapter 15 Integrity Means that an accountant must be straightforward and honest. It implies fair dealings and truthfulness.Objectivity republic of mi nd that exclude bias, prejudice and compromise and that gives fair and imperial consideration to all matters that are relevant to the task in hand, disregarding those that are not. Independence Is related to and underpins objectivity, it is freedom from situations and relationships. Self-interest threats are Financial interests pen up business relationship Tarek 01712-049032 Employment with assurance client Partner on client board Family and own(prenominal) relationship Gift and hospitality Loans and guarantees remiss fees Percentage and contingent fees High percentage of fees Low-ballingFinancial interest Exits where an assurance firm has a financial interest in a client. Direct financial interest Exits where an assurance firm has a directly financial interest in a client. Immediate family means a spouse (or equivalent) or a dependent. Assurance team means all member of the engagement team for the assurance engagement and all others within the firm who can directly in fluence the outcome of the assurance engagement. Safeguards from interest Disposing the interest Removing the individual from the team if required.Informed the client audit committee of the situation. Using an independent accomplice to review work if necessary Close business relationship will involve a commercial financial interest, which in addition to a self-interest threat, could coif an intimidation threat. Dual employment means the same person being employed by both an assurance firm and a client is not permitted. Safeguard from dual employment Modifying the audit strategy Involving an additional professional accountant Carrying out a quality control review of the engagementPartner on a client board mean a partner or employee of an assurance firm is also distribute on the board of an assurance client. This is not permitted. This can also cause of self-review threat or a management threat. Tarek 01712-049032 Close family means parent, peasant or sibling who is not an immediate family member. Contingent fees fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed. Safeguards from high percentage of fees Discussing the issues with audit committee Taking steps to reduce the ependency on the client Obtaining internal/external quality control review Consulting a 3rd party such as ICAB Self-review threat Service with assurance client Preparing accounting records an F. S Valuation service Tax service Internal audit service Corporate finance Other service Advocacy threat Legal service Corporate finance Contingent fees Familiarity threat Family and personal relationship with client Employment with assurance client Recent service with assurance client Long association with assurance client RecruitmentIntimidation threat Close business relationship Family and personal relationship Assurance staff members move to employment with client Litigation The ICAB code se ts out a framework that professional accountant can follow when seeking to resolve ethical problems. It states that the professional accountant should consider Tarek 01712-049032 The relevant facts The relevant parties The ethical issues involve The fundamental principles related to the matter in question realised internal procedure Alternative course of actionChapter 16 (Confidentiality) The following security procedures are probably wise to prevent accidental disclosure of information befoolt discuss client matter with any party of outside Dont discuss client matter in a public place Dont leave audit files un-attendant Dont leave an audit file in a car or unsecured place Dont polish off audit working papers from the office unless strict necessary Dont work on electronic working papers on systems that do not have the requisite protectionInformation only be discover where consent has been obtained from the client, employer or other proper source If there is a publi c duty to disclose If there is a legal or professional right or duty to disclose Safeguards of confidentiality Disclosure of the circumstances of the conflict Obtaining the informed consent of the client to act Establishing information barriers Regular review of the application of safeguards by a senior individual not involve with the relevant Ceasing to act Physical separation of teams. Show interactive questions and self-test. The End