MC RMM and audit procedures

  1. income statement items + accuracy assertion: risk
    incorrectly calculated
  2. if risk is re-assessed/risk increase, mention also:
    change to audit strategy
  3. inventory: analytical procedure for AVA
    • gross profit ratio (NRV)
    • compare total inventory by type (error in compilation)
  4. inventory: analytical procedure for E
    • inventory turnover days (overstatement)
    • units costs against budget/prior period
  5. planning stock take, must answer:
    review inventory count instruction
  6. PPE: AVA- reason for high RMM
    • lots of accounting estimates in depreciation calculation
    • impairment (VIU impairment)
  7. when to use IC tactics
    when IC is not ineffective
  8. whistle-blowing - report to whom
    audit committee
  9. fraud risk factor- investment trust
    pressure from unitholder
  10. fraud risk factor - give figures
  11. fraud risk factor - multi-location - what category
    opportunity: inconsistent systems, controls
  12. fraud risk factor - plan to list - what category
  13. fraud risk factor - establish affiliated entity - what category
    opportunity: related party
  14. fraud risk factor - preventable accident - what category
    attitude: ineffective monitoring of risk and control failure
  15. what is a common procedure to "monitoring of control" in CERICAM
  16. what is common control activities to address assertion level risk (eg. completeness, AVA)
    • review
    • *for EA, it is substantive procedures
  17. Physical control - assertion addressed
  18. Authorization- assertion addressed
  19. Authorization- assertion addressed
  20. Review- assertion addressed
    other assertions, esp. completeness and AVA
  21. ARP: inconsistent sales and AR
    subprime crisis and increasing sales (AR)
  22. difference between finite and indefinite IA
    • finite: amortization
    • indefinite: annual impairment
  23. req. for change of auditors for listed co
    s441: incoming auditor obtain a letter of resignation/termination of the predecessor auditor directly from the client
  24. req. for long association of audit team and PIE
    • a person shall not be key audit partner for more than 7 years
    • after such time, a person shall not be (1) audit team member (2) key audit partner for the client for 2 years
  25. what does PIE include
    • listed co
    • FI
  26. what is key audit partner
    • engagement partner
    • EQCR partner
  27. financial interest: when would threat be so significant that no safeguard can lower the risk
    • direct financial interest
    • indirect material financial interest
  28. what is immediate family and close family
    • immediate: spouse and dependent
    • close: parents, children, sibling, friends
  29. financial interest: when would threat be so significant that no safeguard can lower the risk
    immediate family + FC/CFO (significant influence over accounting records and FS)
  30. who are the "audit team"
    anyone who has charged the job (篤鐘)
  31. company secretary and threats
    • self-review: perform comp. sec. function and make decisions re. corporate sec. matters at AGM>cannot properly evaluate the result of audit
    • advocacy:act on behalf of the client in compliance matters which may promote the client's position
  32. Fees: when are there additional procedures re. relative fees to firm
    • PIE + fee for that client for 2 consecutive years is >15% of total fee of the firm
    • *total fee = audit and non-audit fee
  33. FASIS - all affect what principle
  34. ethics problem intro
    code of ethics for prof. accountant, conceptual framework is adopted.
  35. if auditor's request to communicate with outgoing auditor is denied- consequence
    should not accept the nomination
  36. provision of non-audit service - what service is so significant?
    • design, implement and monitor of IC system
    • prepare FS
    • valuation and litigation support
    • prepare tax comp.
  37. involving the court/legal proceeding, what threat is high
  38. implication: from sole pro. to limited co
    last years' FS not audited
  39. employment with PIE audit client for key audit partner - so significant unless
    • subsequent to the year the partner ceasing to be key audit partner, the PIE has issued audit report and the partner is not member of audit team
    • for senior partners, they can only join the client after 12 mths of ceasing to hold such position
  40. auditors and AGM
    management's responsibilities to ensure auditors attend AGM
  41. composition of audit committee
    • all NED
    • majority INED
    • chairman INED
    • at least 3 person
    • at least 1 INED
  42. composition of board
    at least 1/3 INED
  43. assumptions: has been auditor since incorp>
    • 1. need not revise assessment of integrity, unless there are changes in KMP
    • 2. competent to finish the audit, unless there are significant changes to operations
  44. cut off of sales - refer to what
    shipping terms
  45. all revenue are measured at
    present value
  46. presentation - breach of convenant
    if callable>current
  47. presentation - usage from PPE to held for sale
    reclass to current
  48. what are significant risk
    • fraud risk
    • risk related to significant economic/accounting developments
    • complex and subjective transactions
    • RPT and unusual transactions outside normal course of business
  49. when do we need to understand all CA
    • significant risk
    • substantive alone cannot provide enough evidence
  50. presumed fraud risk
    • management override of control (non-rebuttable)
    • revenue recognition (rebuttable)
  51. fraud type
    • fraudulent financial reporting
    • misappropriation
  52. who is responsible for fraud detection
    those charged with governance and management
  53. what assertion does PARIS (control activities) address
    • P: E
    • A, S: E/O
    • R: C, AVA
  54. listed status and materiality
    users of FS is public shareholders who most concern profit and sales
  55. NET - what does N mean
    nature, ie. test of control v substantive procedures
  56. Rotation of test of controls - conditions
    • no SR
    • no significant changes
    • max. 3 years.
  57. which substantive procedures allow auditor to extend the timing
    analytical procedures
  58. what indicate high RMM of revenue occurence
    • significant increase
    • GP margin rose a lot
    • sale v PPE (scale)
  59. High AVA RMM due to complicated disclosure
    • FV measurement
    • financial risk management
    • impairment loss
    • estimation of useful life
    • business combinations
    • NRV
    • FI
    • classification RMM of FI
    • derivative or hedging
    • provisions
    • share based payment
    • tax
    • breach of bank loan convenant
  60. ARP on AR aging: also consider
    credit term
  61. framework to assess RMM at FS level
    • ROMAN
    • control environment
    • fraud risk factor
  62. FS level risk - raising fund at high interest
    in desperate need of fund
  63. ARP trick
  64. FS level risk: listed implication
    • performance monitored by investors>earnings pressure
    • subject to strict listing rule requirements
  65. FS level risk: family business/controlled by few members
    management override of controls
  66. what are KAM
    • higher RMM/SR
    • fraud/suspected fraud
    • non-compliance
    • significant deficiency in control
    • SUAM
    • unreasonable management's refusal to send confirmation
    • misstatement in opening balance
    • significant matters re. related parties
    • matter after the date of audit report
    • concern over component auditor's work
    • limitations on group audit
    • refusal to correct misstatements in other info
    • significant judgement/estimates
    • complex accounting policy
    • significant transaction with related parties/outside the normal course of business
    • new IT/change of IT system/complex IT
  67. @KAM reminders
    • not related to misstatements or inabiliy
    • no repetition
  68. @EOM reminder
    • not KAM
    • not lead to modification
    • already disclosed in FS
  69. @Other information reminder
    • not KAM
    • not disclosed
  70. if other information is misstated, include what para
    • Other info, which include a description of the misstatement
    • Matters under which we are required to report by exception, under "report on director's report"
  71. if any account is very significant (pervasive), RMM is
  72. @when there is consignment sales,
    RMM is higher
  73. when management's estimate lie outside auditors range, indicates:
    possible management bias
  74. what is significant component
    • individually financially significant (based on benchmark eg revenue, profit, asset)
    • contains significant risk
  75. when auditor issued a qualified or disclaimer of opinion due to inability, requirement:
    report under s407(3)
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MC RMM and audit procedures
MC RMM and audit procedures