Auditing and Assurance CPA Notes
KASNEB CPA Intermediate Level Notes
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UNIT DESCRIPTION
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to conduct the audit of an entity.
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CONTENT
- Nature and purpose of an audit
1.1 Nature and objectives of an audit
1.2 Development of audit (early audit and modern audit)
1.3 Users of audited financial statements
1.4 Features of audits
1.5 Distinction between auditing and accounting
1.6 Types and classification of audits
1.7 Situations when different audits are performed (interim, continuous, final, operational)
1.8 Advantages and disadvantages of various types of audits
1.9 Nature of work done for different audits
1.10 Inherent limitations of an audit - Assurance and non- assurance engagements
2.1 Definition and objectives of assurance engagements
2.2 Audit as an assurance engagement
2.3 Elements of an assurance engagement
2.4 Types of assurance engagements (Audit, Review assignments)
2.5 Differences between audit and review engagements
2.6 International Standard on Assurance Engagement-ISAE 3000
2.7 Accepting appointment to perform assurance engagement
2.8 Review of interim financial information – ISRE 2410
2.9 Levels of assurance and reports issued on assurance engagements
2.10 Non-assurance engagements (Agreed upon procedures engagement -ISRS 4400 and compilation assignments-ISRS 4410
2.11 Attestation and direct reporting engagements - Legal and professional framework
3.1 Regulatory framework for external audits
3.1.1 Appointment of the auditors
3.1.2 Qualifications and disqualifications of auditors
3.1.3 Removal and resignation of auditors
3.1.4 Remuneration of the auditors
3.1.5 Rights and duties of auditors
3.1.6 Mechanisms of regulations of auditors-role of professional bodies, Audit committee, rotation of audit firms
3.2 Professional ethics/code of ethics for professional accountants
3.2.1 Importance of the professional ethics
3.2.2 Basic/fundamental principles for Code of Ethics for accountants
3.2.3 Other professional guidelines on audit fees, conflict of interest, advertising and publicity and opinion shopping by clients
3.2.4 Auditors independence /objectivity and its importance
3.2.5 Threats to independence and safeguards.
3.3 Threats on adherence to other fundamental principles and safeguards to the threats
3.4 Development and status of ISAs in execution of audits
3.5 Relationship between International Standards of Auditing and National Auditing Standards
3.6 Purposes/importance of adoption of ISA in the audit. - Planning and Risk Assessment
4.1 Obtaining, accepting and retention of an audit engagement
4.1.1 Matters to consider before and after acceptance of nomination
4.1.2 Pre-conditions of an audit
4.1.3 Engagement letter, procedure of sending letter, purposes and contents of the letter-ISA 210
4.1.4 Circumstances for revision of engagement terms
4.1.5 Understanding the entity and its environment
4.1.5.1 Background information about the entity or client.
4.1.5.2 Ways of gathering knowledge about the business
4.1.5.3 Reasons/importance of information gathered about the client
4.1.5.4 Reasons of review of previous audit files and communication with previous auditors
4.1.6 Overview of audit process - Audit risk assessment
5.1 Components of audit risk (Inherent, Control and Inherent risks)
5.2 Assessment of different types of audit risks
5.3 Factors leading to increase or decrease of inherent, control and detection risks
5.4 Adoption of risk based audit, reasons and procedure
5.5 Advantages and Disadvantages of the approach
5.6 Evaluating and prioritising risk and control factors
5.7 Mechanisms to minimise the risks associated with client audits. - Audit planning
6.1 Purpose and challenges in audit planning
6.2 Planning for new and existing clients
6.3 Development of the overall audit strategy
6.4 Contents of audit planning memorandum/ overall plan
6.5 Relationship between audit strategy and audit plan
6.6 Design of audit programs, importance and problems of the programs
6.7 Impact of material misstatements on audit strategy and degree of work done
6.8 Influence of interim audit work on the year end/final audit. - Audit documentation
7.1 Reasons and importance of audit documentation
7.2 Sources, features and purposes of working papers
7.3 Storage of working papers-permanent audit file and current audit file, auditors note book or diary
7.4 Lien or custody on working papers
7.5 Standardisation of working papers – advantages and disadvantages
7.6 Safe custody and retention of working papers
7.7 Form and content of working papers
7.8 Automated working papers
7.9 Quality control policies and procedures implemented by audit firm
7.10 Objectives of quality controls to the audit firm/ auditors
7.11 Peer review and its objectives - Internal control systems and Internal Audit Function
8.1 Internal control systems (ICS)
8.1.1 Objectives of internal control system
8.1.2 Component of internal control system
8.1.3 Features of Internal control system
8.1.4 Designing of internal control system.
8.1.5 Auditors and management responsibility over ICS
8.1.6 Advantages and disadvantages /inherent limitations of ICS
8.1.7 Indicators of weaknesses in ICS and actions taken by management
8.1.8 The evaluation of internal control systems by auditors using Internal Control Questionnaire, Flow charts and narrative notes
8.1.10 Tests of controls on specific control environments
8.1.11 Internal controls theory and practice-sales and debtors, purchases and creditors, inventories and work in progress, fixed assets, salaries and wages
8.1.12 Communication of improvements on ICS weaknesses/ risks associated – Management letter.
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- Internal Audit Function
9.1 Scope and objectives of internal audit
9.2 Criteria of using internal audit work
9.3 Areas of support on external auditors’ work
9.4 Internal audit review reports and actions by management and those charged with governance
9.5 Design of risk based internal audit plan
9.6 Internal audit key performance indicators
9.7 Managing and monitoring follow up of audit recommendations made to board/ management.
9.8 Outsourcing internal audit function-advantages and disadvantages.
9.9 Audit committee-functions, merits and demerits.
9.10 Internal check systems-scope, features, advantages and disadvantages
9.11 Information technology threats and control
9.12 Auditors duty on compliance with laws and regulations. - Overview of Forensic Accounting, Errors, Frauds and Irregularities
10.1 Overview of forensic accounting
10.1.1 Nature, purpose and scope of forensic accounting
10.1.2 Types of forensic investigations: corruption, asset misappropriation, financial statement fraud, others
10.1.3 Asset Recovery process and legal framework - Errors, Frauds and Irregularities
11.1 Differences between error and frauds
11.2 Types of errors-omission, commission, principle, reversal of entries
11.3 Types of Frauds-Teeming and lading, ghost employees, window dressing, misappropriation of goods and fraudulent financial reporting
11.4 Causes of frauds and fraud triangle
11.5 Indicators of errors and frauds
11.6 Detection and prevention of errors and frauds and deterrence-role of internal audit
11.7 Materiality and Implications of errors and frauds in the financial statements
11.8 Impact of errors and frauds on the audit plan
11.9 Reporting on error and frauds
11.10 External auditors and Management responsibility on error and frauds
11.11 Auditors professional skepticism. - Audit evidence
12.1 Financial statement assertions and audit evidence
12.2 Types and features of audit evidence (sufficiency, reliability and relevance)
12.3 Audit evidence gathering procedures/ techniques
12.4 Materiality and limitations of audit evidence
12.5 Financial statement assertions and audit evidence
12.6 Audit sampling techniques – statistical and non-statistical
12.7 Analytical reviews procedures- nature, objectives, timing and extent of support
evidence
12.8 Types of analytical Procedures-Variance analysis, reasonableness tests, trend analysis
12.9 Using the work of experts- areas of support and considerations
12.10 Using management representations (importance, procedures adopted and matters covered). - Auditing in the public sector
13.1 Introduction to auditing in the public sector and regulatory provisions
13.2 Objective and scope of public sector audit (compliance, performance, financial, value for money)
13.3 Establishment, mandate and functions of public sector auditors
13.4 The parties to audit in public sector-auditor, responsible party and intended users
13.5 Role of internal audit function in public entities
13.6 Relationship between external and internal auditors in the public sector
13.7 Audit reports by office of Auditor General.
13.8 Functions of audit advisory board and executive committee in Auditor General office. - Auditors Reports
14.1 Purposes of auditors’ report and concept of true and fair view
14.2 Legal /Statutory provisions on audit reports
14.3 Basic elements contents of audit reports
14.4 Emphasis of the matter paragraph and key audit matters
14.5 Types and Consequences of different types of audit reports issued.
14.6 Features of unqualified and qualified audit reports
14.7 Reasons for qualifications of audit reports (Limitation of scope, inherent uncertainties, disagreements)
14.8 Types of qualifications-disclaimer, except for and adverse opinions.
14.9 Overall audit review and finalisation
14.10 Subsequent events/Post balance sheet events review (adjusting and non – adjusting events, auditor’s responsibility and audit procedures)
14.11 Going concern review (Auditors and management responsibility, indicators of going concern difficulties, audit procedures, mitigation plans and reporting)
14.12 Management representations on contentious matters affecting financial statements like guarantees made, capital commitments, borrowings, unusual accounting adjustments.
14.13 Review of compliance with accounting policies, opening balances, prior period audits by other auditors
14.14 Format for presentation of independent auditor’s report. - Auditing in a computerised system
15.1 Audit objectives in computerised systems
15.2 Differences between computerised and manual systems
15.3 Benefits and drawbacks of computerised accounting systems
15.4 Types of controls in computerised systems (Administrative, system development, processing controls, application controls, master files and standing data
15.5 Auditors use of computers in the course of audit
15.6 Planning the audit in computerised systems
15.7 Audit approaches – audit around, with and through the computer and circumstances when each is applied
15.8 Loss of audit trail, causes and measures to mitigate the loss of audit trail
15.9 Computer Assisted Audit Techniques (CAATS) – Audit software and test data
15.10 Types of audit software and functions and types of test data
15.11 Factors considered before using CAATS and steps in CAATS application
15.12 Advantages and disadvantages of CAATS
15.13 Use of embedded audit modules and integrated test facilities
15.14 Information security controls (Encryption, Firewalls, Passwords, Antivirus) - Contemporary and emerging issues in audit
16.1 E- commerce auditing
16.2 Cloud documentation
16.3 Use of data analytics tools in audit (Anomaly detection, diagnostic analysis, predictive analysis.