- Internal audit team needs to work independently and does not get involved in developing

internal controls.
- UK Corporate Governance Code requires all listed companies to consider having an internal
audit annually, but not requiring an internal audit function.
- Internal audit teams do test of controls as well as substantive testing.
- Audit committee is an important aspect of a company’s control environment.
- Aspects of an entity’s control environment:
o Attitude of the directors to internal controls
o Awareness of internal control issues in the company
o Actions of senior management in relation to internal controls
- Best source of information of company’s systems:
o The company’s procedures manual
o The internal audit function’s system notes
o Inquiries made of company staff.
- Limitation of a system of internal control
o Lack of understanding of the purposes of controls
o The possibility that staffs members will collude in fraud
- Training programme for all staff is part of the control environment.
- Standard controls may not be designed to deal with unusual transactions.
- Reasons why organizations need to have effective systems of internal control
o Minimizing business risks
o Complying with lays and regulations
- Approvals of applications by a sample of users are by management is a general IT control
related to the development of computer applications.
- Executive management are responsible for putting in place adequate provisions to safeguard
the organization against cyberattacks. Not audit committee.
- BEST quality evidence concerning the net realisable value of inventory comes from
o Post year-end sales invoices
o Post year-end sales orders
- Confirmation from clients of trade receivables only confirms
o the existence
o rights & obligations of the receivables.

They do not confirm the valuation of the receivables. To test for the trade receivables
the best evidence should be cash paid after date.

- Auditors should count cash when -

o Cash amount is material
o Cash amount is immaterial but has risks of fraud
- Auditors only seek direct confirmation from client when there are problems, as follow –
o The auditors suspect that client is deliberately understating payables.
o The internal controls relating to purchases are weak.
o Supplier statements (which are third party evidence) are unavailable.
- Net margin = operating margin = profit before interest and tax x100 / revenue
It assesses the relationship of cist to revenue.
- Inventory count tests the existence and quantity of inventory but isn’t a test of valuation.
 如果 stock count 遇到 slow moving stock 或者货物受损情况只能作为 test of control 看
client entity 是否有对应的办法，而不能真的 evaluate 货物的价值
- Inventory count should involve personnel who are independent of the warehouse staff.
Cannot be warehouse managers or the team members.
- Accuracy, valuation and allocation is not supported as we have no evidence that these
receivables intend to pay.
- Using computer-assisted audit techniques (CAATs) to check the ageing of the year-end list of
aged receivables – Reperformance.
Auditor’s independent execution of procedures or controls
- Positive confirmation request takes two forms
o Asking the respondents to reply they agree or not with the info
o Asking respondents to confirm the amount
- Assets/ receivables – test for overstatement
- Debts not being complete is a risk of misstatement of receivables. BUT NOT MAJOR risk
Non existent liabilities being declared is a risk of misstatement of long -term liabilities. BUT
NOT PRINCIPAL risk
- ICAEW qualified auditors acting in the UK are subject to
o ICAEW Code of Ethics
o FRC’s ethical standards
ICAEW qualified auditors are not bound to IESBA ethics directly
- Rules of ethical guidance may become a mechanical process without due consideration
given to the ethical principles of each case.
- Reasons why assurance providers record their work
o Help the assurance team to plan and perform the engagement
o Retain a record of matters of continuing significance to the engagement
o Enable an experienced assurance provider to carry out quality review
- Confirming the terms of engagement was done at the ‘engagement letter’ stage of audit.
- The ICAEW requirement is to retain audit work paper till 6 years from the end of the
accounting period to which they relate.
- Audit working papers will record matters of continuing significance to future audits.
- Audit staff may only seek written representation in support of other evidence, which means
will not just be asking for written representation instead of evidence.
- Employees not having a physical file on the IT system until after 6 months may result in
employees being paid the wrong amount
- Not having a central pay rate would not result in misstatement in the financial statements
- Payroll Masterfile would not contain details of cumulative statutory deductions to date.
These will be included on the monthly payroll instead
- Statutory deductions do not affect gross pay.
- Evidence procedures:
o Substantive procedures
 Test of details
 Analytical approach
o Test of controls
- Auditors should be cautious with both photocopies and scanned documents as they’re
equally not reliable
- Positive assurance will be given on an audit engagement
Negative assurance will be given on a review assignment
- A report on prospective financial information is only limited as no assurance can be given for
something in the future
- Tracing assets been observed to non-current assets register is floor to sheet and it tests
completeness
- Transaction – cut off, occurrence, classification
Account balances – existence; accuracy, valuation and allocation; completeness
- Statement of financial position cannot be used solely to give a fair valuation of the entity
- A statement of directors’ responsibilities and an auditor’s opnion are included within an
auditor’s report, not an assurance report
Assurance reports include identification of the criteria and title
- Reported explicitly –
o Whether the financial statements give a true and fair view of the company’s affairs
at the end of the financial year
o Whether the information given in the strategic report and the directors’ report is
consistent with the financial statements
- Reported by exception -
o Whether the financial statements are in agreement with the accounting records and
returns
o Whether details of directors’ emoluments and other benefits have been correctly
disclosed in the financial statements
o Whether returns adequate for the audit have been received from branches not
visited
o Whether particulars of loans and other transactions in favor of directors and others
have been correctly disclosed in the financial statements
- Three circumstances audit software can be appropriately used
o When checking calculations on a selection of invoices
o When extracting a sample of invoices over a certain value
o When extracting all invoices to specific customers
- Test data is used to test controls.
- Audit software can be used to test ratios
- Haphazard selection should not be used when using statistical sampling
- When using Statistical sampling, can use the following as ways of selection
o Random selection
o Systematic selection
o Monetary unit selection
- Analytical procedures are compulsory at the risk assessment stage of audit
- An anomaly – a misstatement or deviation that is demonstrably not representative of
misstatement or deviations in a population
- Overall material level sometimes is not that important – if an insignificant amount of sales is
recorded, given that because of which the directors will have a massive pay rise. Thus the
material level for the financial statements as a whole cannot be used as a factor to decide
misstatement
-