AUE2601
AUDITING THEORY AND PRACTICE
PAST EXAM PACK QUESTIONS AND ANSWERS
(2019 – 2014)
SUMMARISED NOTES
2020
,MEGA TUTORS
AUE2601
EXAM PACK
1
,Contents
HOW TO EARN MARKS ............................................................................................................................................ 20
Access Controls ........................................................................................................................................................ 22
Examples of tests of controls questions ............................................................................................................. 27
1. Board of directors .................................................................................................................................... 30
Composition of the board ................................................................................................................................... 30
What is an independent non-executive director? (Principle 2.18 (par 67), King Report) ................................... 30
2. Board committees ................................................................................................................................... 31
3. Governance of risk .................................................................................................................................. 33
4. Governance of Information Technology .................................................................................................. 33
5. Internal audit ................................................................................................................................... 33
6. Sustainability, integrated reporting and disclosure ........................................................................ 34
7. The link between governance principles and law ......................................................................... 35
Explanation ............................................................................................................................................... 37
Types & Examples ................................................................................................................................... 37
Use and Application ................................................................................................................................. 39
Purpose &Importance .............................................................................................................................. 40
Assertions assist auditors in considering a wide range of issues that are relevant to the authenticity of financial
statements. The consideration of management assertions during the Definition ......................................... 40
Explanation ................................................................................................................................................. 40
Model ........................................................................................................................................................... 40
Components ................................................................................................................................................. 40
Inherent Risk ............................................................................................................................................... 41
Control Risk .................................................................................................................................................. 41
Detection Risk .............................................................................................................................................. 41
Application ................................................................................................................................................... 42
Example ........................................................................................................................................................ 42
How to Follow Risk Assessment Procedures in an Audit.............................................................................. 43
Introduction .................................................................................................................................................. 45
Objective ....................................................................................................................................................... 45
Performing Risk Assessment Procedures ................................................................................................... 45
2
, Obtaining an Understanding of the Company and Its Environment ....................................................... 46
Industry, Regulatory, and Other External Factors ............................................................................... 46
Nature of the Company ............................................................................................................................ 46
Selection and Application of Accounting Principles, Including Related Disclosures ......................... 48
Company Objectives, Strategies, and Related Business Risks .............................................................. 48
Company Performance Measures ............................................................................................................ 49
Obtaining an Understanding of Internal Control Over Financial Reporting .......................................... 50
Control Environment ................................................................................................................................. 51
The Company's Risk Assessment Process .............................................................................................. 52
Information and Communication ........................................................................................................... 52
Control Activities ..................................................................................................................................... 53
Monitoring of Controls ............................................................................................................................ 53
Performing Walkthroughs ...................................................................................................................... 54
Relationship of Understanding of Internal Control to Tests of Controls ........................................... 54
Considering Information from the Client Acceptance and Retention Evaluation, Audit Planning Activities,
Past Audits, and Other Engagements ........................................................................................................ 55
Performing Analytical Procedures ............................................................................................................. 55
Conducting a Discussion among Engagement Team Members Regarding Risks of Material Misstatement
...................................................................................................................................................................... 56
Discussion of the Potential for Material Misstatement Due to Fraud.................................................. 57
Inquiring of the Audit Committee, Management, and Others within the Company about the Risks of
Material Misstatement ................................................................................................................................. 57
Inquiries Regarding Fraud Risks ........................................................................................................... 58
Identifying and Assessing the Risks of Material Misstatement ................................................................ 60
Identifying Significant Accounts and Disclosures and Their Relevant Assertions ............................ 60
Factors Relevant to Identifying Fraud Risks ......................................................................................... 61
Factors Relevant to Identifying Significant Risks ................................................................................. 62
Further Consideration of Controls ......................................................................................................... 63
Audit process - risk assessment ................................................................................................................ 63
Audit process - risk response .................................................................................................................... 63
Audit process - reporting ........................................................................................................................... 64
Audit process - what is an audit in the public sector? .............................................................................. 64
Audit process - what does an audit not do? .............................................................................................. 64
Audit process - what is a clean audit? ..................................................................................................... 64
3
AUDITING THEORY AND PRACTICE
PAST EXAM PACK QUESTIONS AND ANSWERS
(2019 – 2014)
SUMMARISED NOTES
2020
,MEGA TUTORS
AUE2601
EXAM PACK
1
,Contents
HOW TO EARN MARKS ............................................................................................................................................ 20
Access Controls ........................................................................................................................................................ 22
Examples of tests of controls questions ............................................................................................................. 27
1. Board of directors .................................................................................................................................... 30
Composition of the board ................................................................................................................................... 30
What is an independent non-executive director? (Principle 2.18 (par 67), King Report) ................................... 30
2. Board committees ................................................................................................................................... 31
3. Governance of risk .................................................................................................................................. 33
4. Governance of Information Technology .................................................................................................. 33
5. Internal audit ................................................................................................................................... 33
6. Sustainability, integrated reporting and disclosure ........................................................................ 34
7. The link between governance principles and law ......................................................................... 35
Explanation ............................................................................................................................................... 37
Types & Examples ................................................................................................................................... 37
Use and Application ................................................................................................................................. 39
Purpose &Importance .............................................................................................................................. 40
Assertions assist auditors in considering a wide range of issues that are relevant to the authenticity of financial
statements. The consideration of management assertions during the Definition ......................................... 40
Explanation ................................................................................................................................................. 40
Model ........................................................................................................................................................... 40
Components ................................................................................................................................................. 40
Inherent Risk ............................................................................................................................................... 41
Control Risk .................................................................................................................................................. 41
Detection Risk .............................................................................................................................................. 41
Application ................................................................................................................................................... 42
Example ........................................................................................................................................................ 42
How to Follow Risk Assessment Procedures in an Audit.............................................................................. 43
Introduction .................................................................................................................................................. 45
Objective ....................................................................................................................................................... 45
Performing Risk Assessment Procedures ................................................................................................... 45
2
, Obtaining an Understanding of the Company and Its Environment ....................................................... 46
Industry, Regulatory, and Other External Factors ............................................................................... 46
Nature of the Company ............................................................................................................................ 46
Selection and Application of Accounting Principles, Including Related Disclosures ......................... 48
Company Objectives, Strategies, and Related Business Risks .............................................................. 48
Company Performance Measures ............................................................................................................ 49
Obtaining an Understanding of Internal Control Over Financial Reporting .......................................... 50
Control Environment ................................................................................................................................. 51
The Company's Risk Assessment Process .............................................................................................. 52
Information and Communication ........................................................................................................... 52
Control Activities ..................................................................................................................................... 53
Monitoring of Controls ............................................................................................................................ 53
Performing Walkthroughs ...................................................................................................................... 54
Relationship of Understanding of Internal Control to Tests of Controls ........................................... 54
Considering Information from the Client Acceptance and Retention Evaluation, Audit Planning Activities,
Past Audits, and Other Engagements ........................................................................................................ 55
Performing Analytical Procedures ............................................................................................................. 55
Conducting a Discussion among Engagement Team Members Regarding Risks of Material Misstatement
...................................................................................................................................................................... 56
Discussion of the Potential for Material Misstatement Due to Fraud.................................................. 57
Inquiring of the Audit Committee, Management, and Others within the Company about the Risks of
Material Misstatement ................................................................................................................................. 57
Inquiries Regarding Fraud Risks ........................................................................................................... 58
Identifying and Assessing the Risks of Material Misstatement ................................................................ 60
Identifying Significant Accounts and Disclosures and Their Relevant Assertions ............................ 60
Factors Relevant to Identifying Fraud Risks ......................................................................................... 61
Factors Relevant to Identifying Significant Risks ................................................................................. 62
Further Consideration of Controls ......................................................................................................... 63
Audit process - risk assessment ................................................................................................................ 63
Audit process - risk response .................................................................................................................... 63
Audit process - reporting ........................................................................................................................... 64
Audit process - what is an audit in the public sector? .............................................................................. 64
Audit process - what does an audit not do? .............................................................................................. 64
Audit process - what is a clean audit? ..................................................................................................... 64
3
