AAA- STANDARDS
1. IAS10 Events after reporting date
Events after the reporting period are those events, favorable and unfavorable, that occur
between the end of the reporting period and the date when the financial statements are
authorized for issue. The two types of events are:
● those that provide evidence of conditions that existed at the end of the reporting period (adjusting
events)- adjust in F/S
● those that are indicative of conditions that arose after the reporting period (non-adjusting events)-
Only disclosures
2. IFRS5- NCA held for sale and discontinued operations
a non-current asset or disposal group to be classified as held for sale if its carrying amount will be
recovered principally through a sale transaction instead of through continuing use. Assets held for
sale to be measured at the lower of the carrying amount and recoverable amount which is higher
of fair value less costs to sell and value in use. Depreciation of an asset to cease when it is held
for sale. Separate presentation in the statement of financial position of an asset
a. Mgt is committed to make a sale
b. Asset is available for immediate sale
c. Sale is highly probable- 12months
d. Asset is being actively marketed for sale at reasonable price
e. No change of plan
3. IFRS11- Joint Arrangements A joint arrangement is an arrangement of which two or more
parties have joint control. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities require the
unanimous consent of the parties sharing control.
4. IAS28 Investments in associates and joint ventures- equity method of accounting/single line
accounting.
5. IFRS8 Operating Segments- is a component of entity
a. Which engages in business activities from which it may earn revenues and incur
expenses.
b. Whose operating results are reviewed regularly by entity’s officer to make decisions.
c. Generates 10% or more of total group revenues.
6. IAS20 Accounting for Government Grants- Government grants are transfers of resources to an
entity by government in return for past or future compliance with certain conditions relating to the
operating activities of the entity. Government assistance is action by government designed to provide an
economic benefit that is specific to an entity or range of entities qualifying under certain criteria. An entity
recognises government grants only when there is reasonable assurance that the entity will comply with
the conditions attached to them and the grants will be received.
7. IAS37 Provisions, contingent liabilities and contingent assets. A provision is a liability of uncertain
timing or amount. The liability may be a legal obligation or a constructive obligation. An entity recognises
a provision if it is probable that an outflow of cash or other economic resources will be required to settle
the provision. If an outflow is not probable, the item is treated as a contingent liability.
Contingent liabilities are possible obligations whose existence will be confirmed by uncertain future events
that are not wholly within the control of the entity.Contingent liabilities also include obligations that are not
recognised because their amount cannot be measured reliably or because settlement is not probable
8. IAS38 Intangible assets - An intangible asset is an identifiable non-monetary asset without physical
substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other
legal rights. Goodwill acquired in a business combination is accounted for in accordance with IFRS 3. The
three critical attributes of intangible assets are- identifiability, control(power to obtain benefits from the
asset) and future economic benefits.
Development costs are capitalised only after technical and commercial feasibility of the asset for sale or
its use have been established. This means that the entity must intend and be able to complete the
intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future
economical benefit.
An intangible asset with a finite useful life is amortised and is subject to impairment testing. An intangible
asset with an indefinite useful life is not amortised, but is tested annually for impairment. When an
intangible asset is disposed of, the gain or loss on disposal is included in profit or loss.
9. IAS36 Impairment of Assets- Recoverable amount is the higher of (a) fair value less costs to sell and
(b) value in use.
10. IFRS15 Revenue from contracts with customers- IFRS 15 establishes the principles that an entity
applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash
flows from a contract with a customer.
a. identify the contract(s) with a customer.
b. identify the performance obligations in the contract.
c. determine the transaction price.
d. allocate the transaction price to each performance obligation on the basis of the relative
stand-alone selling prices of each distinct good or service promised in the contract.
e. recognise revenue when a performance obligation is satisfied by transferring a promised
good or service to a customer
11. IFRS2 Share based payments- states that the liability in respect of plan should be measured at FV at
year end, proper disclosure should be given.
12. IAS21 The effects of changes in foreign exchange rates- IAS 21 prescribes how an entity should:
a. account for foreign currency transactions;
b. translate financial statements of a foreign operation into the entity’s functional currency;
and
c. translate the entity’s financial statements into a presentation currency, if different from the
entity’s functional currency. IAS 21 permits an entity to present its financial statements in
any currency (or currencies).
d. Foreign currency purchases should be translated using spot rate or average rate at the
date of transaction. Any payables balance outstanding at year end must be revalued
using year end rate.
13. IFRS 16 Leases The general recognition and measurement requirements of IFRS16, requires
lessees to recognise a right of use asset and a lease liability at commencement date of the lease at PV of
lease payments, the commencement date is the date at which asset is available for use. Exemption for 12
month long lease.
14. IAS23 Borrowing cost Borrowing costs that are directly attributable to acquisition, construction or
production of a qualifying asset should be capitalized as part of cost of that asset. The borrowing costs
should be capitalsied only during the period of construction, with capitalisation ceasing when substantially
all activities necessary to prepare the qualifying asset for its intended use or sale are complete.
15. IAS19 Employee benefits It requires deficit to be recognised in B/S. The current and past service
costs and net interest to be recognised in P/L. Any actuarial gains/losses to be recognised in OCI.
16. IAS24 Related party Disclosures A person or a close member of that person’s family is related to a
reporting entity if that person has control, joint control, or significant influence over the entity or is a
member of its key management personnel.
IMPORTANT QUESTIONS/TERMS
Q1. CLIENT ACCEPTANCE PROCEDURES
AUDIT CLIENT NON AUDIT CLIENT
Ethical issues- threat to independence Who is the intended recipient of the report
Competence- skills Who else get hold of report?-liability?
Staff and resources Level of assurance? And content of report
timing/deadlines Extent of evidence expected to be accessed
Other professional considerations- any money Subject matter? And purpose of it
laundering cases?
Fee considerations What i will be checking in that subject matter?
Conflict of interest when/who/how was the report and info prepared-
period under review
Due diligence procedure- client screening-KYC Management and reviewer’s responsibility
Professional clearance- previous auditor Nature of assumptions
Pre conditions of audit present.
Q2. Reasons for Planning audit engagement.
1. Design suitable audit approach
2. Help decide who carries out work
3. Set materiality levels
4. Understand client business
5. Set appropriate materiality levels
6. Risk assessment
7. Extent of reliance on analytical procedures
8. Appropriate audit strategy
Q3. DUE DILIGENCE- professional clearance by previous auditor- KYC; the acquirer has full
knowledge of the company like-
a. Financial performance and position
b. Operational matters
c. Market position and commercial matters
d. legal/tax/HR matters
Q4. DATA ANALYTICS- it is the science and art of discovering and analysing patterns, deviations and
inconsistencies and extracting other useful information in the data underlying or related to subject matter
of an audit through analysis, modeling and visualisation for the purpose of planning and performing audit.
The larger audit firms and increasingly smaller firms utilise data analytics as part of their audit offering to
reduce risk and to add value to audit.
BENEFITS-
a. Increased business understanding through a more thorough analysis of a client’s data and use of
visual output such as dashboard displays rather than text or numerical info
b. Better focus on risk
c. Increased consistency across group audits where all auditors are using the same technology and
process, enabling the group auditor to direct specific tools for use in component audits
d. Increased efficiency through use of computer programmes to perform very fast processing of
large volumes of data
e. Increased fraud detection through ability to interrogate all data and to test segregation of duties
CHALLENGES-
a. Data privacy and confidentiality
b. Insufficient or inappropriate evidence retained on file due to failure to understand the procedures
and inputs fully.
c. Compatibility issues with client systems may render standard tests ineffective if data is not
available.
d. Audit staff maynot be competent to understand the exact nature of data and output to draw
appropriate conclusions, training will be expensive.
Q5 Whenever a business risk question is asked always-
a. Split it into external risks and internal risks
b. Talk about its impact on financial and non financial statements
c. Financial- cashflow, liquidity, profits, revenue, growth, costs, going concern, debt, ratios
d. Non financial- reputation, brand, goodwill, legal compliance, code of ethics.
e. COMMON BUSINESS RISKS- overtrading, legal issues, cashflow/going concern problems, govt
policy, reputational issues, interest/exchange rates, excessive reliance on one client/dominant
CEO, expand, foreign currency.
Q6. whenever an audit risk question is asked always-
1. Talk about which F/S is over/under/misstated and WHY.
2. Relevant accounting rules/standards- explain and relate to scenerio
3. MATERIALITY
4. FINANCIAL IMPACT- RATIOS/INCREASE/DECREASE/TRENDS
5. Non financial impact
Q7. COMMON AUDIT RISKS-
1. Pressure on results/mgt bias
2. New client
3. Reliance on component auditor
4. Financial analysis
5. Corporate governance issues
Q8. KEY AUDIT MATTERS PARA- KAM PARA- they are those matters that in auditor’s professional
judgment were of most significant importance in audit. Purpose of including these matters is to assist
users in understanding the entity.- COMPULSORY FOR LISTED COMPANIES.
Technical Articles
1. Corporate governance is the system by which organisations are directed and controlled. It
encompasses the relationship between the board of directors, shareholders and other
stakeholders. There should be a clear division of responsibilities at the head of the company,
which will ensure a balance of power and authority.
2. One of the key issues is that the audit committee should annually assess the independence,
objectivity and effectiveness of the external audit process, considering of the ethical framework
applicable in the jurisdiction in which the organisation is operating. The audit committee should
report annually to the board on their assessment with a recommendation on whether to propose
to the shareholders that the external auditor be reappointed.
3. At the end of the annual audit cycle, the audit committee should assess the effectiveness of the
audit process, by:
● reviewing whether the auditor has met the agreed audit plan and understand the reasons for any
changes, including changes in perceived audit risks and the work undertaken by the external
auditors to address those risks
● considering the robustness and perceptiveness of the auditors in their handling of the key
accounting and audit judgements identified and in responding to questions from the audit
committee
● obtaining feedback about the conduct of the audit from key people involved, for example the
finance director and the head of internal audit
● reviewing and monitoring the content of the external auditor’s management letter (report to those
charged with governance), in order to assess whether it is based on a good understanding of the
company’s business and establish whether recommendations have been acted upon and, if not,
the reasons why they have not been acted upon, and
● reporting to the board on the effectiveness of the external audit process
4. Earnings management occurs when companies deliberately manipulate their revenues and/or
expenses in order to inflate (or deflate) figures relating to profits and earnings per share. In other
words, it is when companies use ‘creative accounting’ to construct reported figures that show the
position and performance that management want to show. include the deliberate falsification of
underlying accounting records, intentionally breaching an accounting standard, or knowingly
omitting transactions or required disclosures in the financial statements.
5. Firms should do EQR when-
a. Audits which involve a high level of complexity or judgement due to significant accounting
judgements with high degrees of uncertainty
b. Audits where significant issues have been encountered
c. Audits or engagement for which unusual circumstances have been identified
d. Engagements involving reporting to be included in regulatory findings
e. Audits and engagements for which the firm has no prior experience.
f. The use of an EQR to mitigate ethical threats identified
6. Inherent risks-
a. Complexity
b. Subjectivity
c. Change
d. Uncertainty
e. Mgt bias susceptibility
7. Matters to be communicated
In the second step, the auditor should consider the type of issues that should be communicated. ISA 260
provides some guidance as to the matters which ordinarily could be incorporated in the communication,
including:
A. the overall approach and scope of the audit, including any limitations on the scope of the audit
● the accounting policies, and any changes to them, that could materially affect the financial
statements
● adjustments arising as a result of audit procedures which could materially impact the financial
statements
● material events or uncertainties which could jeopardise the going concern status, and which
require disclosure within the financial statements
● disagreements with management over accounting treatments or disclosures
● any expected modifications to the audit report
● material weaknesses discovered in the internal systems and controls.
FORENSIC AUDIT
forensic accounting refers to the whole process of investigating a financial matter, including potentially
acting as an expert witness if the fraud comes to trial.
