Assurance Certificate Level

Concept of and need for assurance
01. What is assurance engagement? [P- 03] [J-11; D-13]
An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance

the degree of confidence of the intended users other than the responsible party about the outcome of
the evaluation or measurement of a subject matter against criteria.
02. Discuss the key criteria/ elements of an assurance engagement/ audit? [P- 03] [J-10, 11, 12,
13]
I. Three people or group of people involved:

i. The practitioner (accountant)
ii. The intended users
iii. The responsible party (the persons(s) who prepared the subject matter)
II. A subject matter:

i. Data (for example, financial statements or business projections)
ii. Systems or process (for example, internal control systems or computer systems)
iii. Behavior (for example, social & environmental performance or corporate governance)
III. Suitable criteria:
If assurance engagement relating to financial statement then accounting standards is the

suitable criteria and the degree of assurance will be reliable.
IV. Sufficient appropriate evidence:

The practitioner must obtain evidence as to whether the criteria have been met.
V. A written report in appropriate form:

A report should be written form and contain specified information.
03. What are the types of assurance engagement? [P- 04] [J-12; 11,
13] The Framework identifies two types of assurance engagement-
a) Reasonable assurance engagement (A high, but less than absolute of assurance, Positive)
b) Limited assurance engagement ( A meaningful level of assurance, Negative)
04. What are the key differences between the two types of assurance engagement? [P- 05]
The key differences between the two types of assurance engagement are given below:
 The evidence obtained
 The type of opinion given
Summary of types of engagement:

Subject Reasonable assurance Limited assurance
Evidence Sufficient & Sufficient & appropriate (lower
appropriate level)
Opinion Positive Negative
Risk Low High
Level of assurance High Low
05. Give some examples of assurance engagements. [P- 06]
Other examples of assurance engagements include other audits, which may be specialized due to the
nature of the business, for example:
Statutory audit (Key example) Pension scheme audits
Local authority audits Charity audits
Insurance Company audits Solicitors' audits
Bank audits Environmental audits
 Branch audit (where an overseas company trades in Bangladesh through a branch and requires
an audit of that branch although an audit is not required by Bangladesh law)
06. In addition to audit, users want some other assurance services. Give few examples. [P-06][J-
13]
There are also many issues users want assurance on, where the terms of the engagement will be
agreed between the practitioner and the person commissioning the report, for example:
 Value for money studies
 Circulation reports (for example, for magazines)
 Cost/benefit reports
 Due diligence (where a report is requested on an acquisition target)
 Reviews of specialist business activities
 Internal audit
 Reports on website security, such as Web Trust
 Fraud investigations
 Inventories and receivables reports
 Internal control reports
 Reports on business plans or projections
07. What are the benefits of assurance? [P- 10] [D-13]
 The key benefit of assurance is,

- The independent &
- Professional, Verification being given to the users.
 Subsidiary benefit,
- Give additional confidence to other parties.
- Enhances the credibility of the information.
- Helps to prevent errors or frauds.
- Reduce the risk of management bias.
- Increases faith and trust.
- It helps to ensure that high quality, reliable information exists, leading to effective markets.
08. Why can assurance never be absolute? [P- 7] [J

12;D10,13]
What are the limitations of assurance?
Assurance can never be absolute for the following reason:

 Sampled/ Test basis.
 Inherent limitation
 Most audit evidence is persuasive rather than conclusive.
 Assurance provision can be subjective.
 The subject matter may be estimates and uncertain.
 Impossible to conclude absolutely.
 Expectations gap
 Limitation of third parties
 Limitation of systems.
09. How create the expectations gap between assurance providers and intended users? [P- 8]
For the following reason the expectations gap can be create:

 Users are not aware of the nature of the limitations on assurance provision,
 Lack of the Certificate,
 Do not understand properly and
 Believe that the assurance provider is offering a service which in fact he is not.
10. What are the objectives of an audit of financial statements? [P-09]
The objective of an audit of financial statements is to enable the auditor to express an opinion whether
the financial statements are prepared, in all material respects, in accordance with an applicable
financial reporting framework.
08. How auditors express his audit opinion? [P-09]
In Bangladesh, the auditor will normally express his audit opinion by reference to the ‘true and fair
view’, which is an expression of reasonable assurance. Whilst this term is at the heart of the audit,
‘true’ and ‘fair’ are not defined in law or audit guidance.
9. Describe the terms of “True & Fair”: [P- 09] [J-10; D-13]
a) True:
 Information is factual and conforms with reality, not false.
 Conforms with required standards and law.
 The accounts have been correctly extracted from the books and records.
b) Fair:
 Information is free from discrimination and bias
 Compliance with expected standards and rules
 The accounts should reflect the commercial substance of the company’s underlying
transactions.
10. What are the legal and professional requirements of auditors? [P- 09]
a) The legal requirements are-

 Currently contained in the Companies Act 1994.
 The Companies Act 1994 requires that auditors must be a member of ICAB (the Institute of
Chartered Accountants of Bangladesh).
b) Professional qualifications are-

 A prerequisite of membership of ICAB.
 ICAB has also the responsibility to implement procedures for monitoring its licensed
auditors.
11. Which person ineligible for being a company auditor, under Companies Act 1994? [P- 10]
Following persons are ineligible for being a company auditor, under Companies Act 1994-
i. An officer or employee of the company
ii. A partner or employee of such a person
iii. Any partner in a partnership in which such a person is a partner
iv. Ineligible by the above for appointment as auditor of any directly connected companies.
12. For which ICAB is responsible for issuing Ethical Standards (ESs)?
[P-10] ICAB is responsible for issuing Ethical Standards (ESs) and guidance
for auditing in relation to the-
 Auditing Standards
 Ethical Standards for Auditors
 Practice notes
 Bulletins
 Standards for review of interim financial statements performed by the auditor of the entity.
13. States about BSA 200 Objectives and General Principles Governing an Audit of financial
Statements. [P- 10]
Auditors should comply with relevant ethical requirements relating to audit engagements.
12. How made up of ISAs? [P- 10]
Introductory materials and definitions

Objectives
Requirements
Application and other explanatory material (including appendices)
15. Who are the users of assurance Engagement? [P- 10]
 Shareholders of a company, to whom the financial statements are addressed

 The board of directors of a company or a subsection of them.
16. What is expectations gap? [P- 11] [J-12]
The expectations gap is a gap between what the assurance providers understands he is doing and what
the user of the information believes he is doing. Shortly it is lack of understanding of users.
19. How can we minimize the gap? [P- 11]
Assurance providers can minimize the gap by the following way:

 By issuing an engagement letter spelling out the scope of the work.
 Explain the limitations of the work.
 Reviewing the format and content of reports.
20. What is Audit Opinion? [D-12]
The audit opinion is that part of the auditor's report to the members of an entity in which the auditor
expresses an opinion on the extent to which the financial statements are materially misstated. The
fact that it is an opinion, and not a certification, is meant to indicate to financial statement users that
the auditor is providing reasonable assurance, and not complete assurance, as to whether or not the
financial statements are materially misstated. Audit opinion is the statement recorded in an auditor’s
report by the external auditor.
21. Audit and Assurance are always used together. What is the exact difference between these?
[D-11]
Subject Audit Assurance
All audit engagements are assurance But not all assurance engagements are
engagements. audit engagements.
Audit engagement provides reasonable Assurance engagements can be
assurance. reasonable assurance engagements and
limited assurance engagements.
22. Which of the following are specialized audit?
Ans:
Branch audit Bank audit
Pension scheme
Internal audit audit
Fraud investigations
23. Which level of assurance engagement gives the following opinion: “In the course of my seeking
evidence about the statement by the chairman, nothing has come to my attention indicating that the
statement is not reasonable.”
Ans: Limited assurance.
20. Which of the following factor make a person ineligible for being a company auditor?
An employee of the client company.

A shareholder of 0.05% of the subscribed capital.
A person who is indebted to the company not exceeding Tk. 1000.
Director of X Ltd. which is the managing agent of the client.
Interactive question 1: Assurance engagement [Difficulty level:

Easy]
You are an accountant who has been approached by Jamal, who wants to invest in Company X. He
has asked you for assurance whether the most recent financial statements of Company X are a
reliable basis for him to make his investment decision.
Identify the key elements of an assurance engagement in this scenario, if you accepted the
engagement.
Interactive question 2: benefits of assurance [Difficulty level: Exam

standard]
Which three of the following are benefits of assurance work? [P- 12] [D- 10]
1) An independent professional opinion

2) Additional confidence given to other related parties
3) Testing as a result of sampling is cheaper for the responsible party
4) Judgments on estimates can be conclusive
5) Assurance may act as a deterrent to error or fraud
21. Write down the stages of an audit? p-11
Obtaining the engagement
Planning
Performing procedures
Review and completion
Reporting
Assurance (Certificate Level) 01st Chapter
22. What is the overall objective of an auditor in according to ISA 200? p-11
a) To obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, thereby enabling the auditor to express an
opinion on the financial statements prepared.
b) To report on the financial statements, and communicate as required by ISA, in accordance with
the auditors finding.
In order to do this the auditor must
- Comply with relevant ethical requirement
- Plan &perform with professional skepticism
- Exercise professional judgement
- Obtain audit evidence that both sufficient and appropriate.
23. Short notes: P-12
Professional skepticism: is an attitude that includes a questioning mind, being alert to conditions which
may indicates possible misstatement due to error or fraud, and critical assessment of audit evidence.
Professional judgement: is the application of relevant training, knowledge and experience in making
informed decision about the courses of action that are appropriate in the circumstance of the audit
engagement.
24. What area to be alert to require an auditor? P-12

1) Audit evidence that contradict others evidence
2) Information that bring into question the reliability of documents as evidence.
3) Conditions may indicate possible fraud
4) Circumstance that suggest need the audit procedures that require ISA
25. What requires the professional judgement required in planning and performing audit? P-12
1) Materiality and audit risk
2) Nature, timing and extent of audit procedures
3) Evaluation sufficient and appropriate evidence
4) Evaluation management ‘s judgement
5) Draw conclusion
Page 6 of 6
MD HASAN BHUIYAN
nd
Assurance (Certificate Level) 02 Chapter
Process of Assurance: Obtaining an Engagement
01. What is audit engagement letter? [P-19]

An engagement letter defines the legal relationship between a professional firm and its client(s). This
letter states the terms and conditions of the engagement, objective and scope of the audit, the extent of
the auditor’s responsibilities to the client and the form of their report. It must be in writing.
2. Who sets out the rules to accept new audit appointments? [P- 20]
Schedule C of ICAB &
IFAC
Code of Ethics sets out the rules under which accountants should accept new appointments.
03. Describe the Assurance Engagement Acceptance procedure. [P- 20] [J-12,13]
The nominee auditors must carry out the following procedures:
Ensure professionally qualified to act
Ensure existing resources adequate
Obtain references
Communicate with present auditors
4. Contrasts the low and high risk clients. [P- 21] [J-12,13]
How we can ascertain low and high risk about new client?
How will you determine the low & high risk clients?
What factors should consider about risk?
The following table contrasts low and high risk clients:

Subject Low risk High risk
Trends Good long-term prospects Poor recent or forecast performance
Finance condition Well-financed Likely lack of finance
Internal control Strong internal controls Significant control weaknesses
Accounting Conservative, prudent accounting Evidence of questionable integrity, doubtful
policies policies accounting policies
Management Competent, honest management Lack of finance director
Unusual Few unusual transactions Significant unexplained transactions or
transactions transactions with connected companies
05. How do we get information about new clients? [P- 22]

Source of information about new clients are as given below:
Enquires of other sources (Banks, solicitors)
Review of documents (Annual accounts, Credit rating)
Previous accountants/auditors
Review of rules & standards
Md Hasan Bhuiyan Page 1 of 3

nd
6. If new client decline permission to contact with previous auditor than what factor should be consider by
the prospective auditor? [P- 21] [J-10; D-11]
If new client refuse to give permission to contact with pervious auditor than prospective auditor should consider
carefully-
The reason for this refusal Audit risk
Impact of the refusal Possibility to reduce the audit risk
Auditor’s independence
And than prospective auditor will refuse or accept the appointment.
07. Write the communication letter with previous auditor. [P- 21]
To,
Retiring & Co.
Chartered Accountants
Ref: New client Co. Ltd.
Dear Sir,
We are pleased to inform you that the management of “New Client Co. Ltd” has been appointed us as auditor for
audit of the accounts of the company for the year ended 30 June, 2019.
As you were the previous auditor of the Company, we shall be glad if you have no objection to accept us the said
assignment.
Acquiring & Co.
Chartered Accountants
8. Which matter must be considered after accepting nomination an engagement? [P- 23]
What procedures should be carried out after accepting nomination?
The following procedures should be carried out after accepting nomination:
Ensure that the outgoing auditors were properly removed.
Ensure that the new auditors’ appointment is valid
Set up & submit a letter of engagement to the directors.
9. Why do need an engagement letter? [P- 24] [D-12]

Describe the purpose of audit engagement letter.
Purpose of an engagement letter is –
To clarify the terms of the engagement
To clarify the extent of the firm’s responsibility
Minimize misunderstanding between the client & firm
Express the scope of the audit
To confirm acceptance of the appointment.
10. What matters are including in an audit engagement letter? [P- 27] [J-10,13; D-11]
Describe the content of audit engagement letter.
Content of audit engagement letter are given below: Additional content:
Objective of the audit of FS. Involvement of any other auditor.
Scope of the audit. Test Nature
Auditor’s responsibility. Involve Internal Auditor
Reporting Framework Involvement of the expertise.
Management’s responsibility (Unrestricted Audit plan.
Access). Written Confirmation
Reporting form. Fees.
Nature & other inherent limitation. Any restriction of auditor’s liability.
Unrestricted access to auditors.
nd
11. What factor should be considered, if the risk level of audit is high? [P- ]
If the risk level of audit is high than prospective auditor should be consider following factor-
Closely monitor about high risk client
Try to mitigate the risk
If it is not possible to mitigate the risk than the acceptance should be canceled.
12.What the factor may make to send a new letter to revised the terms of the audit engagement or to
remind the entity of existing term? P-28
Any indication that the entity misunderstands the objective and scope of the audit
Any revised or special terms of the audit engagement
A recent change of senior management
A significant change in ownership
A significant change in nature or size of the entity’s business
A change in legal regulatory requirements
A change in the financial reporting framework adopted in the preparation of the financial statement
A change in other reporting requirements
Interactive question 1: Accepting appointment [Difficulty level: Easy]

Identify whether the following are true or false. The audit firm should consider the following factors when
determining whether to accept an engagement.
True False
Whether the firm is ethically barred from acting.
Whether the firm has sufficient resources to carry out the engagement.
Whether the firm can make sufficient profit from the engagement.
Whether the client is new to the firm.
Whether the client gives permission to contact the outgoing auditors.
Interactive question 2: Engagement letters [Difficulty level: Exam standard]

Which three of the following will normally be contained within a letter of engagement?
Responsibilities of the auditors
Responsibilities of the directors
The staff assigned to the engagement
The scope of the audit
rd
Process of Assurance: Planning the assignment
1. What are the function/ objective/ features of Audit Strategy? [P- 37]
 The formulation of the general strategy for the audit
 Sets the scope, timing and direction of the audit and
 Guides the development of the audit plan.
02. What are the differences between audit strategy and audit plan? [P- 37]
Audit Strategy:
The formulation of the general strategy for the audit which sets the scope, timing and direction of the audit
and guides the development of the audit plan.
Audit plan:
An audit plan shows how the overall audit strategy will be implemented. An audit plan is more detailed than
the audit strategy and sets out the nature, timing and extent of audit procedure to be performed by
engagement team members in order to obtain sufficient appropriate audit evidence.
Subject Audit Strategy Audit Plan

Approach The audit strategy is the general approach The audit plan is the detailed approach, the
and general principle. Steps that should be followed.
Objective Guides the development of the audit plan. It shows how the overall strategy will be
Implemented.
Activities Sets the scope, timing and direction of the Sets the nature, timing and extent of audit
Audit. Procedures.
Nature General Specific
Outcome Audit Plan Audit Procedures
03. Describe the audit plan procedures? [P- 37]

An audit plan shows how the overall audit strategy will be implemented. Audits are planned to:
i. Attention to important areas- Ensure appropriate attention is devoted to important areas of the audit
ii. Identify potential problems
iii. Resolve the problems- Resolve the problems on a timely basis
iv. Properly organized and managed- Ensure that the audit is properly organized and managed.
v. Assign work to team members- Assign work to engagement team members properly
vi. Direction and supervision- Facilitate direction and supervision of engagement team members
vii. Review of work
4. Describe the structure approached to planning? [P- 37]

A structured approach to planning will include:
i. Ethical requirements continue to be met
ii. Terms of engagement is understood
iii. Establishing the overall audit strategy
iv. Developing audit plan including risk assessment procedures, audit tests and any other procedures
necessary to comply with ISAs.
5. How can you formulate an audit strategy? [P- 38]

i. Relevant characteristics of engagement e.g. Reporting, framework, entity’s environment)
ii. Key dates – Reporting, other communication.
iii. Materiality, preliminary risk assessment, testing internal control
Page 1 of 9
rd
06. What are the key contents of an audit strategy? [P- 38]
Key contents of an audit strategy are as given below:
i. Entity’s environment- Understanding the entity’s environment
ii. Accounting and internal control systems- Understanding the accounting and internal control systems
iii. Risk and materiality
iv. Nature, timing and extent of procedures
v. Co-ordination, direction, supervision and review
vi. Other matters
And also read your text book p-38
7. Give some examples of overall audit strategy. [P- 39]

i. The terms of engagement vi. Risk evaluation and audit approach
ii. Understanding the company and its business vii. Other matters
iii. Special audit problems risks) viii. Budget and fee
iv. Results of analytical procedures ix. Timetable
v. Materiality x. Staffing
8. Under BSA 315, what do you mean by understanding of the entity its environment? Why do we it? [P-
40]
 Identify and assess the risks of material misstatement
 Design and perform further audit procedure
 Provide a frame of reference for exercising audit judgment.
9. What matters are considered in understanding of entity and its environment? [P- 41]
 Industry, regulatory and other external factors
 Nature of the entity
 Internal control
 Measurement and review of financial statement
 Objective and strategies and relating business risk.
10. How do we understand of an entity and its environment? [P- 41]

 Inquires of management and others
 Analytical procedures
 Observation and inspection
 Prior period Certificate
 Discussion.
11. What matters are including in the client profile?

1. Shareholder- Information regarding Shareholder
2. Director- Name of Director
3. Operation- Type of operation
4. Customer- Detail of customer
5. Supplier- Number and Name of supplier
6. IT- The accounting system is completely computerized
7. Financial performance- Company formed 20 years ago and has always been profitable
8. Future plans No new plan that we are aware of.
12. What do you mean by “Professional skepticism”? [P- ]

An attitude of professional skepticism means
 The auditor makes a critical assessment, with a questioning mind, of the validity of audit evidence
 Contradicts or bring into question of the reliability of documents.
 Not disbelieve everything
 Contain questioning attitude.
Page 2 of 9
rd
13. What is analytical procedure? [P- 44]

Analytical procedures means-
 Evaluation of financial information
 Study of plausible relationships among both financial and non financial data
 Investigation of fluctuation to identify audit risk.
14. According to BSA 520, what matters are included in the analytical procedures? [P- 44]
The BSA state that analytical procedures include-
 Comparisons with-
Prior period information
Anticipated results- Budgets, expectation of auditor
Industry information- Ratio of sales to trade receivables
 Relationship between:
Elements of financial information- Gross profit to sales
Financial and relevant non-financial information- Payroll cost to number of employees.
15. What is the basis for choosing analytical procedures for audit? [P- 44]
Auditor’s professional judgment.
16. At the risk assessment stage, what are the possible sources of information about the client? [P- 44]
Possible sources of information about the client include:
i. Interim financial information v. Bank and Cash records
ii. Budgets vi. Vat returns
iii. Management accounts vii. Board minutes
iv. Non- financial information viii. Discussion with the client at the year end.
17. Described certain accounting ratios which may be used as analytical procedures. [P- 45]
Here are the key ratios used:
Heading/ Ratio Formula Purpose
Performance: Profit before interest and tax
Return on capital employed Equity + net debt Effective use of resources
Return on shareholders' funds Net profit for the period

Share capital + reserves Effective use of resources
Gross profit margin Gross profit x 100 Assess profitability before taking
Revenue overheads into account
Cost of sales percentage Gross sales x 100 Assess relationship of costs to
Revenue revenue
Operating cost percentage Gross costs x 100 Assess relationship of costs to
Revenue revenue
Net margin=operating margin Profit before interest and tax x 100 Assess profitability after taking
Revenue overheads into account
Short-term liquidity:
Assess ability to pay current
Current ratio
Current assets : Current liabilities liabilities from reasonably liquid
assets
Quick ratio Assess ability to pay current
Receivables + Current investments
liabilities from reasonably liquid
+ Cash : Current liabilities
assets
Anamul Huq (M.Z. Islam & Co.) Page 3 of 9

rd
Long-term solvency: Net debt x 100

Gearing ratio Equity Assess reliance on external finance
Interest cover Profit before interest payable
Interest payable Assess ability to pay interest charges
Efficiency: Revenue
Assess revenue generated from asset
Net asset turnover Capital employed base
Inventory turnover Cost of sales
Inventories Assess level of inventory held
Trade receivables collection Trade receivables x 365 Assess ability to turn receivables into
period Revenue cash
Trade payables payment period Trade payables x 365
Credit purchases Assess ability to pay suppliers
18. What do you mean by the terms “Materiality”? [P- 47]

Level of error that affects the decisions of users. As per BSA Framework, a matter is material if its omission
or misstatement would reasonably influence the economic decisions of users taken on the basis of the
financial statement. Materiality depends on the size of the error in the context of its omission or
misstatement.
19. How materiality is used in the course of an assurance engagement? [P- 48]
Shows how materiality is used in the course of an assurance engagement:
i. Planning materiality- based on draft financial statements and other available information.
ii. Apply planning materiality- to individual audit objectives/ balances
iii. Test all items:
a. Planning materiality, b. Actual errors detected, c. Actual errors projected to population
iv. Sample from remaining items:
a. Tolerable error, b. Actual errors detected, c. Actual errors projected to population
v. Final materiality- based on results obtained and final financial statements
vi. Compare and consider need for additional testing
Planning materiality
based on draft financial statements
and other available information
Apply planning materiality to Compare and consider need

individual audit objectives/balances
for additional testing
Test all items:

Actual Errors
≥ Planning materiality
Detected
Sample from remaining items Actual Errors

≥Tolerable error Detected
Final materiality Actual Errors Projected

based on results obtained and final to Population
financial statements
Figure: Audit Materiality
Md Hasan Bhuiyan Page 4 of 9

rd
20. According to the BSA320, when should an auditor consider materiality? [P- 49]
BSA 320 Audit Materiality states that ‘materiality should be considered by the auditor when:
i. Determining nature, training & extent of audit procedure.
ii. Evaluating effect of misstatement
21. How does materiality assessment helps the auditor? [P- 50]
How does risk and materiality are closely connected?
Materiality assessment will help the auditors to decide:
 How many and what items to examine
 Whether to use sampling techniques
 What level of error is likely to say the financial statements don’t give a true and fair view?
The resulting combination of audit procedures should help to reduce audit risk to an appropriately low level.
22. What do you mean by “Tolerable error”? [P- 50]

The maximum error that an auditor is prepared to accept in a class of transactions or balances in the financial
statements.
23. How can we determine materiality? [P- 49]

Or, Describe the method of assurance of materiality?
Methods of assess of materiality:
Particulars Maturity Level
Profit before Tax 5-10%
Revenue 0.5-1%
Total assets 1-2%
24. Why do need review of materiality? [P- 49]

The level of materiality must be reviewed because-
 Draft accounts are altered- due to material error and so on
 External factors- may cause changes in risk estimates
such changes are caused by errors found during testing.
25. What is audit Risk? [P- 49]

The risk for which the auditors give an inappropriate opinion on the financial
statement, Audit Risk = Risk of Material Misstatement + Detection Risk
Inherent Risk Control Risk
26. Describe the element of audit risk. [P- 50]

Audit risk has two elements-
a. Risk of material misstatement- The risk that the financial statements contain a material misstatement
b. Risk of detection- The risk that auditors will fail to detect any material misstatement
27. Classify the risk of material misstatement in the financial statements. [P- 50]
a. Inherent Risk:
Inherent risk is the possibility of material misstatement due to nature of the items.
b. Control Risk:
Control risk is the possibility of material misstatement which can not be detected, prevented or
corrected by the accounting and internal control systems.
Page 5 of 9
rd
28. Give some example that might increase inherent risk. [P- 51]
Example of issues that might increase inherent risk are:
i. Balance includes estimates
ii. Balance is important
iii. Financial statements are liable to misstatement because:
 Company is in trouble
 Company is seeking to raise finance
 Other motivation for directors to misstate the figures
iv. Financial statements contains complex accounting
29. What is Detection Risk? [P- 51]

The risk that the auditor’s procedures will not detect a misstatement that exists in an account balance or class
of transaction that could be material, either individually or when aggregated with misstatements in other
balances or classes.
30. Which part of audit risk could be controlled by the auditor and how?
Detection risk could be controlled by the auditor. Because:
 Inherent and control risk are integral to client
 Auditor’s parts is detection risk
 Auditor’s aim is to reduce overall audit risk, not only one part.
31. Could detection risk be entirely eliminated and why?

No. due to inherent limitations of audit.
32. How can detection be reduced?

By carrying out substantial number of lost. Include high level of audit work.
33. If control risk and inherent risk both are high what effect it has on the audit?
 Not rely on the tests of controls
 Carry out extended test of details
 To reduce detection risk
34. Determine the audit risk would you accept the engagement?
Inherent risk Control risk Detection risk Audit risk
High High High ?
Medium Low Medium ?
Ans: 01. Audit risk = High. Not acceptable (Reduce detection risk to low level)
2. Audit risk = Medium. Acceptable.
35. If control risk is low, would you substantive

procedure? No. because auditor has to reduce detection risk.
36. Discuss the level of identifying and assessing the risks. [P- 52]
Under BSA 315, there are two levels to identify and assess the risks, which are given below:
i. Financial statement level- the auditor should identify and assess the risks of material misstatement
ii. Assertion level- for classes of transactions, account balances, and disclosures.
Page 6 of 9
rd
37. What are the steps of identifying and assessing the risks? [P- 52]
It requires the auditor to identify and assess the risks, take the following steps:
Step 1: Identify risks at understanding entity level.
Step 2: Identify risk at assertion level. (For example, Directors asserted, inventory is CUx)
Step 3: Magnitude of misstatement.
Step 4: Likelihood of misstatement
38. According to BSA 315, which factor indicate a significant risk? [P- 53]
BSA 315 sets out the following factors which indicate that a risk might be a significant risk:
 Risk of fraud
 Recent significant economic, accounting or other development
 Complexity of transaction
 Significant transaction with a related party
 Degree of subjectivity in the financial information
 Unusual transaction
39. Why do unusual transaction are more likely to give rise to material misstatement than routine and
regular transactions? [P- 54]
Routine, non-complex transactions are less likely to give rise to significant risk than unusual transactions or
matters of director judgment. This is because unusual transactions are likely to have more:
 Management intervention
 Manual intervention
 Complex accounting principles or calculations
 Opportunity for control procedures not to be followed
40. What should an auditor do when found significant risk?

Auditor must evaluate the design and implementation of entity’s control in that area.
rd
Interactive question 1: The overall audit strategy [Difficulty level: Exam standard]
Which three of the following would ordinarily be contained in the overall audit strategy?
The contract between the audit firm and the client
The results of audit risk assessment
Calculation of preliminary materiality
Detailed plan of audit procedures to be carried out
List of staff to be involved with the audit
Interactive question 2: Understanding the entity [Difficulty level: Exam standard]

In order to obtain an understanding of the entity, auditors must use a combination of which four of the
following procedures?
Inspection
Observation
Inquiry
Analytical procedures
Computation
Interactive question 3: Analytical procedures [Difficulty level: Exam standard]

Here is some budget financial information for Fleming Ltd, contrasted with the management results for the
12 months under review.
Budget 20X6 CU Actual 20X6 CU
Sales 1,350,000 1,339,588
Cost of sales 850,000 994,663
Gross margin 500,000 344,925
Salaries 245,000 243,873
Repairs and renewals 7,500 24,983
Depreciation 7,500 7,551
Motor expenses 25,750 14,678
Other costs 44,000 43,968
Which three of the following areas would you be most likely to investigate further as a result of carrying out
analytical procedures on the above?
Sales
Cost of sales
Sales and cost of sales
Depreciation
Repairs and renewals
Motor expenses
Interactive question 4: Materiality [Difficulty level: Easy]

You have identified the following draft figures in respect of your audit of Fairford Ltd, which is considered
to be a low risk audit. The client is well known to your firm, there have been no substantial changes in the
year that you are aware of, and you have carried out several audits in previous years. Draft figures:
Revenue CU13,089,394
Profit before tax CU 1,403,444
Total assets CU 4,305,538
Based on a standard weighted average approach, preliminary materiality is likely to be set in the range:
A. CU74,000 – CU148,000
B. CU1,400,000 – CU2,800,000
C. CU4,300,000 – CU8,600,000
Page 8 of 9
rd
D. CU6,500,000 – CU13,000,000
Interactive question 5: Audit risk [Difficulty level: Exam standard]

Audit risk can be split into three components: inherent risk, control risk and detection risk.
For each of the following examples, indicate the type of risk illustrated.
1 The organization has few employees in the accounts department
2 The organization is highly connected with the building trade
3 The assurance firm may do insufficient work to detect material errors
4 The financial statements contain a number of estimates
Interactive question 6: Identifying risks [Difficulty level: Exam standard]

You are involved with the audit of Tantpro Ltd, a small company. You have been carrying out procedures to
gain an understanding of the entity. The following matters have come to your attention.
The company offers standard credit terms to its customers of 60 days from the date of invoice. Statements
are sent to customers on a monthly basis. However, Tantpro Ltd does not employ a credit controller, and
other than sending the statements on a monthly basis, it does not otherwise communicate with its customers
on a systematic basis. On occasion, the receivables ledger clerk may telephone a customer if the company
has not received a payment for some time. Some customers pay regularly according to the credit terms
offered to them, but others pay on a very haphazard basis and do not provide a remittance advice.
Receivables ledger receipts are entered onto the receivables ledger but not matched to invoices remitted. The
company does not produce an aged list of balances.
Which one of the following is the risk most likely to arise out of the above scenario?
Inventory may be overstated
Inventory may be understated
Purchases may be overstated
Purchases may be understated
Trade receivables may be overstated
Trade receivables may be understated
th
Process of Assurance: Evidence and Reporting
01. What is the Objective of an assurance engagement? [P-63]

The objective of an assurance engagement is to enable the auditor to express an opinion whether the subject
of the assurance engagement is in accordance with the identified criteria.
02. What is Audit evidence? [P- 63]

Audit evidence is all of the information used by the auditor in arriving at the conclusions on which the audit
opinion is based.
3. What are the types of test of audit evidence? [P- 63] There
are potentially two types of test which they will carry out:
a. Tests of controls:
Performed to obtain audit evidence
Test effectiveness of controls
Detecting and correcting material misstatements at the assertion level.
b. Substantive procedures:
performed to detect material misstatements at the assertion level
Tests of detail of classes of transactions, account balances and disclosures.
Substantive analytical procedures.
04. Why do auditors carry out tests of controls and substantive procedures? [P- 63]
The logic is as follows.
a. Test of controls-
Submit a report correctly to the shareholders
Required to conclude to give a true and fair view.
Capable of producing financial statements which give a true and fair view.
Test the control system to assess whether it has operated to give a true and fair
view. b. Substantive Procedures-
Test its correctness
05. What are the sufficiency and appropriateness relating to audit evidence? [P- 64] [D-12(1a)]
'Sufficiency' and 'appropriateness' are interrelated and apply to both tests of controls and substantive
procedures.
Sufficiency is the measure of the quantity of audit evidence.
Appropriateness is the measure of the quality or reliability of the audit evidence.
6. Which audit evidence is reliable? [P- 64]

External sources- External audit evidence is more reliable than the entity's records.
Directly by auditor- Evidence obtained directly by auditors is more reliable than indirectly or by
inference.
Entity’s records- Entity's records is more reliable when related control systems operate effectively.
Written documents- Written documents (paper or electronic) are more reliable than oral
representations
Original documents- Original documents are more reliable than photocopies or facsimiles.
07. What are financial statement assertions? [P- 64]

The representations by management, explicit or embodied in the financial statements.
Page 1 of 5
th
08. Why auditors use assertions which are given by directors relating to financial statements? [P-
65] BSA 500 states that 'the auditor should use assertions for-
Classes of transactions,
Account balances, and
Presentation and disclosures
9. What are the management assertions? [P-65][J-12(8a)]

Assertions used by the auditor
classes of Occurrence: transactions and events that have been recorded have occurred and pertain
transactions to the entity.
Completeness: all transactions and events that should have been recorded have been
recorded.
Accuracy: amounts and other data relating to recorded transactions and events have been
recorded appropriately.
Cut-off: transactions and events have been recorded in the correct accounting period.
Classification: transactions and events have been recorded in the proper accounts.
Account Existence: assets, liabilities and equity interests exist.
balances Rights and obligations: the entity holds or controls the rights to assets, and liabilities are
the obligations of the entity.
Completeness: all assets, liabilities and equity interests that should have been recorded
have been recorded.
Valuation and allocation: assets, liabilities, and equity interests are included in the
financial statements at appropriate amounts and any resulting valuation or allocation
adjustments are appropriately recorded.
Presentation Occurrence and rights and obligations: disclosed events, transactions and other matters
and have occurred and pertain to the entity.
disclosure Completeness: all disclosures that should have been included in the financial statements
have been included.
Classification and understandability: financial information is appropriately presented
and described, and disclosures are clearly expressed.
Accuracy and valuation: financial and other information are disclosed fairly and at
appropriate amounts.
10. How auditor reduced audit risk to an acceptable level? [P- 66]
BSAs require that auditors determine overall responses to assessed risks at the financial statements level and
should design and perform further audit procedures to respond to assessed risks at the assertion level, so that
overall audit risk is reduced to an acceptably low level.
11. What are the substantive procedures that auditor must carry out? [P- 66]
In addition, the auditor must carry out the following substantive procedures:
Agreeing the financial statements to the underlying accounting records
Examining material journal entries
Examining other adjustments made in preparing the financial statements
12. What is audit opinion? How unqualified opinion is written? [P-75][D-12(2a)]

th
13. What are the categories of substantive procedures how it is used? [P-68]
Substantive procedures fall into two categories:
Analytical procedures and
Other procedures.
The auditor must determine when it is appropriate to use which type of substantive procedure. Such as-
Analytical procedures tend to be appropriate for large volumes of predictable transactions (for
example, wages and salaries).
Other procedures (tests of detail) may be appropriate to gain information about account balances
(for example, inventories or trade receivables), particularly verifying the assertions of existence and
valuation.
14. What three things the auditors are required to state as explicit opinion in their audit report? [P-] [D-
12(2b)]
In respect of the state of the company's affairs at the end of the financial year
In respect of the company's profit or loss for the financial year
The information given in the directors' report is consistent with the financial statements
15. What are the matters with which the auditors imply satisfaction in an unqualified report under the
Companies Act 1994? [P- 76] [D-12(2c), 10(4a)]
The company has kept proper books of account with respect to:
i. All receipts and payments
ii. All sales and purchases of goods
iii. All assets and liabilities
iv. Records relating to production, process, distribution, wages and overhead
16. Which elements should be including in the audit report according to BSA 700? [P- 68][D-10(4a)]
According to BSA 700, the audit report should include the following basic elements, usually in the following
layout.
i. Title: Indicates the Auditor’s report is independent
ii. Addressee: To shareholder/director/member
iii. Introductory paragraph: Describe the subject matter and extent of audit of financial statements
iv. Management’s Responsibility: Statement of management's responsibility for the financial statements
v. Auditor’s responsibility: Statement of the auditor's responsibility
vi. Scope of audit: Reference to the BSAs or other relevant standard
vii. Opinion paragraph: Express opinion relating to the financial statements
viii. Auditor's signature
ix. Auditor's address
x. Date of the report
Best for you to read the text book p-68
17. How can we make the meaning of an unqualified audit report clear to the user? [P-72]
We can highlight some specific issues-
Misunderstanding of the nature of audited financial statements, for example that:
– The balance sheet provides a fair valuation of the reporting entity.
– The amounts in the financial statements are stated precisely.
– The audited financial statements will guarantee that the entity concerned will continue to exist.
Misunderstanding as to the type and extent of work undertaken by auditors, for example that:
– All items in financial statements are tested
– Auditors will uncover all errors
– Auditors should detect all fraud
Misunderstanding about the level of assurance provided by auditors, for example that:
– The auditors provide absolute assurance that the figures in the financial statements are correct
(ignoring the concept of materiality and the problems of estimation).
Page 3 of 5
th
18. What are the components of assurance report under International Standard on assurance
engagement? [P- 72]
The international standard on assurance engagements requires that an assurance report must have the
following components:
i. Title: Indicates the Auditor’s report is independent
ii. Addressee: To shareholder/director/member
iii. Subject matter: Identify and describe the subject matter
iv. Identification of criteria
v. Inherent limitations: Description of any significant inherent limitations
vi. Suitable criteria: When the criteria used to evaluate or measure the subject matter are available only
to specific intended users, or are relevant only to a specific purpose, a statement restricting the use of
the assurance report to those intended users or that purpose
vii. Responsibility: Responsibilities of the responsible party and the practitioner
viii. Comply ISAEs: A statement that the engagement was performed in accordance with International
Standards on Assurance Engagements (ISAEs)
ix. A summary of the work performed: For limited assurance
x. The practitioner's conclusion: Conclusion may positive or negative
xi. Date of the report
xii. Auditor’s address
Best for you to read the text book p-72
19. State various factors that help the auditor to ascertain as to what is sufficient appropriate audit
evidence. [D-12(1a)]
20. Discuss the attributes of audit evidence. [J-12(2a)]
***Others:
01. What is an unqualified review report opinion?
Base on our review, nothing has come to our attention that causes us to believe that the accompanying
financial statements do not give a true and fair view in accordance with identified financial reporting
framework.
02. Describe the few example of substantive procedure?

The auditor must always carry out substantive test procedure on the material items as follows:
Agreeing the financial statements to the underlying accounting records;
Examine other material journal entries
Examine other adjustments made in preparing the financial
statements. Substantive procedures fall into two categories. Those are:
Analytical procedure and
Other procedures.
3. What are the audit procedures for obtaining audit evidences?

The auditor obtains audit evidence to draw reasonable conclusion on which to base the audit opinion by
performing audit procedures to:
Risk assessment procedure
Test of controls
Substantive procedures
th
Interactive question 1: Types of procedure [Difficulty level: Easy]

For each of the following statements, indicate whether they are true or false.
Tests of controls are tests designed to give evidence whether the controls in a company are operating
effectively or not.
True
False
Analytical procedures are a type of substantive procedure.
True
False
Interactive question 2: Audit report [D-10(4b)] [Difficulty level: Easy]
Which three of the following are implied opinions given in the audit report?
All information and explanations required for the audit have been
received Proper accounting records have been kept
The directors’ report is consistent with the financial statements
The financial statements have been properly prepared in accordance with the Companies Act 1985
The preparation of the financial statements is the responsibility of the company’s management
th
Introduction to internal control
01. What is Internal Control? [P- 81]

Internal controls are the processes to administer unit effectively, which include rules & procedures. It is
designed to provide reasonable, but not absolute assurance regarding the achievement of objectives with
regard to the following:
Effective & efficiency of operations,
Reliability with applicable laws & regulations,
Compliance with applicable laws & regulations,
2. What are the reasons/ objectives of internal control? [P- 81]

The reasons for internal controls can be seen in the example. They include:
Minimizing the business risks
Effective functioning of the company
Complies with relevant laws and regulations
Develop and maintain reliable financial and management date
Safeguard resources against loss
Ensure the confidentiality, integrity and availability of data
Control overall management of the company
3. What are the limitations of Internal Control? [P- 81]

The limitations of Internal Control are:
Collusion
Human element
Unusual transactions
Resource Constraints
Inadequate Skill, Certificate or ability
Faulty judgment
Unintentional errors
Degree of motivations by management & employees.
4. What are the components/standards of Internal Control? [P- 83]

BSA 315 sets out that there are five components of internal control, each of which may impact on the audit
process differently
a) Control Environment d) Information system relevant to financial reporting
b) Control Activities e) Monitoring & Review
c) Risk Assessment
a) Control Environment:
Control environment include the integrity, ethical values & competence of a company.
b) Control Activities:
Control Activities include approvals, authorizations, verifications and reviews of operating performance,
security of assets & segregation of duties.
c) Risk Assessment:
Risk assessment refers identifies & analyzes risks & determines how the risks should be managed. Such as
entity risk process and business risk.
d) Information system relevant to financial reporting:
An information system consists of infrastructure (physical and hardware components), software, people,
procedure and data.
e) Monitoring of control:
Monitoring is a process that assesses internal control performance over time by monitoring activities.
Page 1 of 5
th
5. What are the Categories of controls that auditor category? [P-

90] Discuss about Auditors Categorization of controls.
Auditor categories the control into the following four groups:
a) Preventive Controls:
Preventive controls are designed to prevent an error, omission or malicious act occurring.
b) Detective Controls:
Detective Controls are designed to detect errors, omissions or malicious acts that occur & report the
occurrence.
04. What is the control environment? [P- 91]
The control environment is the context of the internal control system, influenced by management. The
control environment includes the governance and management functions and the attitudes, awareness and
actions of those charged with governance and management concerning the entity’s internal control and its
importance in the entity.
07. What is Audit committee? [P- 91]

It is a sub-committee of the board of directors responsible for overseeing an entity’s internal control
structure, financial reporting and compliance with relevant laws and regulations.
8. What are the terms of reference of audit committee? [P-

91] What are the activities of audit committee?
The Code requires the committee to have written terms of reference which are likely to include the following:
To review the integrity of the financial statements and announcements of performance
To review internal financial controls and risk management systems
To monitor and review the effectiveness of internal audit function
To recommend the board to the external auditor
To monitor the independence of the external auditor
To implement policy on the provision of non-audit services by the external auditor
9. What is Entity’s risk assessment process and Business risk? [P- 92]
Entity's risk assessment process: The process by which management in a business identifies
business risks relevant to financial reporting objectives and decides what actions to take to address those
risks (for example, implementing internal controls).
Business risk: The risk inherent to the company in its operations. It is risks at all levels of the business.
10. What are the elements of entity's risk assessment process? [P-
92] The risk assessment process will involve the following elements:
Identify relevant Estimate the impact Assess the likelihood
business risks of risks of occurrence
Decide upon actions (internal controls, insurances, changes in operations) to manage them
Figure : Entity's risk assessment process
11. What is information system relevant to financial reporting objectives? [P- 93]
Information system relevant to financial reporting objectives includes the procedures and records
designed to initiate, record, process and report entity transactions and to maintain accountability for the
related assets, liabilities and equity.
Page 2 of 5
th
12. [P- 93]

The auditors will be interested in:
The classes of transactions that are significant to the entity
The procedures by which these transactions are recorded and reported
The related accounting records and supporting information
How the information system captures events other than transactions that are relevant to the financial
statements
The process of preparing the financial statements
This will typically involve the financial controller and/or director and the use of journals, which the auditors
will be interested in.
13. What are control activities? [P- 94]

The policies and procedures that help ensure that management directives are carried out.
13. What are the components of Control Activity? [P- 94]

The following components of focus on the control activity-
i. Personnel iv. Documentation & Record Retention
ii. Segregation of duties v. Physical Restrictions
iii. Authorization Procedures vi. Monitoring & Review
i. Personnel:
Personnel need to be competent & trustworthy.
ii. Segregation of duties:
Segregation of duties reduces errors & irregularities.
iii. Authorization Procedures:
Authorization procedures need to verify the propriety & validity of transactions.
iv. Documentation & Record Retention:
Documentation & record retention is to provide that all information & transactions are accurately recorded
& retained.
v. Physical Restrictions:
Physical restrictions are most important for safeguarding organization assets, procedures & data.
vi. Monitoring & Review:
Monitoring operation is essential to verify that controls are operating properly.
15. What is IT Control? Classify it. [P- 95]

In business and accounting, IT controls are specific activities performed by persons or systems designed to
ensure that business objectives are met. They are a subset of an enterprise’s internal control.
Classification of IT Control:
a) IT General Control (ITGC):
ITGC represents the foundation of the IT control structure. It helps to ensure the reliability of generated
data by IT systems.
b) IT Application Control:
IT application or program controls are fully automated designed to ensure the complete & accurate
processing of data from input through output. These controls may also help ensure the privacy and
security of data transmitted between applications.
Page 3 of 5
th
16. Give some examples of general controls. [P- 95]

Examples of general controls:
i. Development of Computer applications:
Standards over systems design, programming and documentation
Full testing procedures using test data
Approval by computer users and management
Segregation of duties
Installation procedures
Training of staff
ii. Prevention or detection of unauthorized changes to programs:
Full records
Password protection
Restricted access to central computer
Maintenance of program logs
Use of anti-virus software
Back-up copies
Control copies to compared with actual programs
Stricter controls by use of read only memory
iii. Testing and documentation of program changes:
Complete testing procedures
Documentation standards
Approval of changes by computer users and management
Training of staff using programs
iv. Controls to prevent wrong programs or files being used:
Operation controls over programs
Libraries of programs
Proper job scheduling
v. Controls to prevent unauthorized amendments to data files:
Such as passwords to prevent unauthorized entry, built in controls to permit changes
vi. Controls to ensure continuity of operations:
Storing extra copies of programs and data files off-site
Protection of equipment against fire and other hazards
Back-up power sources
Emergency procedures
Disaster recovery procedures, e.g. availability of back-up computer
facilities
Maintenance agreements and insurance
17. Give some examples of application controls. [P- 96]

Examples of application controls:
i. Controls over input: completeness
Manual or programmed agreement of control totals
Document counts
One-for-one checking of processed output to source documents
Programmed matching of input to an expected input control file
Procedures over resubmission of rejected data
ii. Controls over input: accuracy
Digit verification Character checks
Reasonableness test Necessary information
Existence checks Permitted range
iii. Controls over input: authorization
Information was authorized Input by authorized personnel
Page 4 of 5
th
iv. Controls over processing

Control completeness
Screen warnings
v. Controls over master files and standing data
One to one checking of master files to source documents
Cyclical reviews of all master files and standing data
Record counts
Controls over the deletion
18. Which application controls the auditors may test? [P- 97]
The auditors may wish to test the following application controls.
Manual controls exercised by the user
Controls over system output
Programmed control procedures
19. What are the processes of recording of internal controls? [P- 98]
There are broadly three types of document which are used for recording the understanding of the business:
i. Narrative notes:
These are good for things like:
Short notes on simple systems
Background information
They are less good when things get more complex when diagrams tend to take over.
ii. Questionnaires and
checklists: These are:
Good as aide memoires to ensure you have all the bases covered but
Can lead to a mechanical approach so that an important extra question is never asked
Tick boxes often get ticked whether the brain is engaged or not
iii. Diagrams:
Things like:
Flowcharts
Organisation charts
Family trees
Records of related parties
***Others:
14. [P- 94]
Segregation should take place in various ways:
Segregation of function. The key functions that should be segregated are the carrying out of a
transaction, recording that transaction in the accounting records and maintaining custody of assets that
arise from the transaction.
The various steps in carrying out the transaction should also be segregated. We shall see how this
works in practice when we look at the major control cycles in the following chapters.
The carrying out of various accounting operations should be segregated. For example, the same staff
should not record transactions and carry out the related reconciliations at the period-end.
1. How the auditor collects information about internal controls?

Auditors will obtain information about internal controls from a variety of sources:
Studying manuals of internal controls and copies of internal controls policies or minutes of meeting of
the risk assessment group
Talking to the people involved with internal control at all stages and asking them what the controls are
and why they have been implemented
Observing controls in operations
Page 5 of 5
th
Revenue System
01. What are the risks of considering sales orders? [P- 111]
Orders may be taken from customers who are:
Customers are unable to pay
Doubtful to pay for a long time
Orders may not be recorded properly
Unable to fulfilled the order
Customers might be lost for above reason
2. What are the control objectives of considering sales order? [P- 111]
Supply with good credit ratings
Customers are encouraged to pay promptly
Orders are recorded correctly
Fulfilled the order
Retain customers with satisfaction
03. Which controls activity can be used to mitigate the risk of sales order? [P- 111]
Following controls can be used as examples of how the above risks can be mitigated.
Segregation of duties- credit control, invoicing and inventory despatch
Authorisation of credit terms-
– References/credit check
– Authorised by senior staff
– Regular review
Authorisation for changes in other customer data
– Change of address by letterhead
– Deletion requests by evidence of balances cleared
Accept orders without credit problems
Sequential numbering of order documents
Correct prices quoted to customers
Matching of customer orders with-
– Production orders and
– Despatch notes
Dealing with customer queries
4. How can test of controls in case of sales order? [P- 112]

Check the references- of new customers
Check the authorisation- new accounts of receivables by senior staff
Check the credit terms and credit limits- to accept the order
Check the matching of customer orders- with Production orders, Despatch notes
05. What are the risks of considering despatch and invoicing? [P- 113]
When considering despatch and invoicing, a company might recognise all or some of the following risks:
Despatched without record
Despatched without invoiced
Error in invoice
Invoice cancelled by wrong credit notes
6. What are the control objectives to consider despatch and invoicing? [P- 113]
These risks lead to the following control objectives:
All despatched are recorded
All despatched are invoiced
Correctly invoiced
Credit notes for valid reasons
Page 1 of 5
th
07. Which controls activity can be used to mitigate the risk of despatch and invoicing? [P- 113]
The following are types of controls which could be put in place to fulfil the objectives of dispatching and
invoicing.
Authorisation of despatch-
– Only on sales order
– Only to authorised customers
– Special authorisation- free of charge or on special terms
Examination of goods outwards- quantity, quality and condition
Recording all outwards- on a despatch note
Agreement of despatch notes to customer orders and invoices
Sequential numbering of despatch notes
Checked condition of returns
Record returns- on goods returned notes
Signature of customers- on despatch notes
Preparation of invoices and credit notes-
– Authorisation of price lists
– Authorisation of credit notes
– Checks: prices, quantities, extensions and totals
Updated inventory records
Matching of sales invoices- with despatch notes and sales orders
Regular review for despatch notes not matched by invoices
8. How can test of controls in case of despatch and invoicing? [P- 114]
The following tests could be used in relation to the controls noted above.
Verify details of despatch notes with sales invoices:
– Quantities
– Official price lists
– Trade discounts have been properly dealt with
– Calculations and additions
– Entries in sales day book are correctly analysed
– VAT, where chargeable, has been properly dealt with
– Postings to receivables ledger
Verify trade sales with inventory records
Verify non-routine sales (scrap, non-current assets etc) with:
– Appropriate supporting evidence
– Approval by authorised officials
– Entries in plant register
Verify credit notes with:
– Other supporting evidence
– Approval by authorised officials
– Entries in inventory records
– Entries in goods returned records
– Calculations and additions
– Entries in day book
– Postings to receivables ledger
Test sequence of despatch notes and enquire into missing numbers
Test sequence of invoices and credit notes and enquire into missing numbers
Test sequence of order forms and enquire into missing numbers
check that despatches of goods free of charge or special terms
9. What are the risks arises at the stage of recording? [P- 116]
The following risks arise at this stage:
Invoiced sales might not be properly recorded
Credit notes might not be properly recorded
Sales might be recorded in the wrong customer accounts
Debts might be included on the receivables ledgers that are not collectable
Page 2 of 5
th
10. What are the control objectives which might arise at the stage of recording? [P- 116]
The following risk arise at this stage;
* Invoiced sales might not properly recorded.
* Credit notes might not be properly recorded.
* Sales might be recorded in the wrong customer accounts.
* Debts might be included on the receivables ledger that are not collectable.
These risks lead to the following objectives:
All sales are recorded in the nominal and receivables ledgers
All credit notes are recorded in the nominal and receivables ledgers
All entries are made to the correct receivables ledger accounts
Cut-off is applied correctly to the receivables ledger
Potential bad debts are identified
11. Which controls activity can be used to mitigate the risk of recording? [P- 116]
The following controls might be used to fulfil the objectives outlined above:
Segregation of duties: recording sales, maintaining customer accounts and preparing statements
Sequential numbering of sales invoice: Recording of sales invoices sequentially
Matching of cash receipts with invoices
Retention of customer remittance advices
Separate recording of sales returns, price adjustments etc
Cut-off procedures
Prepare trade receivables statements regularly
Checking of trade receivables statements
Safeguarding of trade receivables statements
Review and follow-up of overdue accounts
Authorisation of writing off for bad debts
Reconciliation of receivables ledger control account
Analytical review for receivables ledger and profit margins
The following tests of control might be appropriate.
Sales day book:
Check entries with invoices and credit notes respectively
Check additions and cross casts
Check postings to receivables ledger control account
Check postings to receivables ledger
Receivables ledger:
Check entries to sales day book
Check additions and balances carried down
Note and enquire into contra entries
Regularly reconciled of Control accounts with total of receivables ledger balances
Check the credit limits
Check that trade receivables statements are prepared regularly
Check that overdue accounts have been followed up
Check that all bad debts written off have been authorised by management
13. What are the risks at the stage of cash collection? [P- 118]
The following risks may arise at the stage of cash collection:
Customers are unable to pay
Properly received but not be recorded or banked
14. What are the control objectives of considering cash collection? [P- 118]
This leads to two key objectives:
All monies received are recorded
All monies received are banked.
Page 3 of 5
th
15. Which controls activity can be used to mitigate the risk at the stage of cash collection? [P- 118]
i. Segregation of duties between the various functions.
ii. Recording of receipts received by post:
Safeguards to prevent interception of mail between receipt and opening
Appointment of responsible person to supervise mail
Protection of cash and cheques (restrictive crossing)
Amounts received listed when post opened
Post stamped with date of receipt
iii. Recording of cash sales and collections:
Restrictions on receipt of cash (by cashiers only, or by sales representatives)
Evidencing of receipt of cash
– Serially numbered receipt forms
– Cash registers incorporating sealed till rolls
Emptying of cash offices and registers
Agreement of cash collections with till rolls
Agreement of cash collections with banking and cash and sales records
Investigation of cash shortages and surpluses
iv. General controls over recording:
Prompt maintenance of records (cash book, ledger accounts)
Limitation of duties of receiving cashiers
Ensuring that the person who records cash takes holidays (so they do not have absolute control
over cash recording) and controls are continued in their absence
Giving and recording of receipts
– Retained copies
– Serially numbered receipts books
– Custody of receipt books
– Comparisons with cash records and bank paying in slips
v. Banking:
Daily banking
Make-up and comparison of paying-in slips against initial receipt records and cash book
Banking of receipts intact/control of payments
vi. Safeguarding of cash and bank accounts
Restrictions on opening new bank accounts
Limitations on cash floats held
Restrictions on payments out of cash received
Restrictions on access to cash registers and offices
Independent checks on cash floats
Surprise cash counts
Custody of cash outside office hours
Custody over supply and issue of cheques
Preparation of cheques restricted
Safeguards over mechanically signed cheques/cheques carrying printed signatures
Restrictions on issue of blank or bearer cheques
Safeguarding of IOUs, cash in transit
Insurance arrangements
Bank reconciliations
– Issue of bank statements
– Frequency of reconciliations by independent person
– Reconciliation procedures
– Treatment of longstanding unpresented cheques
– Sequence of cheque numbers
– Comparison with cash books
Page 4 of 5
th
16. How can test of controls in case of sales order? [P- ]

The following tests of control may be used:
i. Receipts received by post:
Observe procedures for post opening are being followed
Observe that cheques received by post are immediately crossed in the company's favour
For items entered in the rough cash book, trace entries to:
– Cash book
– Paying-in book
– Counterfoil or carbon copy receipts
Verify amounts entered as received with remittance advices or other supporting evidence
ii. Cash sales, branch takings:
For a sample of cash sales summaries/branch summaries from different locations:
– Verify with till rolls or copy cash sale notes
– Check to paying-in slip date-stamped and initialled by the bank
– Verify that takings are banked intact daily
– Vouch expenditure out of takings
iii. Collections:
For a sample of items from the original collection records:
– Trace amounts to cash book via collectors' cash sheets or other collection records
– Check entries on cash sheets or collection records with collectors' receipt books
– Verify that goods delivered to travellers/ salesmen have been regularly
– reconciled with sales and inventories in hand
– Check numerical sequence of collection records
iv. Cash receipts cash book
For cash receipts for several days throughout the period:
– Check to entries in rough cash book, receipts, branch returns or other records
– Check to paying-in slips obtained direct from the bank (rather than looking only at client copy of the
slip which might have been tampered with), observing that there is no delay in banking monies
received
– Check additions of paying-in slips
– Check additions of cash book
– Check postings to the receivables ledger
– Check postings to the general ledger, including control accounts
Scrutinise the cash book and investigate items of a special or unusual nature
Page 5 of 5
th
Purchases System
01. What are the risks at the stage of purchase orders? [P- 131]
When considering purchase orders, a company might recognise one or both of the following risks:
Unauthorised purchases may be made for personal use
Goods and services might not be obtained on the most advantageous terms
2. What are the control objectives which might arise from considering purchase order? [P- 131]
Here are the control objectives which might arise from the risks of purchase order:
All orders are properly authorised and duly processed.
All orders are actually required by the company
Orders are only made with authorised suppliers
Orders are made at competitive prices
3. Which controls activity can be used to mitigate the risk of purchase order? [P- 131]
Following controls can be used to mitigate the risk at the stage of purchase orders-
Segregation of duties- requisition and ordering
Central policy for choice of suppliers
Evidence required of requirements for purchase before purchase authorised
Order forms prepared only when a pre-numbered purchase requisition has been received
Authorisation of order forms
Pre-numbered order forms
Safeguarding of blank order forms
Review for outstanding orders
Monitoring of supplier terms
4. How can test of controls in case of purchase order? [P- 132]

Review list of suppliers and check a sample to orders made
Check sequence of pre-numbered order forms
Check orders are supported by a purchase requisition
Review security arrangements over blank orders
05. What are the risks of considering goods inward and recording of invoices? [P- 133]
To consider goods inward and recording of invoices, following risks may arises:
Goods may be misappropriated for private use
Accepted goods may not be ordered
Accepted goods may be poor quality
Invoices may not be recorded
May not take advantage of the full period of credit extended
May not record credit notes resulting in paying invoices unnecessarily
6. What are the control objectives to consider of goods inward and recording of invoices? [P- 133]
These risks lead to the following control objectives:
All received goods are used only for the company's purposes, and not private purposes
Ensure accepted goods have been ordered
The order has been authorised
All received goods are accurately recorded
Liabilities are recognised for all goods and services that have been received
All credits to which the company is entitled are claimed and received
Receipt of goods and services is necessary for a liability to be recorded
All credit notes are recorded in the nominal and payables ledgers
All entries in the payables ledger are made to the correct payables ledger accounts
Cut-off is applied correctly to the payables ledger
Page 1 of 4
th
07. Which controls activity can be used to mitigate the risk of goods inward and recording of invoices? [P-
133]
The following are types of controls which could be put in place to fulfil the above objectives.
Segregation of duties: accounting and checking functions
Examination of inwards good:
– Quality
– Quantity
– Condition
Use pre-numbered goods received notes
Comparison of goods received notes with purchase orders
Referencing of supplier invoices; numerical sequence and supplier reference
Checking of suppliers' invoices
– Prices, quantities, accuracy of calculation
Comparison with order and goods received note
Use pre-numbered goods returned notes in case of purchase return
Procedures for obtaining credit notes from suppliers
Prompt recording of purchases and purchase returns in day books and ledgers
Regular maintenance of payables ledger
Comparison of monthly statements of account balance from suppliers with payables ledger balances
Review of classification of expenditure
Reconciliation of payables ledger control account to total of payables ledger balances
Create a cut-off accrual of goods received notes not matched by invoices at year-end

The following tests could be used in relation to the controls noted above.
Check invoices for goods are:
– Supported by goods received notes
– Entered in inventory records
– Priced correctly by checking to quotations, price lists to see the price is in order
– Properly referenced with a number and supplier code
– Correctly coded by type of expenditure
– Trace entry in record of goods returned etc and see credit note duly received from the supplier, for
invoices not passed due to defects or discrepancy
For invoices of all types:
– Check calculations and additions
– Check entries in purchase day book and verify that they are correctly analysed
– Check posting to payables ledger
For credit notes:
– Verify the correctness of credit received with correspondence
– Check entries in inventory records
– Check entries in record of returns
– Check entries in purchase day book and verify that they are correctly analysed
– Check posting to payables ledger
Check for returns that credit notes are duly received from the suppliers
Test numerical sequence and enquire into missing numbers of:
– Purchase requisitions
– Goods received notes
– Suppliers' invoices
– Purchase orders
– Goods returned notes
Obtain explanations for items which have been outstanding for a long time:
– Unmatched purchase requisitions
– Unmatched purchase orders
– Unmatched goods received notes
– Unrecorded invoices
Page 2 of 4
th
Verify that invoices and credit notes recorded in the purchase day book are:
– Initialled for prices, calculations and extensions
– Cross-referenced to purchase orders, goods received notes etc
– Authorised for payment
Check additions
Check postings to nominal ledger accounts and control account
Check postings of entries to payables ledger
Payables ledger:
For a sample of accounts recorded in the payables ledger:
– Test check entries back into books of prime entry
– Test check additions and carried forward balances
– Note and enquire into all contra entries
Confirm control account reconciliation has been regularly carried out during the year
Examine control account for unusual entries
9. What are the risks of considering payment? [P- 136]

The following risks arise at this stage of proceedings:
False invoices are paid in error
Invoices are paid too soon
Payment is not correctly recorded
Credits are not correctly recorded
Payments are not recorded in the right period
10. What are the control objectives which might arise from considering payment? [P- 136]
The following objectives arise out of the risks:
All expenditure is for received goods
All expenditure is authorised
All expenditure is correctly recorded in the nominal and payables ledgers
Payments are not made twice for the same liability
11. Which controls activity can be used to mitigate the risk of payment? [P- 137]
i. Cheque and cash payments generally:
Segregation of duties: such as cashier, accountant will be separate
Cheque preparator and cheque signatory will be separate person
Cheque signatories should not be responsible for recording payments
ii. Cheque and bank transfer payments:
Cheque and bank transfer requisitions
– Appropriate supporting documentation (for example, invoices)
– Approval by appropriate staff
– Presentation to cheque signatories (in case of cheques)
– Instigation of bank transfer by appropriate staff
Authority to sign cheques:
– Signatories should not also approve cheque requisitions
– Limitations on authority to specific amounts
– Number of signatories
– Prohibitions over signing of blank cheques
Prompt dispatch of signed cheques
Obtaining of paid cheques from banks
Payments recorded promptly in cash book and nominal and payables ledgers
iii. Cash payments:
Authorisation of expenditure
Cancellation of vouchers to ensure they cannot be paid twice
Limits on payments
Rules on cash advances to employees, IOUs and cheque cashing
Page 3 of 4
th
3.3 The following controls may be used: [P- 138]

i. Payments cash book (authorisation)
For a sample of payments:
– Compare with paid cheques to ensure payee agrees
– Check that cheques are signed by the persons authorised to do so within their authority limits
– Check that bank transfer was authorised and initiated by appropriate person
– Check to suppliers' invoices for goods and services. Verify that supporting documents are signed
as having been checked and passed for payment and have been stamped 'paid'
– Check to suppliers' statements
– Check to other documentary evidence, as appropriate (agreements, authorised expense vouchers,
petty cash books etc)
ii. Payments cash book (recording)
For a sample of weeks:
– Check the sequence of cheque numbers and enquire into missing numbers
– Trace transfers to other bank accounts, petty cash books or other records, as appropriate
– Check additions, including extensions, and balances forward at the beginning and end of the
months covering the periods chosen
– Check postings to the payables ledger
– Check postings to the nominal ledger, including the control accounts
12. How can test of controls in case of payment? [P- 138]

i. Bank reconciliations:
Reconciliation perform for a period
Verify that reconciliations have been prepared at regular intervals throughout the year
Check reconciliations for unusual items
ii. Petty cash payments:
For a sample of payments:
– Check to supporting vouchers
– Check whether they are properly approved
– See that vouchers have been marked and initialled by the cashier to prevent their re-use
Page 4 of 4
th
Employee Costs
01. What are the risks at the stage of calculating wages and salaries? [P- 148]
When calculating wages and salaries, a company might recognize the following risks:
Pay employees too much money
Pay employees who have not been at work
Pay employees who have left
2. What are the control objectives at the stage of calculating wages and salaries? [P- 148]
Here are the control objectives which might arise from the risks at the stage of calculating wages and salaries:
Employees are only paid for work that they have done
Gross pay has been calculated correctly
Net pay has been calculated correctly
Payment must be authorized
3. Which controls activity can be used at the stage of calculating wages and salaries? [P- 148]
The following controls may be put into place to mitigate the risks for calculating wages and salaries.
Keep all personnel records
Authorization
– Engagement and discharge of employees
– Changes in pay rates
– Overtime
– Non-statutory deductions (for example pension contributions)
– Advances of pay
Recording of changes in personnel and pay rates
Recording of hours worked by timesheets, clocking in and out arrangements
Review of hours worked
Recording of advances of pay
Holiday pay arrangements
Answering queries
Review of wages against budget

Check approvals of payment- the wages and salary summary is approved for payment.
Check authorization to changes- rates of pay, overtime, and holiday pay.
Check the evidence of engagement and discharge of employees
Check the evidence of engagement and discharge of employees is writing
Check calculations of wages and salaries are being checked.
For wages, check calculation of gross pay with:
– Authorized rates of pay
– Production records
– Clock cards, time sheets or other evidence of hours worked.
– Verify that overtime has been authorized
For salaries, verify that gross salaries and bonuses are in accordance with personnel records, contracts
of employment etc
05. What are the risks of recording wages and salaries? [P- 150]
When considering recording wages and salaries, the company might recognize the following risks:
Payroll isn’t correctly prepared
Salary payments not recorded in the cash books
Payment incorrectly recorded in the nominal ledger
Page 1 of 3
th
06. What are the control objectives which might arise from recording wages and salaries? [P- 150]
These lead to the following control objectives:
Payroll is correctly prepared
Wages and salaries paid are correctly recorded in the bank and cash records
Wages and salaries are correctly recorded in the nominal ledger
All deductions have been correctly calculated
Wages and salaries are properly authorized
The correct amounts are paid to NBR
7. Which controls activity can be used to mitigate the risk of recording wages and salaries? [P- 150]
The following controls may be put into place to mitigate the risks to record wages and salaries.
Bases for compilation of payroll- for example, clock cards, overtime records, agreed hours
Arrangements for the preparation, checking (reconciling to payroll information) and approval of payroll
Procedures for dealing with non-routine matters
Maintenance of separate employees' previous records
One for one checking of payroll details back to independently maintained personnel records
Reconciliation of total pay and deductions between one pay day and the next
Comparison of actual pay totals with budget estimates or standard costs and the investigation of
differences between them
Agreement of gross earnings and total tax deducted with taxation returns

A key control assurance providers will be concerned with will be the reconciliation of wages and salaries.
For wages, there should have been reconciliations with:
The previous period's payroll
Clock cards/time sheets/job cards
Costing analyses, production budgets
Additions of payroll
Totals of payroll detail selected to summary of payroll
Additions and cross-casts of summary
Postings of summary to nominal ledger (including control accounts)
Net cash column to cash book
For salaries they include checking for a number of weeks/months:
Additions of payroll
Totals of salaries details to summary
Additions and cross-casts of summary
Postings of summary to nominal ledger (including control accounts)
Total of net pay column to cash book
Auditors should check the calculations of taxation and non-statutory deductions. For withholding taxes they
should carry out the following tests:
Scrutinize the control accounts maintained to see appropriate deductions have been made
Check that the payments to Govt. Treasury are correct
9. Which controls activity can be used to mitigate the risk to payment wages and salaries? [P- 153]
i. Payment of cash wages:
– Preparing the payroll net pay summary
– Filling of pay packets
– Distribution of wages
Authorization of wage cheque cashed
Custody of cash
– When the wages cheque is cashed
– Security of pay packets
– Security of transit
– Security and prompt banking of unclaimed wages
Page 2 of 3
th
Verification of identity
Recording of distributions
ii. Payment of salaries:
Preparation and authorization of cheques and bank transfer lists
Comparison of cheques and bank transfer list with payroll
Maintenance and reconciliation of wages and salaries control account
10. How can test of controls in case of payment of wages and salaries? [P- 153]
If wages are paid in cash
Confirm that the official procedures are being followed
Compare payroll with wage packets to ensure all employees have a wage packet.
Examine receipts given by employees
Check unclaimed wages are recorded in unclaimed wages book.
Check that no employee receives more than one wage packet.
Check entries in the unclaimed wages book with the entries on the payroll.
Check that unclaimed wages are banked regularly.
Check the reasons why wages are unclaimed.
Check pattern of unclaimed wages in unclaimed wages book; variations may indicate failure to record.
Check that comparisons are being made between each month’s payroll net pay summary and examine
paid cheques
Page 3 of 3
th
Internal audit
01. What is internal audit? [P- 162]

Internal auditing is an independent, objective assurance and consulting activity designed to add value and
improve an organization's operations. The role of internal audit is to provide independent assurance that an
organization’s risk management, governance and internal control processes are operating effectively.
02. What are the corporate objectives? [P- 162]

Corporate objectives are fundamental to performance enhancing strategic planning. A corporate objective is
a statement of intent which provides a basic direction for the activities of an organization in pursuit of its
mission. Generally, an objective is a broad statement of an intention to do and achieve something.
03. How the internal audit can assist the board? [P- 162]
The internal audit function can assist the board in other ways as well:
By ensuring good corporate governance
By assessing & monitoring internal control policies
Acting as auditors for board reports
By implementing auditing and accounting standard
By liaising with external auditors
4. What is external audit? [P- 162]

An audit carried out by an external, as opposed to an internal, auditor. A periodic examination of the books
of account and records of an entity carried out by an independent third party (the auditor), to ensure that they
have been properly maintained, are accurate and comply with established concepts, principles, accounting
standards, legal requirements and give a true and fair view of the financial state of the entity.
05. Distinction between internal and external audit. [P- 163]
Subject Internal audit External audit

Reason Add value and improve an organization’s Express an opinion on the financial
operations. statements.
Reporting to The board of directors, or The shareholders of a company
The audit committee
Relating to The operations of the organization The financial statements
Relationship with Employees of the organization or Appointed by the shareholders from
the company Outsourced. outsourced
Appointment By the management of the company. By the shareholders of the company.
Legal Position Legally internal audit is not compulsory. External audit is compulsory by law.
Status of Auditor Internal auditor is employee of the External auditor is an independent person.
company.
Qualification Any specific qualification is not Require professionally qualified to act
compulsory Member of the ICAB
Nature of Checking Internal auditor checks all the transactions. External auditor may apply test check.
Right of Attending No right to attend the meetings of the Has a right to attend the meetings.
Meeting Company’s shareholders.
Page 1 of 2
th
6. What does internal audit do? [P- 163]

What are the activities/ function/ objective of internal audit?
Internal audit activities usually involve:
Monitoring internal controls
Examining financial and operating information
Review of the economy, efficiency and effectiveness of operations
Review of compliance with laws, regulations and other external requirements
Special investigations- for suspected fraud
Provide reasonable assurance to managers
Provide accurate and reliable financial and operating information
Policies, procedures, plans, laws and regulations are complied properly
Assets are safeguarded against loss and theft
Resources are used economically and efficiently
Established program/operating goals and objectives will be met.
8. What are the key parts of a company’s risk management? [P- 164]
The key part of a company’s risk management is-
Designing internal control systems and
Operating internal control systems.
9. What are the roles of internal audit department in relation to risk management? [P- 164]
The internal audit department has a two-fold role in relation to risk management.
Monitoring the company's overall risk management policy to ensure it operates effectively.
Monitoring the strategies implemented to ensure that they continue to operate effectively.
10. What is an operational audit? [P- 164]

Operational audit is the audits of the operational processes of the organization. They are also known as
management or efficiency audits. Their prime objective is the monitoring of management's performance,
ensuring company policy is adhered to.
11. What are the objectives of operational audit? [P- 164]

Monitoring of management’s performance
Ensuring company policy is adhered to
12. What are the aspects of an operational assignment? [P- 164]

There are two aspects of an operational assignment:
Ensure policies are adequate
Ensure policies work effectively
13. What are the other functions of internal audit? [P- 165]
Internal audit may carry out following other functions for the directors in a company-
Special investigations- for suspected fraud
Carry out traditional financial audits
Exercise carried out by the external auditors
Test of control
Review of actual result
Non-current assets and inventory count
Page 2 of 2
Md Hasan Bhuiyan
Assurance (Certificate Level) 10th Chapter
Documentation
01. What is audit documentation? [P- 151]

Audit documentation (working papers) is the record of procedures performed, relevant evidence
obtained and conclusions reached.
02. What are the objectives/ purpose/ reason of audit document? [P- 151]
Audit documentation or working papers should provide:
 Provide sufficient and appropriate record
 Proof of transactions
 Complies with relevant laws and regulations
 Develop and maintain reliable financial and management data
 Ensure the confidentiality, integrity and availability of data
 Assist the audit team
 Helps to make an audit plan and perform the audit
 Helps to direct and supervise work
 Enhances the credibility of the information
 Enable the audit team to be accountable for its work
 Retain a record of matters for future audits
 Helps to carry out quality control reviews
3. For which matters the form and content of working papers are affected? [P- 152]
“The form and content of working papers are should be affected by various matters”- Explain.
The form and content of working papers are affected by matters such as:
 Size and complexity of the transaction
 Nature of the audit procedures
 Identify risks of material misstatements
 Extent of judgement
 Significance of audit evidence
 Nature and extent of problems
 Need to document of conclusion
 Audit methodology and tools used
4. Which matters contain working papers? [P- 154]

Working papers should show:
 The name of the client  How any sample was selected
 The balance sheet date  The sample size determined
 The file reference of the working paper  The work done
 The name of the preparer  A key to any audit ticks or symbols
 The date of preparation  Appropriate cross-referencing
 The subject of the working paper  The results obtained
 The name of the reviewer  Analysis of errors
 The date of the review  Other significant observations
 The objective of the work done  The conclusions drawn
 The source of information  The key points highlighted
05. What is automated working paper? [P- 154]
Automated working paper packages have been developed to make the audit documentation much easier.
Such programs aid preparation of working papers, lead schedules, trial balance and the financial
statements themselves. These are automatically cross referenced, adjusted and balanced by the
computer.
Md Hasan Bhuiyan
06. What are the advantages of automated working papers? [P-

154]
The advantages of automated working papers are as follows.
 Decrease error risk
 The working papers will be neater
 Easy to review.
 Save the time
 Standard forms need not carrying to audit locations
 Possible to email or fax for review.
 Documents can be scanned and stored electronically rather than in paper form.
7. What is audit file? How working papers may be split? [P- 154]
An audit file is a file in which the working papers are documented. One or more folders or other storage
media, in physical or electronic form, containing audit records and documents. Working papers may be
split between:
a. Permanent audit files and
b. Current audit files
08. What is a permanent audit file? What documents are contained in permanent audit files? [P-
154]
A file of information which is relevant for more than one year and is updated every year continuously.
Permanent documents can be scanned and carried in computer files year on year. It contains any
information of continuing importance to the audit. These may contain:
 Engagement letter
 Contract and agreement
 Board minutes
 The memorandum and articles of association
 Details history of the client's business
 Accounting systems notes
 New client questionnaire
 Last years' control questionnaires
 Last years' signed accounts, analytical procedures and management letters
9. What is a current audit file? What documents are contained in current audit files? [P- 155]
A file of information which is relevant for only current year’s audit. These should be compiled on a
timely basis after the completion of the audit and should contain (amongst other things):
 Financial statements
 Management accounts
 Accounts checklists
 A summary of unadjusted errors
 Review notes
 Audit planning memorandum
 Time budgets and summaries
 Letter of representation
 Management letter
 Notes of board minutes
 Reconciliations of management accounts and financial statements
 Report to partner including details of significant events and errors
 Communications with third parties such as experts or other auditors
10. What documents are contained in current audit files covering each working area? [P- 155]
They also contain working papers covering each audit area. These should include the following:
 Audit plans
 Risk assessments
 Sampling plans
 Analytical procedures
Md Hasan Bhuiyan
 Details of tests of detail and tests of control

 Problems encountered and conclusions drawn
 A lead schedule including details of the figures to be included in the accounts
13. What factor should be considered for safe custody and retention of documentation of a firm?
[P-155]
Judgement may have to be used in deciding the
 Duration of holding working papers
 Should be given to the matter before their destruction.
 All firms should have a document retention policy
 Auditing standards require auditors to keep all audit working papers
 Keep all audit working papers for a reasonable period of time
 Assurance work must be kept confidential
 Require good security procedures over their retained working papers
 Electronic documents should be protected by electronic controls.
14. What factor should be considered for safe custody and retention of documentation of a
company? [P-156]
According to the Companies Act 1994, section 181(5), “The books of accounts of every company
relating to a period of not less than twelve years immediately preceding the current year together with
vouchers relevant to any entry in such books of account shall be preserved in good order”.
15. What factor should be considered for ownership of and right of access to documentation? [P-
156]
 Working papers are the property of the assurance providers.
 The assurance providers are not required to show them to the client.
 The report, once issued, belongs to the client.
 Assurance providers must keep working papers confidential.
 They may show working papers to the client at their discretion.
 They should obtain client permission before showing working papers to third parties.
16. How the ownership of documents depends on the nature of the work? [P-157]
The table shows how the ownership of documents depends on the nature of the work being carried out.
Nature of work Type of document Who has

ownership?
Auditing
Any documents prepared by member solely

Preparation of audit report whether for Member
carried out under statutory provisions or
not purpose of carrying out his duties as auditor
Audit Report Client
Accountancy
Preparation of accounting records Accounting Records Client
Preparation of financial statements from Financial statements Client

client's records
Draft/office copy of financial statements Member
Correspondence with third parties Member
st
Evidence and Sampling

01. What are the procedures to obtain evidence?
Assurance providers obtain evidence by one or more of the following procedures outlined in BSA 500.
a. Inspection of tangible assets
b. Inspection of documentation
c. Observation
d. Inquiry
e. Confirmation (a particular form of inquiry)
f. Recalculation
g. Re-performance
h. Analytical procedures
02. What is Computer Assisted Audit Techniques (CAATs)? Discuss the types of it.
CAATs are computer based tools/utilities to help the auditors select, gather, analyze & report audit findings.
CAATs may improve the effectiveness & efficiency of auditing procedures. CAATs provide greater level
of assurance as compared to other techniques.
Classification:
There are two main types of CAAT that can be used:
a. Test data
b. Audit software
03. What is Test data? Discuss the stages of test data.
Under this test of control, the assurance provider supervises the process of running data through the client’s
system. The stages in the use of test data are as follows:
Note controls in client’s system

Decide upon test data, the options include:
– Dummy data (the assurance provider must be very careful to reverse all effects)
– Real data (the data may not contain all the errors necessary to test the controls rigorously)
– Dummy data against a verified copy of the client’s system (much safer)
Run the test data
Compare results with those expected
Conclude on whether controls are operating properly
4. What is Audit software? Explain, what audit software can be include?
Audit software makes use of the assurance providers’ own specialized software. Audit software works on the
basis of interrogating the client’s system and extracting and analyzing information. It can therefore carry out
a whole range of substantive procedures, across all sorts of different data.
Examples of what audit software can do include:

Extract a sample according to specified criteria:
– Random
– Over a certain amount
– Below a certain amount
– At certain dates
Calculate ratios and select those outside set criteria (e.g. more than five per cent different from last year)
Check calculations and casts performed by the system
Prepare reports (e.g. comparison of actual against budgeted figures)
Follow items through a system and flag where they are posted
Page 1 of 2
st
05. What factor should be considered by the auditor, when using analytical procedures? [P- 192]
There are a number of factors that the auditors should consider when using analytical procedures as
substantive procedures:
Objective of the analytical procedures (for example analytical procedures may be good at indicating
whether a population is complete)
Suitability of analytical procedures
Reliability of analytical procedures
6. Discuss various factors in the case of using analytical procedures?
a. Suitability factors:
Materiality of the items involved and the assessment of inherent and control risk
Other audit procedures directed towards the same financial statement assertions
b. Reliability factors:
The degree to which information can be analyzed
The availability of information
The accuracy with which the expected results of analytical procedures can be predicted
The frequency with which a relationship is observed
The relevance of the information available
The source of the information available
The comparability of the information available
The reliability of the information available
The Certificate gained during previous audits
07. What are the possible sources of information about the client?
As we have discussed, analytical procedures should be used at the risk assessment stage. Possible sources of
information about the client include:
Interim financial information
Budgets
Management accounts
Non-financial information
Bank and cash records
Sales tax returns
Board minutes
Discussions or correspondence with the client at the year end
Auditors may also use specific industry information or general Certificate of current industry conditions to
assess the client's performance.
08. What are the categories of substantive audit procedures? [P- 193]
Broadly speaking, substantive procedures can be said to fall into two categories:
Tests to discover errors (resulting in over or understatement)
Tests to discover omissions (resulting in understatement)
Tests to discover errors will start with the accounting records in which the transactions are recorded and
check from the entries to supporting documents or other evidence. Such tests should detect any
overstatement through causes other than omission.
Misstatement: a difference between the amount, classification, presentation or disclosure of reported

financial statement item and the amount, classification, presentation or disclosure that is required for the item
to be in accordance with the applicable financial reporting framework. Misstatement can arise from error or
fraud.
Error: an unintentional misstatement in financial statement, including the omission of an amount or a

disclosure.
Tolerable misstatement: Tolerable misstatement is a monetary amount set by the auditor in respect of
which the auditor seeks to obtain appropriate level of assurance that the monetary amount set by the auditor
is not exceeded by the actual misstatement in the population.
Tolerable rate of deviation is a rate of deviation from prescribed internal control procedures set by the
auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of
deviation set by the auditor is not exceeded by the actual rate of deviation in the population.
What is the available method of selecting the sample? (P-176)
a. Random selection.
b. Systematic selection
c. Haphazard selection
d. Sequence or block selection
e. Monetary Unit Sampling (MUS)
Anomaly: a misstatement or deviation that is demonstrably not representative of misstatements or deviation

in a population.
Page 2 of 2
th
Management Representations
01. What is management representation according to BSA 580? [P- 189]
Management Representations states that an auditor should obtain appropriate representations from
management.
02. Who are the management? [P- 189]
Management comprises officers and others who perform senior managerial functions. Such as, directors and
company secretary.
03. What general matters are required for management representation? [P- 189]
There are a number of elements that BSA 580 requires auditors to confirm in writing, namely that
management:
Acknowledges its responsibility for the preparation and fair presentation of the financial statements in
accordance with the applicable financial reporting framework and has approved the financial
statements
Acknowledges its responsibility for the design and implementation of internal control
Believes that the effects of uncorrected misstatements aggregated by the auditors during the audit are
immaterial (a summary of these items should be attached to the written representations)
03.1 Other representation; In addition to general written representation about management’s responsibilities
the auditors required to request specific written representation by other ISAs and also where the auditors
determines they are necessary to support other audit evidence. Written representations cannot be used instead
of other evidence which the auditors expect to exist.
03.2 When other written representations are required [P- 190]
Specific written representation may be required in a variety of situation.

If written representation does not agree with other audit evidence, other audit procedures
performed and the implication considered.
Whether the section and application of accounting policies are appropriate.
Whether matter such as the following, where relevant under the applicable financial reporting
framework, have been recognised.
Whether all deficiencies in internal control of which is management is aware have been
communicated to auditors.
Specific written representation required by other ISAs.
Support for management judgement or intent in relation to a specific assertion.
4. When management representations are required? [P-190]
Management representations may be the only audit evidence available when:
The facts are a matter of management intention.
The matter is judgemental or an opinion.
5. What matters should be considered to receive representations? [P- 191]
The auditors receive such representations they should:
Seek corroborative audit evidence from sources inside or outside the entity
Evaluate whether the representations are reasonable and consistent with other audit evidence and
representations
Consider whether the individuals making the representations are well-informed on the particular
matters
06. What should be done, if the representations don’t agree with other audit evidence? [P- 191]
There may be occasions when the representations received do not agree with other audit evidence obtained,
in which case the auditors should:
Investigate the circumstances of the disagreement
Ascertain whether the inquiry has simply been misunderstood
In case of insufficient answers or none at all, carry out alternative audit procedures
Consider whether the disagreement casts doubt on other representations
7. Example of a management representation letter. [P- 191]

ASSURANCE Certificate Level
CHAPTER-13: SUBSTANTIVE PROCEDURES- KEY FINANCIAL STATEMENT FIGURES
Q-01: What are the key areas for testing tangible non-current assets? (Page-224)
Ans: Key areas when testing tangible non-current assets are:

(a) Confirmation of ownership (rights and obligations)
(b) Inspection of non-current assets (existence and valuation)
(c) Valuation, preferably by third parties (valuation)
(d) Adequacy of depreciation rates (valuation)
Q-02: What are the keys areas for testing intangible non-current assets? (Page-224)
Ans: The keys areas for testing intangible non-current assets are:
(i) Confirmation that ‘assets’ exist
(ii) Confirmation of appropriate valuation.
Q-03: What are the key areas for testing investments? (Page-224)
Ans: The keys areas for testing investments are:

(i) Confirmation of existence.
(ii) Confirmation of ownership.
Q-04: What are the reasons of tangible non-current assets in the financial statements being misstated?
(Page-224)
Ans:The major risks of the tangible non-current asset balances in the financial statements being misstated are
due to:
(a) The company not actually owning the assets.
(b) The assets not actually existing or sold by the company.
(c) Omission of assets owned by the company.
(d) The asset being overvalued or undervalued.
(e) The assets being incorrectly presented in the financial statements.
Q-05: What are the objectives of audit in respect of non-current assets? (Page-224)
Ans: The objective of audit tests in respect of non-current assets is to prove the assertions about the assets are
correct.
Q-06: What are the sources of information for testing tangible non-current assets? (Page-224)
Ans: The sources of information for testing tangible non-current assets are:
(i) The non-current asset registers.
(ii) Purchase invoices for assets purchased within the year.
(iii) Leases or hire purchase documentation.
(iv) Registration documents such as title deeds for property.
(v) Sales invoices for assets sold within the year.
(vi) Valuations carried out employees or third party values.
(vii) Physical inspection of the assets by the auditor.
(viii) Deprecation records or calculations.
Q-07: Give few examples of intangible non-current assets? (Page-227)
Ans: Few examples of intangible non-current assets are:

(i) Licenses (ii) Development Cost (iii) Purchased brands(iv) Goodwill (v) Patent (vi)
Trade mark (vii) Preliminary expenses (viii) Registration documents such as title deeds for property.
Chapter – 13 (Substantive procedures – Key financial statement figures) Page 1

Q-08: What are the reasons of intangible non-current assets in financial statement being misstated?
(Page-227)
Ans: The major risks of misstatement of the intangible non-current asset balances in the financial statements
are due to:
1) Expenses being capitalized as non-current assets inappropriately.
2) Intangible assets being carried at the wrong cost or valuation.
3) Charging inappropriate amortization.
4) Impairment reviews not being carried out appropriately.
Q-09: What are the sources of information for testing intangible non-current assets? (Page-227)
Ans: The sources of information for testing intangible non-current assets are:
(a) Accounting standards/auditor’s knowledge of accounting standards for what constitutes an intangible
asset.
(b) Purchase invoices or documentation.
(c) Client calculations and schedules.
(d) Specialist valuations.
(e) Auditor understanding of the entry.
Q-10: What are the key areas for testing inventory? (Page-227)
Ans: The keys areas for testing inventory are:

(i) Confirmation of existence.
(ii) Confirmation of ownership.
Q-11: What are the reasons of inventory in the financial statement being misstated? (Page-227)
Ans: The major risks of misstatement of the inventory balance in the financial statements are due to:
(i) Inventory that does not exist being included in the financial statement.
(ii) All inventories that exists not being included in the financial statement.
(iii) Inventory being included in the financial statements at full value when it is obsolete or damaged.
(iv) Inventory being included in the financial statements at wrong value.
(v) Inventory that actually belongs to third parties being included in the financial statements.
(vi) Inventory which has been actually sold is included in the financial statements.
Q-12: What are the sources of information for testing inventory? (Page-227)
Ans: The sources of information for testing inventory are:

a) The company’s controls over inventory counting.
b) The auditor’s attendance at the annual inventory count.
c) Confirmations with third parties holding inventory.
d) Purchase invoices for inventory.
e) Work-in-progress records for inventory.
f) Post-year-end sales invoices for inventory.
g) Post-year- end price lists of inventory.
h) Post-year-end sales orders.
Q-13: What sorts of controls are looked for by auditors in terms of inventory counts? (Page-228)
Ans: In terms of inventory counts, the assurance providers will be looking for the following sorts of controls:
1) Organization of count:
a) Supervision of senior staff.
b) Tidying and marking inventory to help counting.
c) Identification of damaged, obsolete, slow-moving and returnable inventory.

2) Counting:
a) Systematic counting to ensure all inventory is counted.
b) One team counting, other team checking.
3) Recording:
a) Serial numbering of all inventory sheets.
b) Inventory sheets being completed in ink and singed.
c) Information to be recorded on the count records.
d) Recording of quantity, condition and stage of production of work-in-progress.
e) Recording of last numbers of goods inwards & outwards.
f) Reconciliation withinventory records and investigation and made correction of any
differences.
Q-14: What does assurance provider cheek if perpetual inventory counting is used? (Page-229)
Ans: If perpetual inventory counting is used, assurance providers will cheek that management:
• Ensures that all inventory lines are counted at least once a year
• Maintains adequate inventory records that are kept up-to-date.
• Has a satisfactory procedure for inventory counting and test-counting.
• Investigates and corrects all material differences.
Q-15: What will be audit plan for perpetual inventory count? (Page-229)
Ans: Audit plan for perpetual inventory count will be:

(i) Attend one of the inventory counts (past experience).
(ii) Follow up the inventory counts attended to compare quantities counted by the assurance providers
with the inventory records.
(iii) Review the year’s counts to confirm the extent of counting the overall accuracy of records.
(iv) Assuming a full count is not necessary at the year end, compare the listing of inventory with the
detailed inventory records and carry out other procedures.
Q-16: When net realizable value is likely to be less than cost? (Page-229)
Ans: Net realizable value is likely to be less than cost when there has been:
(a) An increase in costs or a fall in selling price.
(b) Physical deterioration.
(c) Obsolescence of products.
(d) A marketing decision to manufacture and sell products at a loss
(e) Errors in production or purchasing
Q-17: What are the key areas for testing receivable? (Page-231)
Ans: The keys areas for testing receivable are:

a) Confirming debt owed by customers with customers (existence, rights and obligations, valuation)
b) Confirming debt is still likely to be collected (Valuation)
Q-18: What are the reasons of receivables in the financial statements being misstated? (Page-231)
Ans: The major risks of misstatement of the receivables balance in the financial statements are due to:
(1) Debts beings uncollectible.
(2) Debts being contested by customers.
Q-19: What are the sources of information for testing receivables? (Page-232)
Ans: The sources of information for testing tangible receivable are:

(a) Receivable control ledger.
(b) Party ledger

(c) Sales day book

(d) Sales return day book
(e) Goods dispatch notes
(f) Receivable ledger information
(g) Confirmations from customers
(h) Cash received after the year end.
Q-20: What are the methods of confirmation from customers? (Page-232)
Ans: There are two methods of confirmation from customers:
• Positive method: Under the positive method the customer is requested to give the balance or to
confirm the accuracy.
• Negative method: Under the negative method the customer is requested to reply only if the amount
stated is disputed.
Q-21: When negative method should only be used? (Page-232)
Ans: The negative method should only be used when:

a) Assessed risk of material misstatement is low
b) A large number of small balances are involved.
c) A substantial number of errors are not expected.
d) The auditor has no reason to believe that customers will disregard the request.
Q-22: What are the problems with negative method? (Page-232)
Ans: The problems with negative method are:

a) The negative method provides less reliable audit evidence than the positive method.
b) Lack of response, it could mean that the customer does not dispute the balance, or
c) It could mean that the customer did not receive the confirmation request, or ignored it.
Q-23: Give an example of positive request? (Page-233)
Ans: See the assurance manual, knowledge level, page no. 233
Q-24: What are the Classes of accounts should receive special attention in respect of receivable ? (Page-
233)
Ans: The following classes of accounts should receive special attention:

1) Old unpaid accounts
2) Accounts written off during the period under review.
3) Accounts with credit balances.
4) Accounts settled by round sum payments.
Q-25: What type of receivable in relation to BSA 505 the auditor should carry out further audit work?
(Page-233)
Ans: In relation to BSA 505, the auditor should carry out further audit work to those receivable who:
1) Disagree with the balance stated (positive and negative confirmation)
2) Do not respond (positive confirmation only)
Q-26: What are the reasons for disagreements with third parties confirmation? (Page-234)
Ans:The reasons for disagreements with third parties confirmation are mentioned hereunder:
(a) There is a dispute between the client and the customer.
(b) Cut-off problems exist.

(c) The customer may have sent the monies before the year-end, but the monies were recorded by the
client after the year-end.
(d) Monies received may have been posted to the wrong account.
(e) Customers who are also suppliers may net off balances owed and owing.
(f) Teeming and lading.
Q-27: What are the alternative procedures to get confirmation from individual customers if impossible
to get confirmation? (Page-234)
Ans:The alternative procedures to get confirmation from individual customers, if impossible to get
confirmation, are given bellow:
(a) Check receipt of cash after date.
(b) Verify valid purchase orders.
(c) Examine the account to see if the balance outstanding represents specific invoices and confirm their
validity to dispatch notes.
(d) Obtain explanations for invoices remaining unpaid.
(e) Check if the balance on the account is growing.
(f) Test company’s control over the issue of credit notes and the write-off of bad debts.
Q-28: What are the key areas when testing balance sheet bank figure? (Page237)
Ans: The key areas when testing balance sheet bank figure are:
1) Confirming bank balances directly with the bank (right and obligation / existence)
2) Confirming reconciling differences between bank balance and cash book balance being misstated
(valuation)
3) Confirming any material cash balances held at the client are correctly stated (valuation)
Q-29: What are the reasons of cash and bank balances in financial statement being misstated? (Page-
237)
Ans: The major risks of misstatement of the bank and cash balance in the financial statements are due to:
(i) All bank balances owned by the client not being disclosed.
(j) Reconciliation differences between bank balance and cash book balance being misstated.
(k) Material cash floats being omitted or misstated.
Q-30: What are the possible sources of information in respect of bank balances? (Page-237)
Ans: The sources of information in respect of bank balances are:

a) Cash book
b) Confirmation from the bank
c) Bank statements
d) Bank reconciliation carried out by the client.
Q-31: How can you confirm that there is no window dressing? (Page-238)
Ans: We can confirm that there is no window dressing by checking cut-off carefully.
Q-32: How does through window dressing, overstate liquidity of the company? (Page-238)
Ans: Window dressing overstates liquidity of the company by:

1) Keeping the cash book open to take credit for remittances actually received after the year end.
2) Recording cheques paid in the period under review which are not actually despatched until after the
year end.
Q-33: What things included in cash balance at the time of cash-counting? (Page-238)
Ans: Thethings included in cash balance at the time of cash-counting:

a) Unbanked cheques receipts.

b) IOUs
c) Credit card slips
d) Notes and coins
Q-34: What planning decisions will need to be recorded on the current audit file for cash? (Page-238)
Ans: The following planning decisions will need to be recorded on the current audit file for cash:
a) The price time of the count(s) and location(s)
b) The name of the audit staff conducting the counts.
c) The names of the client staff intending to be present at each location.
Q-35: What should the auditor do where a location is not visited for cash counting?(Page-238)
Ans:Where a location is not visited for cash counting, it may be expedient a letter from the client confirming
the balance.
Q-36: What matters should apply to cash count? (Page-238)
Ans:The following matters should apply to cash count:

a) All cash / petty books should be written up to date in link at the time of the count.
b) All balances must be counted at the same times.
c) At no time should the assurance providers be left alone with the cash and negotiable securities.
d) All cash counted must be recorded on working papers subsequently filed on the current audit file.
Q-37: What are the key areas when testing payable? (Page-240)
Ans: The key areas when testing payable:

1) Ensuring that all liabilities are included (completeness)
2) Confirming that all liabilities are bona fide owed by the company (rights and obligations)
Q-38: What are the major risks of misstatement of payable in the financial statements? (Page-240)
Ans: The major risks of misstatements of payables in the financial statements are due to:
1) The entity understating its liabilities in the financial statements.
2) Cut-off between goods inward and liability recording being incorrect.
3) Non-existent liabilities being declared.
Q-39: What are the possible sources of information in respect of payables? (Page-240)
Ans: The sources of information for testing tangible payable are:

(a) Purchase invoice
(b) Purchase daybook
(c) Purchase return book
(d) Payable Control ledger.
(e) Party ledger.
(f) Party Nominal ledger
(g) Confirmations from suppliers
(h) GRN
Q-40: When will positive replies be required for payable balances? (Page-240)
Ans: Positive replies will be required for payable balances where:

(a) Supplier’s statements are unavailable or incomplete.
(b) Weaknesses in internal control
(c) Client is deliberately trying to understate payables.
(d) The accounts appear to be irregular.

Q-41: What are the major risks of misstatement of long term liabilities in the financial statements?
(Page-242)
Ans: The major risks of the long term liabilities in the financial statements being misstated are due to:
• All long-term liabilities have been not disclosed.
• That interest payable has not been calculated correctly and included in the correct accounting period
• That disclosure is incorrect
Q-42:What are the possible sources of information in respect of long term liabilities? (Page-242)
Ans: The sources of information in respect of long term liabilities are:

(a) Schedule of loan
(b) Statutory books, such as register of debentures
(c) Loan agreements
(d) Bank letter and direct confirmations from other lenders
(e) Cash book
(f) Board minutes
(g) Client schedule and calculations
(h) Accounting policies in the financial statements.
Q-43:Describe the audit plan in respect of long term liabilities? (Page-242)
Ans:The audit plans in respect of long term liabilities are focus below:
a) Authorization for the loan and should be checked to the minutes of a board or other relevant meeting.
b) Obtain / prepare schedule of loans outstanding balance showing (for each loan) : name of lender, date
of loan, maturity date, interest date, interest rate, balance at the end of the period and security.
c) Obtain direct confirmation from lenders.
d) Compare balances to the nominal ledger.
e) Compare opening balance with previous year.
f) Verify the borrowing limits.
g) Verify interest calculation & Charged during the year.
h) Analytical procedures should be checked.
i) Bank reconciliation should be checked.
j) Confirm repayments are in accordance with loan agreement.
k) Examine signed Board minutes relating to new customer.
l) Test the clerical accuracy of the analysis.
m) Trace addition and repayments to entries in the cash book.
Q-44: What is the key area when testing income statement items? (Page-243)
Ans: A key area when testing income statement items is completeness.
All Self-test, Interactive Question & Worked Example should be done from the manual.
Previous year’s question:

May-June’ 2010
12. What could be possible reasons for disagreements of Accounts Receivable balances between the client and
customer? (Q-26)Balance confirmation from individual customers is the ideal substantive procedure, what are
the alternative procedures to verify existence / rights of Accounts Receivable? (Q-27)
13. Complete the table, showing which tests on tangible non-current assets are designed to provide evidence
about which financial statement assertion: (Page-245) Self-test - 01
Completeness Existence Valuation Rights and obligations

(a) Inspect assets (b) Verify the valuation certificate (c) Refer to the title deeds (d) Compare assets in ledger to
non-current asset register (e) Review depreciation rates (f) Verify material on self-constructed assets to
invoices (g) Examine invoices after the year end (h) Review repairs in nominal ledger.
Nov-Dece’ 2010
7. A Ltd has a number of long and short terms payables, accruals and provisions in its Balance Sheet.
Required: Describe the audit procedures you would apply to the following item including those relating to
disclosures.
A 10-years bank loan with a variables interest rate and an overdraft (a bank statement with a debit balance on
the bank statement) both from the same bank.(Q-43)
9. What does assurance provider check if perpetual inventory counting is used? (Q-14) What will be the Audit
plan for perpetual inventory count? (Q-15) In what circumstances is net realizable value likely to be less than
cost? (Q-16)
May-June’ 2011
7. Describe the audit procedures you should apply to the following items in the balance sheet of a limited
company:
Stock of finished goods (Below), Accountsreceivables(Q-19), Bank Balances (Q-30), Fixed deposits(Below)
Stock of finished goods:

(1) Obtain the statement of stock of finished good
(2) Compare the quantities with stock records and bin cards.
(3) Check the reconciliation between production, sales / issues and stocks
(4) Check the basis of valuation of stocks
(5) Check the valuation of stocks with company’s accounting policies.
Fixed deposits:
(1) Obtain a statement of fixed deposits maintained with banks including location of the branch, account
number and closing balances
(2) Check physically the fixed deposit receipts
(3) Check the calculation of interest on fixed deposits
(4) Request for direct confirmation of balances
(5) Prepare a comparative statement balances reflected in the cash book and the balances confirmed by
the bank and differences noted.
Nov-Dece’ 2011
8. Complete the table, showing which tests on tangible non-current assets are designed to provide evidence
about which financial statement assertion:(Page-245) Self-test– 01
Completeness Existence Valuation Rights and obligations

(a) Inspect assets (b) Verify the valuation certificate (c) Refer to the title deeds (d) Compare assets in ledger to
non-current asset register (e) Review depreciation rates (f) Verify material on self-constructed assets to
invoices (g) Examine invoices after the year end (h) Review repairs in nominal ledger.
May-June’ 2013
4. Inventory is often the largest item in the current assets category, and must be accurately counted and valued
at the end of each accounting period to determine a company’s profit or loss. Entities whose inventory items
have a large unit cost, generally keep a day to day record of changes in inventory (perpetual inventory
method) to ensure accurate and on-going control. Entities with inventory items of small unit cost generally
update their inventory records at the end of an accounting period or when financial statements are prepared
(periodic inventory method). The value of an inventory depends on the valuation method such as First-In,
First-Out (FIFO) or Last-In, First-Out (LIFO) method.

a. What are the major risks of misstatement of the inventory value in the financial statements? (Q-11)
b. What are the principal reasons for auditors’ attendance at annual physical inventory (stocktaking)? (Below)
Ans: The principal reasons for auditors’ attendance at annual physical inventory (stocktaking) to obtain
evidence about the existence of the stock. Attendance also provides evidence in relation to:
i) Completeness and valuation of stocks.
ii) Cut-off for recording stock.
iii) Design and operation of entity’s internal control relating to stocks.
c. Which of the following analytical procedures is most applicable to inventory; and Why? (Below)
i) Comparison of sales of current and prior years? or
ii) Comparison of gross profit ratios of current and prior years?
Ans: Analytical procedure for comparison of gross profit ratio of current and prior years is most applicable to
inventory because the amount shown for inventory affects cost of goods sale and gross profit ratio. If
significant fluctuations are incurred in this ratio a detailed investigation to be done by the auditor’s in
connection with the audit of inventory.
d. Why do auditors normally record result of their test counts to compare with the final inventory listing
during an inventory observation? (Below)
Ans: The auditor normally recorded result of their test counts to compare with the final inventory listing
during an inventory observation to provide that client’s counts (inventory balance) were not changed between
the time they were made and time the final inventory listing was prepared.
May-June’ 2014
2. b. Peter is working on the audit of Alpha Ltd. In the prior year, there had been a large amount of obsolete
inventory at the year-end due to a decision by the management to amend the design of their major product to
improve safety aspect. Peter wants to ensure that management has no intention of making any similar
amendment to their products this year.
(ii) As a auditor of ABC ltd, what are the key issues / areas to be considered during the verification of
inventory? (Q-11)
Nov-Dece’ 2014
1. ISA 500 indicates that the reliability of audit evidence is influenced by its source and by its nature, and is
dependent on the individual circumstances under which it is obtained. As per ISA 505, depending on the
circumstances of the audit, audit evidence in the form of external confirmation received directly by the auditor
from parties is considered to be more reliable than evidence generated internally by the entity.
b. What is the objective of external confirmation?(Below) What do you understand by the term
external confirmation?(Below) Describe negative confirmation and positive confirmation.(Q-20)
Does verbal response constitute an external confirmation? Justify.(Below)
Ans: External confirmation: External confirmation means audit evidence obtained by a direct written
response to the auditor from a third party in paper form or by electronic or other medium.
Objective of external confirmation: The objective of external confirmation is to design and perform to
obtain relevant and reliable audit evidence. As per the International Standard on Auditing (ISA) the auditor’s
use the external confirmation as audit evidence.
Oral response: A verbal response does not constitute an external confirmation because it is not a direct
written response.

c. Your firm is the auditor of ABC Enterprise, which showed 60% increase in current year’s sales compared
with the previous year. When enquired, you found that the company has recently introduced credit sales,
which instigated the sharp rise in sales. When you further reviewed sales documents you found that credit
sales are concentrated to a small number of corporate buyers. To confirm credit sales directly from buyers you
arranged to send external confirmation requests as per ISA 505 but management refused to cooperate.
Ques:What will be your alternative audit procedures in the above circumstances? (Q-27)

Certificate Level
CHAPTER-14: CODES OF PROFESSIONAL ETHICS
Q-1: Why the accountants require ethical code? / Why are the codes of ethics for professionals
necessary (Page-227)
Ans: The key reason accountants need to have an ethical code is that they hold positions of trust; people rely
on them & their expertise. It is important to note that this reliance extends beyond clients to the general
community.
Q-2: What are the sources of ethical guidance?
Ans: The sources of ethical guidance are ICAB (The Institute of Chartered Accountants of Bangladesh) and
IFAC (The International Federation of Accountants).
Q-3: What are the advantages of principles-based guidance? / What are the advantages of a framework
of principles over a system of ethical rules? (Page-227)
Ans: The advantages of principles-based guidance are:

(a) Active consideration and demonstration of conclusions.
(b) Broad interpretation of ethical situations
(c) Individual situations covered
(d) Flexible to changing situation
(e) Can incorporate prohibitions.
Q-4: What contains in the IFAC code? (Page-228)
Ans: The IFAC code contains a number of fundamental principles.
Q-5: What are the fundamental principles of IFAC code, explain? (Page-228)
Ans: The fundamental principles are:

(1) Integrity: To be straightforward and honest in all professional and business relationships.
(2) Objectivity: To not allow bias, conflict of interest or undue influence of others to override
professional or business judgments.
(3) Confidentiality: To respect the confidentiality of information unless there is a legal or professional
right or duty to disclose.
(4) Professional behavior: To comply with relevant laws and regulations and should avoid any action
that discredits the profession.
(5) Professional competence and due care: To maintain professional knowledge and skill at the level
required to ensure that a client or employer receives competent professional service.
Q-6: Where no safeguard against independence is available of the assurance provider in such situation
what will be appropriate decision? (Page-229)
Ans: If the threats are not insignificant, identify and apply safeguards to eliminate risk, or reduce it to an
acceptable level. But where no safeguard is available, in such a situation, it is only appropriate to:
(1) Eliminate the interest or activities causing the threat.
(2) Decline the engagement, or discontinue it.
Q-7: What do you know about independence of minds independence in appearance? (Page-229)
(a) Independence of mind: The state of mind which is free from influences that compromise
professional judgment.
(b) Independence in appearance: The avoidance of facts and circumstances that is so significant
including safeguards applied and without compromise professional judgment.
Chapter – 14(Codes of professional ethics) Page 1

Certificate Level
Q-8: How many threats are available as per code of ethics? (Page-229)
Ans: There are five general sources of threat identified by the code. Other sources identify a sixth threat (the
management threat):
(a) Self-interest threat (for example, having a financial interest in a client)
(b) Self-review threat (for example, auditing financial statements prepared by the firm)
(c) Advocacy threat (for example, promoting the client’s position by dealing in its shares)
(d) Familiarity threat (for example, an audit team member having family at the client)
(e) Intimidation threat (for example, threats of replacement due to disagreement)
(f) Management threat (for example, doing work that should be carried out by management, such as the
design and implementation of IT systems)
Q-9: What are the safeguard behind the threats as per code of ethics? (Page-229)
Ans: There are two general categories of safeguard identified by the code:
(1) Safeguards created by the profession, legislation or regulation.
(2) Safeguards within the work environment.
Q-10: Give some examples of safeguards created by the profession, legislation or regulation? (Page-229)
Ans: Some examples of safeguards created by the profession, legislation or regulation are mention below:
(1) Professional standards
(2) Continuing professional development requirements
(3) Professional or regulatory monitoring
(4) Corporate governance regulations
(5) Educational training and experience
(6) External review by a legally empowered third party.
Q-11: Give few examples of safeguards created by the work environment? (Page – 229)
Ans: Few examples of safeguards created by the work environment are mention below
(a) Involving an additional professional accountant to review the work done or otherwise advise as
necessary
(b) Involving another firm to perform or re-perform part of the engagement
(c) Consulting with an independent third party
(d) Discussing ethical issues with those in charge of client governance
(e) Rotating senior personnel
May-June’ 2010
14. What are”independence of mind”& “independence in appearance”?(Q-7)Name different categories of
threats to independence?(Q-8)
Nov-Dece’ 2011
6. The Code of Ethics for Professional Accountants (IESBA Code) establishes ethical requirements for
professional accountants. The fundamental principles for professional ethics for professional accountants
provide a conceptual framework that professional accountants shall apply to identify threats to compliance
with the fundamental principles; evaluate the significance of the threats identified; and apply safeguards, when
necessary, to eliminate the threats or reduce them to an acceptable level.
a) What are the fundamental principles a Chartered Accountant shall comply with? (Q-5)
b) What are the threats that relationships or circumstances could compromise a member’s compliance with the
rules? (Q-8)

Certificate Level
c) What are the actions or others measures to be taken to eliminate threats or reduce them to acceptable levels?
(Q-9)
May-June’ 2012
9. What are the general sources of threat identified by the IFAC Code? Give one example against each source?
(Q-8)
Nov-Dece’ 2012
5. ABC & Co., is a Chartered Accountancy firm and its engagement partner for XYZ Company has been in
place for approximately eighteen years and his son has just accepted a job offer from XYZ Company as Chief
Financial Officer. If ABC & Co. is appointed as internal and external auditors, then XYZ Company has
suggested that the external audit fee should be renegotiated with at least 20% of the fee being based on the
profit after tax of the company as they feel that this will align the interests of ABC & Co. and XYZ Company.
From the given information, mention the ethical threats which may affect the independence of ABC & Co. in
respect of the audit of XYZ Company, and for each threat explain how it may be reduced.
Ans:The Threat, Meaning of Threat, Type of Threat and applicable Safeguards against the Threat are
mentioned hereunder:
Particular Threat Type Applicable Safeguards

The engagement partner has Familiarity Threat • The engagement partner should be rotated from
been involved with the being engagement partner.
client for the last eighteen
years.
The engagement partner’s Self-interest Threat • Additional safeguards such as partner’s
son has accepted a job as a Familiarity Threat rotation would be necessary.
CFO at XYZ Company. • To inform the audit committee.
Audit firm engaged both in Self-review Threat • Internal and External audit team should be
internal and external audit separated.
service. • To inform the audit committee.
• The audit findings and recommendation are
reported to the audit committee appropriately.
• To ensure quality control policies and
procedures.
• Review by second partner.
XYZ Company offered that Self-interest Threat • A firm should not enter into any fee
20% of the external audit advocacy Threat arrangement for an assurance engagement
fee is based on profit after under which the amount of the fee is
tax would represent a contingent on the result of the assurance work
contingent fee.
May-June’ 2014
4. b) What do you understand by independence of mind, independence in fact and independence in
appearance? Differentiate these three terminologies used in assurance engagement. (Q-7)
Ans: Independence in fact: Independence in fact exists when the auditor is actually able to maintain an
unbiased attitude throughout the audit.

Certificate Level
May-June’ 2015
5. a. What is the Code of Ethics for Chartered Accountants? (Below) Write the fundamental principles
pursued by Chartered Accountants in the context of ICAB Code of Ethics. (Q-5)
Ans: The Code of Ethics for Chartered Accountants is given below:

a) Credibility: There is a need for credibility in information and information systems in the whole of
society.
b) Professionalism: There is a need for individuals as professional persons in the accountancy field.
c) Quality of services: There is a need for assurance that all services obtained from professional
accountant are carried out to the highest standards of performance.
d) Confidence: Users of the services of professional accountants should be able to feel confident that
there exists a framework of professional ethics.
b. What are the threats, as regards independence, encountered by Chartered Accountants? What are the
safeguards to minimize those threats? (Q-8 & 9)
Nov-Dec’ 2015
5. Professional Ethics is of critical importance for accounting professionals. Understanding of those and
following are some kind of mandatory ethical code for the member of ICAB. Based on this;
a. What are the key ethical Codes which ICAB members are bound to follow?
b. What are the key features of IFAC and ICAB Codes?

c. Write the fundamental principles of IFAC and ICAB Code?

CHAPTER-15: INTEGRITY, OBJECTIVITY AND INDEPENDENCE
Overall summary of this chapter: Write down the meaning, threat type and applicable safeguards for the
following threats as per following format:
Threat Meaning Threat Type Applicable Safeguards

Financial Financial interest Self-interest • Disposing of the interest
interests exists where an • Removing the individual from the team if
assurance firm required
has a financial • Keeping the client’s audit committee informed of
interest in a the situation
client’s affairs. • Using an independent partner to review work
(Second partner review).
Lowballing / Firm quotes Self-interest • Maintaining records such that the firm is able to
low fees lower fees for an demonstrate that appropriate staff and time are
assurance service spent on the engagement.
• Complying with all applicable assurance
standards, guidelines and quality control
procedures.
High Clients agree to Self-interest • Discussing the issues with the audit committee.
percentage of give higher fees • Taking steps to reduce the dependency on the
fees for an assurance client
service • Obtaining external/internal quality control
reviews.
• Consulting a third party such as ICAB
Percentage or Fees calculated Self-interest • A firm should not enter into any fee arrangement
contingent on an outcome advocacy for an assurance engagement under which the
fees result basis amount of the fee is contingent on the result of
the assurance work
Overdue fees Audit fee Self-interest • Firms should safeguard against fees building up
accumulated year and being significant by discussing the issues
after year, but with those charged with governance (audit
client does not committee), and if necessary the possibility of
agree to pay. resigning if overdue fees are not paid.
Gifts and If assurance Self-interest • Unless the value of a gift is clearly insignificant,
hospitality provider accepts a firm or a member of an assurance team should
gifts not accept them.
andhospitality
from the client, it
creates threat to
independence
Loans and To arrange loans Self-interest • An assurance firm or member of the assurance
guarantees and guarantees team should not enter into any loan or guarantee
from bank or arrangement with a client that is not a bank or
other similar similar institution.
institution or
other situations
for client by firm.
Recruitment Recruiting senior Familiarity • Assurance provider must not make management
management for management decision for the client
an assurance self-interest • Assurance provider may provide short list
client. intimidation candidate but not select candidate
Chapter – 15(Integrity, Objectivity and independence) Page 1

Family and Family or close Self-interest • When an immediate family member of a member
personal personal familiarity of the assurance team is a director, an officer or
relationships relationships intimidation an employee of the assurance client in a position
between to exert direct and significant influence over the
assurance firm subject matter information of the assurance
and client staff engagement, the individual should be removed
could seriously from the assurance team.
threaten to
independence
Partner on Any partner Self-interest • A partner or employee of an assurance firm
client board exists in client’s Self-review should not serve on the board of an assurance
board of management client. It may be acceptable for a partner or an
directors. employee of an assurance firm to perform the
role of company secretary for an assurance client,
if the role is essentially administrative.
Employment The same person Self-interest • Modifying the assurance strategy
with assurance being employed Self-review • Ensuring the assurance engagement is assigned
client by both an Intimidation to someone of sufficient experience as compared
assurance firm familiarity with the individual who has left.
and a client. • Involving an additional professional accountant
to review the work done
• Carrying out a quality control review of the
engagement.
Close business An assurance Self-interest • If an individual member of an assurance team
relationships. firm and client Intimidation had such an interest, he should be removed from
will involve a the assurance team.
commercial
common
financial interest.
Preparing A firm prepares Self-review • Using staff members other than assurance team
accounting accounting members to carry out work
records and records and • Implementing policies and procedures to prohibit
financial financial the individual providing such services from
statements statements and making any managerial decisions on behalf of
then audits or the assurance client
reviews them. • Requiring the source data for the accounting
entries to be originated by the assurance client
• Requiring the underlying assumptions to be
originated and approved by the assurance client.
Internal audit Performs both Self-review • The safeguards of an assurance team in respect of
services external and internal audit service such as ensuring that an
internal audit by employee of the client is designated responsible
same assurance for internal audit activities and the client
provider. approves all the work that internal audit does.
Valuation Assurance firm Self-review, • Second partner review
services performs Management • Confirming that the client understands the
valuation& it will valuation and the assumptions used
be included in the • Ensuring the client acknowledges responsibility
Financial for the valuation
Statements. • Using separate personnel for the valuation and
audit.

Tax services Assurance firm Self-interest • Tax services being provided by partners and staff
performs audit Self-review with no involvement in the audit of financial
and also with Management statements
taxation service Advocacy • Tax services being reviewed by an independent
at a time. tax partner or senior tax employee
• Obtaining external independent advice on tax
work
• Tax computations prepared by audit staff
members being reviewed by a partner/ staff
member of appropriate experience who is not a
member of the audit team.
Information To provide IT Self-review • The audit client acknowledges its responsibility
Technology services, such as for establishing and monitoring a system of
service designing and internal controls
implementing a • The audit client designates a competent
new IT system. employee, preferably within senior management,
with the responsibility to make all management
decisions
• The audit client makes all management decisions
with respect to the design and implementation
process.
Litigation / When the clients Advocacy • Disclose the matter to the Audit Committee
Legal services threaten to sue, or self-review • Involve additional professional accountant.
indeed sues, the Intimidation • Removing specific affected individuals from the
assurance firm engagement.
falls in threat to
independence.
Corporate To arrange Advocacy • The safeguards of an assurance team in respect of
finance finance for client self-review corporate finance such as assurance firms are not
and also to allowed to promote, deal in or underwrite an
promote, deal in assurance client’s shares. They are also not
or underwrite an allowed to commit an assurance client to the
assurance client’s terms of transaction or consummate a transaction
shares. on the client’s behalf.
Clients When the clients Intimidation • Disclose the matter to the Audit Committee
threaten to sue threaten, the • Involve additional professional accountant.
the assurance assurance firm • Removing specific affected individuals from the
firm falls in threat to engagement.
independence.
Long Senior members Familiarity • Rotating senior staff off the assurance team.
association of staff at an • Involving second partners to carry out reviews.
with assurance audit firm have a • Obtaining a quality control review of the
clients long associated individual’s work on the assignment
with a client. • Discussing the issue with the audit committee.
• Where appropriate safeguards are not applied,
the firm should resign.
Q-1: What do you know about integrity, objectivity and independence? (Page- 255 &266)
(a) Integrity: A professional accountant should be straightforward and honest in all professional and
business relationships.
(b) Objectivity: A professional accountant should not allow bias, conflict of interest or undue
influence of others to override professional or business judgments.
(c) Independence: Independence is related to and free from objectivity- it is freedom from situations
and relationships.
Q-2: Why do independence and objectivity matter so important? (Page-266)
Ans: Independence and objectivity matter so much important because of:

• The expectation of those directly affected, particularly the members of the company.
• The public interest.
Q-3: What can the auditor do to safeguard / preserve objectivity& its disadvantages? (Page-266)
Ans: The auditors do to safeguard / preserve objectivity by withdrawing from any engagement where there is
the slightest threat to objectivity.
Disadvantages:
► Clients may lose an auditor who knows their business.
► It denies clients the freedom to be advised by the accountant of their choice.
Q-4: A self- interest threat might arise a great number of areas, which are these? (Page-267)
Ans: A great number of areas in which a self-interest threat might arise:
(a) Financial interests
(b) Lowballing / low fees
(c) High percentage of fees
(d) Percentage or contingent fees (also advocacy threat)
(e) Overdue fees
(f) Gifts and hospitality
(g) Loans and guarantees
(h) Family and personal relationships ( also familiarity threat & intimidation threat)
(i) Partner on client board (also Self-review & management threat)
(j) Employment with assurance client (also Self-review, Intimidation & familiarity threat)
(k) Close business relationships. (also Intimidation threat)
Q-5: Definitions the Financial interest, Direct financial interest, Indirect financial interest, Immediate
family, Assurance team? (Page-268)
(1) Financial interest: Financial interest exists where an assurance firm has a financial interest in a
client’s affairs. Example: An assurance firm own share in the client.
(2) Direct financial interest: One which is owned directly by and under the control of an individual or
entity. Example: A collective investment.
(3) Indirect financial interest: One beneficially owned through intermediaries. Example: Pension
Scheme.
(4) Immediate family: Immediate family means a spouse (equivalent) or dependent.
(5) Assurance team: Assurance team means all members of the engagement team for the assurance
engagement.
Q-6: Which parties are not allowed to own direct or indirect financial interest in a client? (Page-268)
Ans: The following parties are not allowed to own direct or indirect financial interest in a client:
(a) The assurance firm.
(b) Any partner in the assurance firm.
(c) Any member of the assurance team.
(d) An immediate family member of such a person.

Q-7: What are the safeguards against finance-interest threat? (Page-268)
Ans: The safeguards against finance-interest threat are:

(1) Disposing of the interest
(2) Removing the individual from the team if required
(3) Keeping the client’s audit committee informed of the situation
(4) Using an independent partner to review work.
Q-8: What do you mean by close business relationship? Give few example of close business
relationship? (Page-268) What are the safeguards might be taken in case of close business relationship?
(Page-269)
Ans: Close business relationship: A close business relationship will involve a commercial common finance
interest.
Few example of close business relationship are:
(a) Operating a joint venture between the firm and the client.
(b) Arrangements to combine one or more services or products of the firm.
(c) Distribution or marketing arrangements under which the firm acts as distributor or marketer of the
assurance client’s products or services or vice versa.
(d) Audit firm leasing its office space from the assurance client.
The following safeguards might be taken in case of close business relationship:
If an individual member of an assurance team had such an interest, he should be removed from the assurance
team.
Q-9: What do you mean by dual employment? What are the safeguards might be taken in case of dual
employment? (Page-269)
Ans:Dual employment: (The same person being employed by both an assurance firm and a client) is not
permitted.
The following safeguards might be taken in case of dual employment:
(1) Modifying the assurance strategy
(2) Ensuring the assurance engagement is assigned to someone of sufficient experience as compared with
the individual who has left.
(3) Involving an additional professional accountant to review the work done
(4) Carrying out a quality control review of the engagement.
Q-10: Does an assurance provider serve on client board (partner on client board)? When it is
permitted? (Page-270)
Ans: A partner or employee of an assurance firm should not serve on the board of an assurance client. It may
be acceptable for a partner or an employee of an assurance firm to perform the role of company secretary for
an assurance client, if the role is essentially administrative.
Q-11: What do you mean by Close family(family and personal relationships)? What factors should be
considers in respect of family and personal relationships? What are the safeguards might be taken in
case of family and personal relationships? (Page-270)
Ans: Close family is a parent, child or sibling who is not an immediate family member.
The following factors should be considers:

a) The individual’s responsibilities on assurance engagement.
b) The closeness of the relationship.
c) The role of the other party at the assurance client.

The following safeguards are taken in case of Close family (family and personal relationships):
When an immediate family member of a member of the assurance team is a director, an officer or an
employee of the assurance client in a position to exert direct and significant influence over the subject matter
information of the assurance engagement, the individual should be removed from the assurance team.
Q-12 When a firm or an assurance team should not accept gifts and hospitality? (Page-269)
Ans: Unless the value of gift is clearly insignificant, or hospitality, is reasonable in the terms of its frequency,
nature and cost, a firm or a member of an assurance team should not accept them.
Q-13: How many categories loan and guarantees falls into? What are the safeguards of an assurance
team in respect of loan and guarantees? (Page-271)
Ans: The advice on loans and guarantees falls into two categories:
(a) The client is a bank or other similar institution.
(b) Other situations.
Safeguards: An assurance firm or member of the assurance team should not enter into any loan or guarantee
arrangement with a client that is not a bank or similar institution.
Q-14: What are the safeguards might be taken in case of overdue fees, Percentage or contingent fees,
High percentages of fees and Lowballing? (Page-271&272)
Ans: The followings safeguards might be taken for following threats:

(1) Overdue fees: Firms should safeguard against fees building up and being significant by discussing
the issues with those charged with governance (audit committee), and if necessary the possibility of
resigning if overdue fees are not paid.
(2) Percentage or contingent fees: A firm should not enter into any fee arrangement for an assurance
engagement under which the amount of the fee is contingent on the result of the assurance work or on
items that are the subject matter of the assurance engagement.
(3) High percentages of fees: Safeguards against high percentages of fees are given below:
(a) Discussing the issues with the audit committee.
(b) Taking steps to reduce the dependency on the client
(c) Obtaining external/internal quality control reviews.
(d) Consulting a third party such as ICAB
(4) Lowballing: Safeguards against lowballing are given below:

(a) Maintaining records such that the firm is able to demonstrate that appropriate staff and
time are spent on the engagement.
(b) Complying with all applicable assurance standards, guidelines and quality control
procedures
Q-15: A self-review threat might arise a great number of areas, which are these? What are key
areas/situations of self-review threat? (Page-272)
Ans: A great number of areas in which a self-review threat might arise

(a) Preparing accounting records and financial statements
(b) Valuation services (also management threat)
(c) Tax services (also Self-interest, management & advocacy threat)
(d) Internal audit services
(e) Corporate finance (also advocacy threat)
(f) Other services.

Q-16: What are the safeguards of an assurance team in respect of service with assurance client? (Page-
273)
Ans: The safeguards in respect of service with assurance client are:

• Obtaining a quality control review of the individual’s work on the assignment
• Discussing the issue with the audit committee.
Q-17: What are the safeguards of an assurance team in respect of preparing accounting records and
financial statements? (Page-273)
Ans: The safeguards of an assurance team in respect of preparing accounting records and financial statements
are:
(a) Using staff members other than assurance team members to carry out work
(b) Implementing policies and procedures to prohibit the individual providing such services from making
any managerial decisions on behalf of the assurance client
(c) Requiring the source data for the accounting entries to be originated by the assurance client
(d) Requiring the underlying assumptions to be originated and approved by the assurance client.
Q-18: What are the safeguards of an assurance team in respect of valuation services? (Page-274)
Ans: The safeguards of an assurance team in respect of valuation services are:

(1) Second partner review
(2) Confirming that the client understands the valuation and the assumptions used
(3) Ensuring the client acknowledges responsibility for the valuation
(4) Using separate personnel for the valuation and audit.
Q-19: What are the safeguards of an assurance team in respect of taxation services? (Page-274)
Ans: The safeguards of an assurance team in respect of taxation services are:

(a) Tax services being provided by partners and staff with no involvement in the audit of financial
statements
(b) Tax services being reviewed by an independent tax partner or senior tax employee
(c) Obtaining external independent advice on tax work
(d) Tax computations prepared by audit staff members being reviewed by a partner/ staff member of
appropriate experience who is not a member of the audit team.
Q-20: What are the safeguards of an assurance team in respect of internal audit service? (Page-275)
Ans: The safeguards of an assurance team in respect of internal audit service such as ensuring that an
employee of the client is designated responsible for internal audit activities and the client approves all the
work that internal audit does.
Q-21: What are the safeguards of an assurance team in respect of corporate finance services? (Page-
275)
Ans: The safeguards of an assurance team in respect of corporate finance such as assurance firms are not
allowed to promote, deal in or underwrite an assurance client’s shares. They are also not allowed to commit an
assurance client to the terms of transaction or consummate a transaction on the client’s behalf.
Q-22: What are the safeguards of an assurance team in respect of information technology services?
(Page-275)
Ans: The safeguards of an assurance team in respect of information technology services:

(a) The audit client acknowledges its responsibility for establishing and monitoring a system of internal
controls
(b) The audit client designates a competent employee, preferably within senior management, with the
responsibility to make all management decisions

(c) The audit client makes all management decisions with respect to the design and implementation
process.
Q-23: What are the safeguards of an assurance team in respect of litigation support services? (Page-
276)
Ans: The safeguards of an assurance team in respect of litigation support services such as litigation support
services that do not involve such subject estimations are not prohibited, provided that appropriate safeguards
have been established.
Q-24: Advocacy threat might arise a great number of areas, which are these? (Page-276)
Ans: A great number of areas in which an advocacy threat might arise:

(a) Litigation / Legal services (also self-review & Intimidation threat)
(b) Contingent fees
(c) Corporate finance (also self-review threat)
(d) Tax service (also self-review threat)
Q-25: What are the safeguards of an assurance team in respect of advocacy threat? (Page-276)
Ans: The safeguards of an assurance team in respect of advocacy threat are given below:
(1) Disclosures to the audit committee
(2) Withdraw from an engagement if the risk to independence is too high.
Q-26: Familiarity threat might arise a great number of areas, which are these? (Page-277)
Ans: A great number of areas in which a familiarity threat might arise:

(a) Where there are family and personal relationships between client/firm (also self-interest &
intimidation threat)
(b) Employment with assurance client (also self-review & self-interest threat)
(c) Recent service with assurance client
(d) Long association with assurance clients
(e) Recruitment (also management, self-interest & intimidation threat)
Q-27: Intimidation threat might arise a great number of areas, which are these? (Page-278)
Ans: A great number of areas in which an intimidation threat might arise:

(1) Litigation.
(2) Close business relationships
(3) Family and personal relationships.
(4) Assurance staff members move to employment with client.
Q-28: The ICAB code sets out a framework that professional accountant can follow when seeking to
resolve ethical conflicts. What are these? (Page-281)
Ans: The ICAB code sets out a framework that professional accountant can follow when seeking to resolve
ethical conflicts. These are:
(a) The relevant facts
(b) The relevant parties
(c) The ethical issues involved
(d) The fundamental principles related to the matter in question
(e) Established internal procedures
(f) Alternative courses of action, Such as ICAB.
Q-29: Accountants in a non-practice environment may face more pressure to behave unethically. Cite
some examples of pressure the accountants (non-practice) may face in carrying out their duties or List
the different situations of conflict of interest those an accountant in business might face. (Page-282)

Ans: An accountant in business (as opposed to practice) may find that he is faced with implicit or explicit
pressure to:
Act contrary to law or regulation.
Act contrary to professional standards.
Facilitate unethical or illegal earnings management strategies.
Lie to or mislead auditors or regulators.
Issue or be associated with published reports (for example, financial statements, and tax statements)
that materially misrepresent the facts.
May-June’ 2010
14. Why do independence and objectivity matter so much?(Q-2) What can the auditor do to preserve
objectivity?(Q-3)
15. a. The IFAC Code of Ethics applies only to statutory audit. True or False (Self-test-2, Page-284)
b. As per IFAC Code of Ethics, audit engagement partners of listed companies should be rotated away
from the engagement after how many year(s)?(Self-test-5, Page-284)
16. List the different situations of conflict of interest those an accountant in business might face. (Q-
29)Monower is a qualified accountant. He has recently moved out of practice and taken up the position of
financial controller of a small company, XYZ ltd. The company has a short-term cash-flow problem.
Monowar was recently called into the board meeting and asked if he could defer some income from the
previous financial year so as to influence when the tax (both VAT and corporate tax) would be due to those
sales. The directors were insistent that such deferral was necessary and that he should consider this request
more in the nature of an order. What should be Monower’s course of action? (Interactive question-4, page -
282)
Nov-Dece’ 2013
4. a. Why do independence and objectivity matter so much? (Q-2) and what can do to maintain objectivity?
(Below)
Ans: The auditor should avoid such relationship with the client who may impair the objectivity, should not
take any gift or entertainment from the client and avoid financial interest with the client, and remain free from
all conflicts of interest with the client to maintain objectivity and independence. The auditor is to withdraw
from the engagement where there is slightest threat to objectivity.
b. A financial interest in a client constitutes a substantial self-interest threat. What are the safeguards to avoid
the above threat?(Q-7)
c.Accountants in a non-practice environment may face more pressure to behave unethically. Cite some
examples of pressure the accountants (non-practice) may face in carrying out their duties. (Q-29)
May-June’ 2014
4. Assurance engagements are designed to enhance intended users’ degree of confidence about the outcome of
the evaluation or measurement of a subject matter against criteria. Auditors shall conduct the audit of the
financial statements of an entity with integrity, objectivity and independence.
Engagement personnel shall promptly notify the team leader of circumstances and relationships that create
threats to relevant ethical requirements. The engagement leader then in consultation with the engagement
partner will propose a resolution by applying the framework for resolving threats to their assurance
engagement.

a) What do you mean by integrity, objectivity and independence in assurance engagement? (Q-1)
c) The ABC & Co., an audit firm, is currently in the process of accepting a new client. A review team is
considering a number of ethical issues that might hinder acceptance. Write down the meaning, threat type and
applicable safeguards for the following threats as per following format:
Some firms Firm quotes lower fees Self-interest • Maintaining records such that the firm
tendered low for an assurance is able to demonstrate that appropriate
Billing service staff and time are spent on the
engagement.
• Complying with all applicable
assurance standards, guidelines and
quality control procedures.
Assurer provides Assurance firm Self-review, • Second partner review
valuation service performs valuation & Management • Confirming that the client understands
to same client it will be included in the valuation and the assumptions used
the FS • Ensuring the client acknowledges
responsibility for the valuation
• Using separate personnel for the
valuation and audit.
Assurer recruits Recruiting senior Familiarity • Assurance provider must not make
senior management for an self-interest management decision for the client
management for assurance client. Intimidation • Assurance provider may provide short
the client Management list candidate but not select candidate
The client is Fees calculated on an Self-interest • A firm should not into any fee
proposing for a outcome result basis arrangement for an assurance
contingent fee engagement under which the amount of
the fee is contingent on the result of the
assurance work
Clients threaten When the clients Intimidation • Disclose the matter to the Audit
to sue the threaten, the assurance Committee
assurance firm firm falls in threat to • Involve additional professional
independence. accountant.
• Removing specific affected individuals
from the engagement.
Assurer accepts If assurance provider Self-interest • Unless the value of a gift is clearly
gifts and accepts gifts insignificant, a firm or a member of an
hospitality from andhospitality from assurance team should not accept them.
the client the client, it creates
threat to independence
Nov-Dece’ 2014
5. Write down short notes on following terminology: b) Advocacy Threat (Q-24 & 25)
May-June’ 2015
5. (c) Can a Chartered Accountant accepts contingent fee, referral fee or commission? Explain in brief with
reason.
Ans:A Chartered Accountant can’taccept contingent fee, referral fee or commission due to self-interest threat.
Reasons and applicable safeguards are described broadly in below:

Threat Threat Type Applicable Safeguards
Contingent fee Self-interest • A firm should not enter into any fee arrangement for an
assurance engagement under which the amount of the fee is
contingent on the result of the assurance work
Commission Self-interest • A member shall not pay a commission to obtain a client, nor
shall s/he accept a commission for a referral to a client of
products or services of others.
Referral fee Self-interest • Disclosing to the client any arrangements to pay a referral fee
for referring to another professional accountant for the worked
referred.
• Disclosing to the client any arrangements to receive a referral
fee for referring the client to another professional accountant in
public practice.
• Obtaining advance agreement from the client for commission
arrangements in connection with the sale by a third party of
goods or services to the client.

Certificate Level
CHAPTER-16: CONFIDENTIALITY
Q-1: Why confidentiality is so important? (Page-259)
Ans: A professional accountant should respect the confidentiality of information unless there is a legal or
professional right or duty to disclose. It is so important because it is a key factor in the trust between client
and accountant.
Q-2: What are the safeguards to be taken for confidentiality to prevent accidental disclosures of
information? (Page-260)
Ans: The safeguards to be taken for confidentiality to prevent accidental disclosures of information are:
(a) Do not discuss client matters with any party outside of the accountancy firm (for example, friends and
family, even in a general way)
(b) Do not discuss client matters with colleagues in a public place
(c) Do not leave audit files unattended (at a client’s premises or anywhere)
(d) Do not leave audit files in cars or in unsecured private residences
(e) Do not remove working papers from the office unless strictly necessary
(f) Do not work on electronic working papers on systems that do not have the requisite protection.
Q-3: What are the safeguards to be taken for confidentiality to prevent unauthorized deliberate
disclosures of information? (Page-260)
Ans: The safeguards to be taken for confidentiality to prevent unauthorized deliberate disclosures of
information are:
(a) Discuss with more senior staff in the firm.
(b) Take legal advice before making any disclosure of potentially confidential information.
Q-4: When confidential information to be disclosed in the course of professional work? (Page-260)
Ans: Information acquired in the course of professional work should only be disclosed where
(1) Consent has been obtained from the client
(2) This is a public duty to disclose, or
(3) There is a legal or professional right or duty to disclose.
Q-5: When confidential information to be disclosed as per Code of ethics? (Page-261)
Ans: The Code of ethics identifies three circumstances where the professional accountant is or may require
disclosing confidential information:
(1) Where disclosed is permitted by law.
(2) Where disclose is required by law; and
(3) Where there is a legal or professional right or duty to disclose.
Q-6: What should a professional accountant do where there is a conflict of interest? Or how will you
manage conflict of interest in accepting an assurance client? (Page-261)
Ans: A professional accountant should take reasonable steps to identify circumstances that could pose a
conflict of interest. If there is no conflict of interest, professional accountant may accept the assignment. If
there is a conflict of interest, the significance of any threat to compliance with the fundamental principles
should be evaluated. If any threats are other than clearly insignificant, the safeguards must be applied to
eliminate the threat or to reduce it to an acceptable lower level. But remember, where a conflict cannot be
managed even with safeguards, and then the professional accountant should not act.
Q-7: What are the safeguards against conflicts of interest? (Page-261)
Ans: The safeguards against conflicts of interest are:

(a) Disclosure of the circumstances of the conflict
Chapter – 16(Confidentiality) Page 1

Certificate Level
(b) Obtaining the informed consent of the client to act

(c) The use of confidentiality agreements signed by employees
(d) Establishing information barriers (Chinese walls)
(e) Regular review of the application of safeguards by a senior individual not involved with the relevant
client engagement (Second partner review).
(f) Ceasing to act
Chinese Walls
Q-8: How an auditor can maintain ‘ ’ to safeguard clients’ confidentiality (Page-262)
AnsThe term 'Chinese wall' is a reference to the confidentially procedures taken by a firm to prevent
information obtained in the course of audit. Chinese wall is a business term describing an information barrier
within an organization that prevented conflicts of interest. In the following ways the auditor may maintain
‘Chinese Walls’ to safeguard clients’ confidentiality:
Physical separation of teams
Ensuring that there is no overlap between different teams
Maintaining proper records and information disclosure barrier.
Nov-Dece’ 2010
11. Why is confidentially important(Q-1)? Discuss the security procedures which might be wise to prevent
accidental disclosure of information? (Q-2)
May-June’ 2012
6. Section 220 of Code of Ethics says that the principles of objectivity impose an obligation on all professional
accountants not to compromise their professional or business judgment because of biasness, conflict of
interest or the undue influence of others.
a. What should a professional accountant do where there is a conflict of interest(Q-6) and what safeguards are
available for a professional accountant in different circumstances? (Q-7)
b. What should the professional accountant do if his request for consent to act for another party having
conflict of interest is refused by the client? (Below)
Ans:Where a professional accountant in public practice has requested consent from a client to act for another
party in respect of a matter where the respective interests are in conflict and that consent has been refused by
the client, then the professional accountant in public practice must not continue to act for one of the parties in
the matter giving rise to the conflict of interest.
May-June’ 2013
2. Confidentiality is an assurance that information is shared only among authorized persons or entities.
Breaches of confidentiality can occur when data is not handled in a manner adequate to safeguard the
confidentiality of the information concerned. Such disclosure can take place by word of mouth, by printing,
copying, e-mailing or creating documents etc. The classification of the information should determine their
confidentiality for determination of the appropriate safeguards.
a. What is the importance of confidentiality(Q-1)? What are the safeguards to confidentiality? (Q-2)
b. What should be your actions if you are compelled by the law that you have to disclose confidential
information of your client in the public interest? (Q-3& 4)
c. How will you manage conflict of interest in accepting an assurance client? (Q-6)
d. How an auditor can maintain ‘Chinese Walls’ to safeguard clients’ confidentiality? (Q-8)
Chapter – 16(Confidentiality) Page 2

Assurance Certificate Level

Transféré par

Informations du document

Description originale:

Copyright

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Assurance Certificate Level

Transféré par

Droits d'auteur :

Concept of and need for assurance

01. What is assurance engagement? [P- 03] [J-11; D-13]

An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance

I. Three people or group of people involved:

II. A subject matter:

III. Suitable criteria:

If assurance engagement relating to financial statement then accounting standards is the

IV. Sufficient appropriate evidence:

V. A written report in appropriate form:

Summary of types of engagement:

05. Give some examples of assurance engagements. [P- 06]

07. What are the benefits of assurance? [P- 10] [D-13]

 The key benefit of assurance is,

- Professional, Verification being given to the users.

- Enhances the credibility of the information.

- Helps to prevent errors or frauds.

- Reduce the risk of management bias.

- Increases faith and trust.

08. Why can assurance never be absolute? [P- 7] [J

Assurance can never be absolute for the following reason:

For the following reason the expectations gap can be create:

10. What are the objectives of an audit of financial statements? [P-09]

08. How auditors express his audit opinion? [P-09]

a) The legal requirements are-

b) Professional qualifications are-

12. How made up of ISAs? [P- 10]

Introductory materials and definitions

15. Who are the users of assurance Engagement? [P- 10]

 Shareholders of a company, to whom the financial statements are addressed

16. What is expectations gap? [P- 11] [J-12]

19. How can we minimize the gap? [P- 11]

Assurance providers can minimize the gap by the following way:

20. What is Audit Opinion? [D-12]

Subject Audit Assurance

Ans: Limited assurance.

An employee of the client company.

Interactive question 1: Assurance engagement [Difficulty level:

Interactive question 2: benefits of assurance [Difficulty level: Exam

1) An independent professional opinion

21. Write down the stages of an audit? p-11

Obtaining the engagement

Review and completion

23. Short notes: P-12

24. What area to be alert to require an auditor? P-12

Process of Assurance: Obtaining an Engagement

01. What is audit engagement letter? [P-19]

The following table contrasts low and high risk clients:

05. How do we get information about new clients? [P- 22]

Md Hasan Bhuiyan Page 1 of 3

9. Why do need an engagement letter? [P- 24] [D-12]

Interactive question 1: Accepting appointment [Difficulty level: Easy]

Interactive question 2: Engagement letters [Difficulty level: Exam standard]

Process of Assurance: Planning the assignment

Subject Audit Strategy Audit Plan

03. Describe the audit plan procedures? [P- 37]

4. Describe the structure approached to planning? [P- 37]

5. How can you formulate an audit strategy? [P- 38]

7. Give some examples of overall audit strategy. [P- 39]

10. How do we understand of an entity and its environment? [P- 41]

11. What matters are including in the client profile?

12. What do you mean by “Professional skepticism”? [P- ]

13. What is analytical procedure? [P- 44]

Return on shareholders' funds Net profit for the period

Anamul Huq (M.Z. Islam & Co.) Page 3 of 9

Long-term solvency: Net debt x 100

18. What do you mean by the terms “Materiality”? [P- 47]