Topic: Audit and Assurance Risk Environment

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AA – July 2023 – L2 – Q3b – Audit and Assurance Risk Environment, Professional and Ethical Considerations

Factors external auditors should consider when engaging an actuary for evaluating an insurance company's reserves and premium rates.

Question

b) Fritz Insurance is a large insurance company that provides a wide range of insurance products to individuals and businesses. As part of their annual audit, the external auditor has engaged the services of an Actuary to assist with the evaluation of the company’s reserves and the adequacy of its premium rates.

Required:
Explain FIVE (5) factors to be considered by External Auditors in engaging the services of an Actuary to assist with the evaluation of the company’s reserves and the adequacy of its premium rates. (10 marks)

Answer

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Tags: Actuary, External Auditor, Insurance, Premium Rates, Reserves
Level: Level 2

Topic: Audit and Assurance Risk Environment, Professional and Ethical Considerations
Series: JULY 2023

AA – July 2023 – L2 – Q3a – Audit and Assurance Risk Environment, Audit and Assurance Evidence

Procedures external auditors perform to evaluate the effectiveness of data security controls.

Question

a) Abbey Ltd is a medium-sized manufacturing company that produces various products for consumers. The company has a large amount of confidential data, including financial records, trade secrets, and personal information of employees and customers. The company has recently become concerned about cyber security risks and has hired an external auditor to conduct an audit of their data security controls.

Required:
Explain FIVE (5) procedures the External Auditor would need to perform to obtain evidence to evaluate the effectiveness of Abbey Ltd’s data security controls.

(10 marks)

Answer

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Tags: Audit Procedures, Cybersecurity, Data security, External Auditor
Level: Level 2

Topic: Audit and Assurance Evidence, Audit and Assurance Risk Environment
Series: JULY 2023

AA – July 2023 – L2 – Q1b – Audit and Assurance Risk Environment, Audit and Assurance Evidence

Explanation of control weaknesses inherent in Non-Profit Organizations (NFPOs).

Question

b) Understanding the client’s business environment is critical to understanding the client’s business. There is a need for this because the objectives of commercial organizations are different from that of not-for-profit organizations (NFPOs). The inherent control weaknesses for both forms of organizations may not be the same.

Required:
Explain FIVE (5) control weaknesses inherent in NFPOs. (10 marks)

Answer

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Tags: Internal Control, Non-Profit Organizations, Risk, Weaknesses
Level: Level 2

Topic: Audit and Assurance Evidence, Audit and Assurance Risk Environment
Series: JULY 2023

AA – Nov 2023 – L2 – Q5b – Audit and Assurance Risk Environment

This question identifies areas in the audit process where Robotic Process Automation (RPA) can be applied.

Question

The sixth Market Scan from the IAASB’s Disruptive Technology team explored Robotic Process Automation, a technology used for executing repetitive tasks that has applications across the audit process, from data transformation to work paper creation, as well as the potential for forming part of an audited entity’s IT environment. Robotic Process Automation (RPA) is a technology that involves creating software robots or “bots” to perform repetitive, routine manual tasks, such as extracting data, filling out forms, or moving files. By completing rules-based actions that emulate human processes, RPA tools can autonomously complete various activities across multiple unrelated software systems.

Required:
State THREE (3) areas of the audit process where RPA can be deployed.
(3 marks)

Answer

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Tags: Audit technology, Automation in audit, Robotic Process Automation, RPA
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: NOV 2023

AA – Nov 2023 – L2 – Q2b – Professional and Ethical Considerations, Audit and Assurance Risk Environment

This question discusses five key factors to consider before accepting an audit engagement.

Question

Afrak and Associates is an Audit Firm that has been providing audit and assurance services for over 20 years. The firm has recently received a request from a new client, XYZ Ltd., to provide audit services. The audit engagement will cover the financial statements for the year ended December 31, 2022.

Required:
Explain FIVE (5) factors Afrak and Associates must consider prior to accepting the audit engagement, paying attention to, risk areas that may give rise to liability, including fraud, error, and non-compliance.
(10 marks)

Answer

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Tags: Audit Engagement, Audit Risk, Client Acceptance, Ethical considerations, Fraud risk
Level: Level 2

Topic: Audit and Assurance Risk Environment, Professional and Ethical Considerations
Series: NOV 2023

AA – Nov 2023 – L2 – Q1a – Audit and Assurance Risk Environment

List five ways an external auditor can fulfill responsibilities toward a company’s corporate governance.

Question

The external auditor’s responsibility towards corporate governance is to provide an independent and objective assessment of the effectiveness and efficiency of the company’s corporate governance practices. The auditor’s role is to evaluate the company’s internal controls and make recommendations for improvements to ensure the company is adhering to good corporate governance practices.

Required:
State FIVE (5) ways the External Auditor can fulfill his/her responsibility towards the company’s corporate governance practices.
(5 marks)

Answer

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Tags: Corporate Governance, External Auditor, Internal Controls, Responsibilities, Risk Management
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: NOV 2023

AA – Mar 2023 – L2 – Q5a – Audit and Assurance Risk Environment

Identify and explain the components of an entity’s internal control system.

Question

ISA 315 (Revised): Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment requires auditors to understand the entity’s internal control. An entity’s internal control is made up of several components.

Required:
In reference to the statement above, state the FIVE (5) components of an entity’s internal control and give a brief explanation of each component.

Answer

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Tags: Control Environment, Entity’s Risk Assessment, Internal Control, ISA 315
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: MAR 2023

AA – Mar 2023 – L2 – Q2c – Audit and Assurance Risk Environment

Discuss the auditor’s responsibilities concerning fraud and the procedures to follow when fraud risks are identified.

Question

ISA 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements recognizes that financial statements’ misrepresentation can occur as a result of either fraud or error. The distinction is whether the underlying activity that caused the misrepresentation was deliberate or unintentional. An auditor’s job is not to determine whether or not fraud has happened. The external auditor is concerned with getting reasonable assurance that the financial statements as a whole are free of material misstatement, whether due to fraud or error.

Required:
i) Describe TWO (2) ways by which the external auditor may report fraud in an engagement. (2 marks)
ii) Discuss TWO (2) types of fraud in relation to the financial statements. (2 marks)
iii) State SIX (6) audit procedures that the auditor is required to perform in light of the risk of fraud. (6 marks)

Answer

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Tags: Audit Procedures, Auditors' responsibilities, Financial Statements, Fraud, ISA 240
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: MAR 2023

AA – Dec 2022 – L2 – Q5e – Audit and Assurance Risk Environment

Lists four factors an auditor may consider when determining whether deficiencies in internal control are significant.

Question

The significance of a deficiency or a combination of deficiencies in internal control depends not only on whether a misstatement has actually occurred, but also on the likelihood that a misstatement could occur and the potential magnitude of the misstatement. Significant deficiencies may therefore exist even though the auditor has not identified misstatements during the audit.

Required:
State FOUR (4) matters that an Auditor may consider in determining whether a deficiency or combination of deficiencies in internal control constitutes a significant deficiency.

Answer

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Tags: Auditor's Role, Corporate Governance, Deficiency, Internal Control, Risk Assessment
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: DEC 2022

AA – Dec 2022 – L2 – Q5d – Audit and Assurance Risk Environment

States the auditor's responsibilities when significant deficiencies in internal control are identified during an audit.

Question

A significant deficiency in internal control is one which merits the attention of those charged with governance.

Required:
State THREE (3) requirements of an Auditor when there are deficiencies in internal control of a client.

Answer

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Tags: Auditor's responsibility, Corporate Governance, Deficiencies, Internal Control, ISA
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: DEC 2022

AA – July 2023 – L2 – Q3b – Audit and Assurance Risk Environment, Professional and Ethical Considerations

Factors external auditors should consider when engaging an actuary for evaluating an insurance company's reserves and premium rates.

Question

Answer

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Tags: Actuary, External Auditor, Insurance, Premium Rates, Reserves
Level: Level 2

Topic: Audit and Assurance Risk Environment, Professional and Ethical Considerations
Series: JULY 2023

AA – July 2023 – L2 – Q3a – Audit and Assurance Risk Environment, Audit and Assurance Evidence

Procedures external auditors perform to evaluate the effectiveness of data security controls.

Question

Required:
Explain FIVE (5) procedures the External Auditor would need to perform to obtain evidence to evaluate the effectiveness of Abbey Ltd’s data security controls.

(10 marks)

Answer

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Tags: Audit Procedures, Cybersecurity, Data security, External Auditor
Level: Level 2

Topic: Audit and Assurance Evidence, Audit and Assurance Risk Environment
Series: JULY 2023

AA – July 2023 – L2 – Q1b – Audit and Assurance Risk Environment, Audit and Assurance Evidence

Explanation of control weaknesses inherent in Non-Profit Organizations (NFPOs).

Question

Required:
Explain FIVE (5) control weaknesses inherent in NFPOs. (10 marks)

Answer

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Tags: Internal Control, Non-Profit Organizations, Risk, Weaknesses
Level: Level 2

Topic: Audit and Assurance Evidence, Audit and Assurance Risk Environment
Series: JULY 2023

AA – Nov 2023 – L2 – Q5b – Audit and Assurance Risk Environment

This question identifies areas in the audit process where Robotic Process Automation (RPA) can be applied.

Question

Required:
State THREE (3) areas of the audit process where RPA can be deployed.
(3 marks)

Answer

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Tags: Audit technology, Automation in audit, Robotic Process Automation, RPA
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: NOV 2023

AA – Nov 2023 – L2 – Q2b – Professional and Ethical Considerations, Audit and Assurance Risk Environment

This question discusses five key factors to consider before accepting an audit engagement.

Question

Answer

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Tags: Audit Engagement, Audit Risk, Client Acceptance, Ethical considerations, Fraud risk
Level: Level 2

Topic: Audit and Assurance Risk Environment, Professional and Ethical Considerations
Series: NOV 2023

AA – Nov 2023 – L2 – Q1a – Audit and Assurance Risk Environment

List five ways an external auditor can fulfill responsibilities toward a company’s corporate governance.

Question

Required:
State FIVE (5) ways the External Auditor can fulfill his/her responsibility towards the company’s corporate governance practices.
(5 marks)

Answer

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Tags: Corporate Governance, External Auditor, Internal Controls, Responsibilities, Risk Management
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: NOV 2023

AA – Mar 2023 – L2 – Q5a – Audit and Assurance Risk Environment

Identify and explain the components of an entity’s internal control system.

Question

Required:
In reference to the statement above, state the FIVE (5) components of an entity’s internal control and give a brief explanation of each component.

Answer

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Tags: Control Environment, Entity’s Risk Assessment, Internal Control, ISA 315
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: MAR 2023

AA – Mar 2023 – L2 – Q2c – Audit and Assurance Risk Environment

Discuss the auditor’s responsibilities concerning fraud and the procedures to follow when fraud risks are identified.

Question

Answer

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Tags: Audit Procedures, Auditors' responsibilities, Financial Statements, Fraud, ISA 240
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: MAR 2023

AA – Dec 2022 – L2 – Q5e – Audit and Assurance Risk Environment

Lists four factors an auditor may consider when determining whether deficiencies in internal control are significant.

Question

Required:
State FOUR (4) matters that an Auditor may consider in determining whether a deficiency or combination of deficiencies in internal control constitutes a significant deficiency.

Answer

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Tags: Auditor's Role, Corporate Governance, Deficiency, Internal Control, Risk Assessment
Level: Level 2

Topic: Audit and Assurance Risk Environment
Series: DEC 2022

AA – Dec 2022 – L2 – Q5d – Audit and Assurance Risk Environment

States the auditor's responsibilities when significant deficiencies in internal control are identified during an audit.

Question

A significant deficiency in internal control is one which merits the attention of those charged with governance.

Required:
State THREE (3) requirements of an Auditor when there are deficiencies in internal control of a client.

Answer

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Tags: Auditor's responsibility, Corporate Governance, Deficiencies, Internal Control, ISA
Level: Level 2