Written by a fully qualified CPA (Aust.) professional, these updated study notes represent the author's materials that were used to blast through the CPA Australia Professional Exams in one year with 4 high distinctions and 2 distinctions while working full time without any tuition support. In the...
High Distinction
CPA Advanced Auditing and Assurance
(Version 16a)
Contents
Module 1 - Assurance services framework ............................................................................................. 4
Summary ............................................................................................................................................. 4
Assurance services framework ........................................................................................................... 5
Regulation of Auditing and Auditing Standards .................................................................................. 7
International Framework for Assurance Engagements .................................................................... 10
Ethical Principles ........................................................................................................................... 11
Quality control .............................................................................................................................. 14
Reasonable and limited assurance ............................................................................................... 18
Attestation and direct engagements ............................................................................................ 19
Elements of an assurance engagement ........................................................................................ 20
Public sector perspective .................................................................................................................. 24
Module 2 - General audit principles and auditor responsibilities ........................................................ 26
Auditing standards ............................................................................................................................ 26
Terms of audit engagement .............................................................................................................. 28
Independence ................................................................................................................................... 30
Australia ........................................................................................................................................ 30
United States................................................................................................................................. 32
Audit documentation ........................................................................................................................ 33
Fraud ................................................................................................................................................. 34
Going concern ................................................................................................................................... 36
Communication to those charged with governance......................................................................... 37
Module 3 - Understanding the entity, assessing risk and responding to risks ..................................... 38
Planning an audit of financial statements ........................................................................................ 38
Audit materiality ............................................................................................................................... 41
Financial statement assertions ......................................................................................................... 43
Understanding the entity and its environment ................................................................................ 45
Strategic analysis............................................................................................................................... 50
1
, Analytical procedures ....................................................................................................................... 51
Responding to assessed risks ............................................................................................................ 54
Evaluation of misstatements identified during the audit ................................................................. 55
Module 4 - The auditor's response to assessed risks ........................................................................... 56
Audit evidence .................................................................................................................................. 56
Test of controls ................................................................................................................................. 57
Substantive audit procedures ........................................................................................................... 59
Test of details .................................................................................................................................... 60
Advanced evidence-gathering issues ................................................................................................ 63
Evidence-gathering in an e-commerce environment ....................................................................... 68
Audit of small businesses and incorporated associations ................................................................ 69
Subsequent events............................................................................................................................ 71
Completion of audit .......................................................................................................................... 72
Module 5 - Audit conclusions and reporting requirements ................................................................. 73
Reports associated with reasonable assurance engagements ......................................................... 73
Recent changes to enhance the communication effectiveness of auditor reporting .................. 73
Reporting responsibility for audits of financial statements.......................................................... 75
Types of auditor's report............................................................................................................... 76
Auditor reporting for going concern and fraud ............................................................................ 80
Audit implications of comparative information............................................................................ 81
Auditor's responsibilities relating to other information in the annual report .............................. 82
Fair presentation and compliance framework.............................................................................. 84
Audits of specialised areas ............................................................................................................ 85
Reports providing limited assurance ................................................................................................ 87
Reports providing no assurance ....................................................................................................... 89
Module 6 - Performance engagements ................................................................................................ 90
Background ....................................................................................................................................... 90
Performance engagements - definition and scope........................................................................... 92
Conducting a Performance Audit ...................................................................................................... 95
Accountability and performance audits............................................................................................ 97
Performance indicators..................................................................................................................... 98
Module 7 - Other assurance services.................................................................................................. 100
Assurance on prospective financial information ............................................................................ 100
Assurance on non-financial information: Environmental and sustainability assurance ................ 102
2
, Assurance on non-financial information: Business performance measurement ........................... 105
Assurance on systems and processes ............................................................................................. 106
Assurance on behaviour ................................................................................................................. 108
Continuous auditing ........................................................................................................................ 109
Core competencies for assurance practitioners ............................................................................. 110
Internal audit .................................................................................................................................. 111
About the Author
The author is an international best seller for CPA Australia study notes, helping candidates across the
world taking the CPA Australia exam achieve success.
After scoring a perfect accounting score at high school, the author studied a BCom at Melbourne
University and won a maximum of three Deans Honours List which eventuated in being bestowed
the BCom undergraduate medal, awarded to the best graduating commerce scholar over their three
years of study. The author proceeded to study a masters in the field of accounting while working full
time in the corporate world and graduated on the Melbourne Business School Deans Honours List.
Having a combination of professional experience and academic success, the author blasted through
six CPA exams in one year without the aid of any external tuition and scored high distinctions for
Ethics and Governance, Strategic Management Accounting, Financial Reporting and Advanced
Auditing and Assurance and distinctions for Global Strategies and Leadership and Advanced Taxation.
Now a fully qualified CPA, the author has since updated the notes to incorporate student feedback
for further refinements.
Disclaimer
The materials represent the author's study notes to achieve a High Distinction.
The materials are not, and not intended to be professional advice. These materials may not reflect
the most recent developments and judgement befalls on the reader to examine the suitability of the
materials for their own purposes, having full regard for any inaccuracies or omissions that may arise
in the materials. The author of the material expressly exclude themselves from any contractual,
tortuous or any other form of liability on whatever basis to any person, whether a participant in this
subject or not, for any loss or damage sustained or for any consequences which may be thought to
arise either directly or indirectly from reliance on statements made in these materials.
Any opinions expressed in these materials are from the point of view of a student preparing for an
examination and not necessarily those of any qualified professional, affiliated organisations or
members.
The materials are sold for the exclusive use of the purchaser and the author continues to reserve all
rights. No part may be reproduced, hired out, loaned, given out, resold, stored or transmitted in any
form or by any means without the written permission of the author.
3
,Module 1 - Assurance services framework
Module 1 - Assurance services framework
Summary
Financial statement audit process [p17]
Step Activities
Client acceptance 1. Engagement letter [p90]
Planning 1. Audit strategy: [p147] The auditor is to plan the audit so that it
1. Gained understanding of will be performed in an effective manner. To reduce audit risk to
entity and environment an acceptably low level, this includes (ISA 300):
2. Planned the audit Developing an overall strategy
3. Undertaken initial risk Developing an audit plan
assessment of material 2. Risk analysis and assessment [p158]
misstatement Inherent risk [p85]
4. Prepared audit program Control risk [p85]
Detection risk [p85]
Fraud risk [p3027]
Materiality [p151]
Financial statement assertions [p154]
Control environment [p161]
Strategic analysis [p177]
Analytical procedures [p185]
Evidence gathering: having 1. Tests of controls [p222]
identified the assertions Sampling [p230]
containing a risk of material 2. Substantive tests [p232]
misstatement, the auditor Substantive analytical procedures [p232]
undertakes audit procedures to Tests of detail [p236]
reduce this risk to an acceptable Sampling [p244]
level via selecting the most 3. Final procedures
efficient and effective Subsequent events [p264]
combination of tests of controls Going concern
and substantive procedures. Management representations [p266]
Reporting 1. Auditor's report
Unmodified opinion (ISA 700 (revised)) [p298] and key
audit matters (ISA 701) [p302]
Modifications
i. Modified opinion (ISA 705 (revised))
1. Qualified [p305]
2. Disclaimer [p306]
3. Adverse [p305]
ii. Modification other than opinion (ISA 706
(revised))
1. Emphasis of matter [p309]
2. Other matter [p310]
Key audit matter/emphasis of matter/other matter
2. Other communications
Those charged with governance [p295]
Regulatory bodies [p294]
Shareholders [p292]
4
,Module 1 - Assurance services framework
Assurance services framework
What is the definition of assurance engagement as provided by The International Framework for
Assurance Engagements? [p16]
An engagement in which an assurance practitioner expresses an 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
What is the difference between 'auditing' and 'assurance'? [p15]
1. Auditing is a specific type of assurance engagement (subset of assurance engagements) that
focuses on historical financial information.
What are the three categories for assurance services, what are the level of assurance provided,
examples of these categories and the international standards governing the audit services? [p16,
21]
Type of information Historical financial Historical financial All other information
information information
Types of assurance Audits Reviews Assurance
services engagements other
than audits and
reviews of historical
financial information.
May be future oriented
and/or non financial.
Level of assurance Reasonable Limited Reasonable or limited
provided
Examples Audit of financial Review of financial 1. Prospective
statements statements financial
information
2. Suitability report
3. Greenhouse gas
report
4. Internal control
report
5. Performance
information
International ISAs 100-999 ISREs 2000-2699 ISAEs 3000-3699
Standards (Issued by International International International Standards
IAASB) Standards on Auditing Standards on Review on Assurance
Engagements Engagements
Australian Standards ASA ASRE ASAE
5
, Module 1 - Assurance services framework
What is the ISRS 4000-4699 International standards on Related Services? [p21]
These are not for assurance engagements (in that they are not designed to offer a degree of
assurance), but do utilise assurance-type, evidence-gathering procedures (eg. agreed
procedures engagements to report factual findings).
What are the four stages of a financial statement audit and the issues at each stage? [p17]
1. Client acceptance: ethics, engagement letter
2. Planning: audit strategy, risk analysis and assessment
3. Evidence gathering: tests of controls, substantive tests, final procedures
4. Reporting: auditor's report, other communication.
What is the objective of the auditor? [p82]
1. 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 whether the financial statements are prepared, in all material
respects, in accordance with an applicable financial reporting framework
2. To report on the financial statements, and communicate as required by the ISAs, in
accordance with the auditor's findings.
6
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