CA Final Paper 3: Advanced Auditing flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Materiality benchmark

A percentage applied to a chosen financial metric (e.g., 5% of profit before tax) to determine overall materiality; choice depends on entity characteristics and user needs.

Performance materiality

An amount set lower than overall materiality to reduce to an appropriately low level the probability that uncorrected and undetected misstatements exceed overall materiality; typically 50–75%.

Audit risk model

Audit risk = inherent risk × control risk × detection risk; detection risk is inversely related to the level of substantive procedures performed by the auditor.

Significant risk

An identified risk of material misstatement that, in the auditor's judgment, requires special audit consideration due to its nature, complexity, or fraud potential.

External confirmation

Audit evidence obtained as a direct written response from a third party (e.g., bank, customer) to the auditor; more reliable than internally generated evidence.

Written representations

Written statements by management confirming certain responsibilities and assertions; required by SA 580 but not a substitute for other audit evidence.

Opening balances

Account balances at the beginning of the period that include balances carried forward from prior periods; auditor must obtain sufficient appropriate evidence about them.

Audit sampling

Application of audit procedures to less than 100% of items within a population such that all sampling units have a chance of selection to provide a reasonable basis for conclusions.

Analytical procedures

Evaluations of financial information through analysis of plausible relationships among financial and non-financial data; used in risk assessment, substantive testing, and final review.

Audit documentation

The record of audit procedures performed, relevant audit evidence obtained, and conclusions reached; must be sufficient for an experienced auditor to understand the work.

Key audit matters

Matters selected from those communicated with those charged with governance that were of most significance in the audit; required for listed entities under SA 701.

Qualified opinion

A modification of the auditor's opinion used when misstatements are material but not pervasive, or when sufficient appropriate evidence cannot be obtained but effects are not pervasive.

Emphasis of matter

A paragraph in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements that is fundamental to users' understanding, without modifying the opinion.

Agreed-upon procedures

An engagement under SRS 4400 where the auditor performs procedures agreed with the engaging party and reports factual findings without expressing an opinion or assurance.

Service organisation report

A report under SAE 3402 on controls at a service organisation; Type 1 covers design, Type 2 covers design and operating effectiveness over a period.

Review engagement

An engagement under SRE 2400 providing limited assurance on financial statements, primarily through inquiry and analytical procedures, resulting in negative assurance.

Section 139

Companies Act provision governing appointment of auditors for five years, first auditor appointment, casual vacancy, and rotation requirements for listed and prescribed classes.

Section 143(12)

Companies Act provision requiring the auditor to report fraud to the Board or audit committee within two days and to the Central Government if no action is taken within 45 days.

Section 144

Companies Act provision prohibiting auditors from rendering specified non-audit services to audit clients, including accounting, internal audit, actuarial, and management services.

Independence threats

Categories under the Code of Ethics: self-interest, self-review, advocacy, familiarity, and intimidation; each must be evaluated and safeguards applied or engagement declined.

Fee dependence

Situation where fees from one client exceed 15% of the firm's total gross fees for two consecutive years; requires disclosure and consideration of safeguards.

SQC 1

Standard on Quality Control requiring firms to establish policies on leadership, ethics, acceptance and continuance, human resources, engagement performance, and monitoring.

Engagement quality control review

An objective evaluation of the significant judgments and conclusions of the engagement team before the report is issued; required for listed entity audits.

Peer review

A review of a firm's quality control system and audit engagements by an independent reviewer registered with ICAI, generally conducted every three years.

LFAR

Long Form Audit Report required for bank branches, covering areas such as cash, advances, deposits, and compliance with RBI guidelines, in addition to the statutory audit report.

IRAC norms

RBI guidelines for income recognition, asset classification, and provisioning for bank loans; classify assets as standard, sub-standard, doubtful, or loss.

Solvency margin

The excess of assets over liabilities required for insurance companies under IRDAI regulations; auditors verify compliance and report on solvency position.

Internal financial controls

Policies and procedures to ensure reliability of financial reporting and compliance with laws; auditors report on adequacy and operating effectiveness under Section 143(3)(i).

Risk-based internal audit

An approach where internal audit resources are allocated based on assessed risks, prioritizing high-risk areas to provide assurance on risk management and controls.

Audit committee

A committee of the board, with a majority of independent directors, responsible for overseeing financial reporting, internal audit, and the independence of statutory auditors.

CAAT

Computer-Assisted Audit Techniques used by auditors to test controls and perform substantive procedures on electronic data, often through data extraction and analysis software.

Audit trail

A feature in accounting software that records every transaction and edit; Companies (Accounts) Rules require it and auditors must report on its presence and operation.