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Summary AAT Level 4 - External Auditing (EXAU) Notes
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Summary notes for AAT Level 4's exam: External Auditing (EXAU). Clear and condensed notes covering each aspect of the exam completed by an auditor which were used to pass first time.

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Document information

  • August 13, 2023
  • 30
  • 2021/2022
  • Summary

Subjects

  • aat
  • level 4
  • exau
  • external auditing
  • auditing
  • internal control
  • isa 315
  • isa 200
  • audit evidence
  • audit risk
  • audit procedures
  • isa 230
  • audit evaluation
  • isa 700
  • isa 705
  • isa 706
  • ias 17
  • isa 530

Written for

  • AAT
  • AAT
  • AAT
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EXAU‌‌-‌‌External‌‌Auditing‌ ‌




EXAU‌‌-‌‌External‌‌Auditing‌ ‌
Chapter‌‌1‌‌-‌‌Principles‌‌of‌‌Auditing‌‌and‌‌Professional‌‌Ethics‌ 2‌ ‌
Companies‌ 2‌ ‌
The‌‌Agency‌‌Problem‌ 3‌ ‌
An‌‌Audit‌ 3‌ ‌
ISA‌‌200‌‌-‌‌Objectives‌‌and‌‌conduct‌‌of‌‌the‌‌Independent‌‌Auditor‌ 4‌ ‌
Professional‌‌Liability‌ 4‌ ‌
Audit‌‌Failure‌ 5‌ ‌
Reasonable‌‌Assurance‌ 5‌ ‌
Professional‌‌Judgement‌ 6‌ ‌
Reporting‌ 6‌ ‌
AAT‌‌Code‌‌of‌‌Professional‌‌Ethics‌ 7‌ ‌
Confidentiality‌ 8‌ ‌
Chapter‌‌2‌‌-‌‌Systems‌‌of‌‌Internal‌‌Control‌ 8‌ ‌
ISA‌‌315‌‌-‌‌Identifying‌‌and‌‌Assessing‌‌the‌‌Risks‌‌of‌‌Material‌‌Misstatement‌‌through‌‌
understanding‌‌of‌‌the‌‌Entity‌‌and‌‌its‌‌Environment‌ 8‌ ‌
Information‌‌System‌ 9‌ ‌
Control‌‌Activities‌ 9‌ ‌
Main‌‌features‌‌of‌‌an‌‌accounting‌‌system‌ 10‌ ‌
Understanding‌‌the‌‌entity’s‌‌systems‌ 10‌ ‌
Chapter‌‌3‌‌-‌‌Obtaining‌‌Audit‌‌Evidence‌ 11‌ ‌
Methods‌‌for‌‌Collecting‌‌Audit‌‌Evidence‌ 11‌ ‌
Sufficient‌‌Appropriate‌‌Audit‌‌Evidence‌ 12‌ ‌
Computer‌‌Assisted‌‌Audit‌‌Techniques‌‌(CAATs)‌ 13‌ ‌
ISA‌‌530‌‌-‌‌Audit‌‌Sampling‌ 13‌ ‌
Chapter‌‌4‌‌-‌‌Planning:‌‌Audit‌‌Risk‌ 15‌ ‌
Understanding‌‌the‌‌entity‌ 15‌ ‌
Audit‌‌risk‌ 15‌ ‌
Analytical‌‌Procedures‌‌and‌‌Audit‌‌Risk‌ 16‌ ‌
Materiality‌ 16‌ ‌
Chapter‌‌5‌‌-‌‌Planning:‌‌Audit‌‌Procedures‌ 17‌ ‌
IAS‌‌17‌‌-‌‌Leases‌ 17‌ ‌
Inventory‌ 18‌ ‌
Trade‌‌Receivables‌ 19‌ ‌
Cash‌‌at‌‌bank‌‌&‌‌in‌‌hand‌ 19‌ ‌
Borrowings‌ 20‌ ‌
Trade‌‌Payables‌ 20‌ ‌
Provisions/‌‌Account‌‌Estimates‌ 21‌ ‌
Revenue‌ 21‌ ‌
Payroll‌ 22‌ ‌


1‌ ‌

, EXAU‌‌-‌‌External‌‌Auditing‌ ‌


Other‌ 22‌ ‌
Chapter‌‌6‌‌-‌‌Evaluation‌ 23‌ ‌
ISA‌‌230‌‌-‌‌Audit‌‌Documentation‌ 23‌ ‌
Audit‌‌Files‌ 23‌ ‌
Reporting‌‌matters‌‌to‌‌TCWG‌ 24‌ ‌
ISA‌‌700‌‌-‌‌Forming‌‌an‌‌Opinion‌‌and‌‌Reporting‌‌on‌‌Financial‌‌Statements‌ 25‌ ‌
Changes‌‌to‌‌the‌‌Auditors‌‌Report‌ 25‌ ‌
ISA‌‌706‌‌-‌‌Emphasis‌‌of‌‌Matter‌‌paragraph‌‌and‌‌Other‌‌Matter‌‌Paragraphs‌‌in‌‌the‌‌
Independent‌‌Auditor’s‌‌Report‌ 26‌ ‌
ISA‌‌705‌‌-‌‌Modifications‌‌to‌‌the‌‌Opinion‌‌in‌‌the‌‌Independent‌‌Auditor’s‌‌Report‌ 26‌ ‌


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2‌ ‌

, EXAU‌‌-‌‌External‌‌Auditing‌ ‌




Chapter‌‌1‌‌-‌‌Principles‌‌of‌‌Auditing‌‌and‌‌Professional‌‌Ethics‌ ‌

Companies‌ ‌
Company‌‌=‌‌an‌‌organisation‌‌set‌‌up‌‌for‌‌a‌‌specific‌‌purpose.‌ ‌
- Usually‌‌a‌‌separate‌‌legal‌‌entity‌ ‌
- Registered‌‌under‌‌UK‌‌legislation,‌‌Companies‌‌Act‌‌2006‌ ‌




‌
Benefits‌‌of‌‌being‌‌a‌‌company‌ ‌
- They‌‌have‌‌limited‌‌liability,‌‌so‌‌a‌‌separate‌‌legal‌‌entity‌‌from‌‌its‌‌shareholders‌ ‌
Responsibilities‌‌of‌‌a‌‌company‌ ‌
- Under‌‌Companies‌‌Act‌‌2006‌ ‌
- Must‌‌keep‌‌accounting‌‌records‌‌(s.386)‌ ‌
- Showing‌‌all‌‌transactions‌ ‌
- Their‌‌financial‌‌position‌ ‌
- Private‌‌companies‌‌(Ltd)‌‌should‌‌keep‌‌records‌‌for‌‌3‌‌years‌‌(s.388)‌ ‌
- Public‌‌companies‌‌(Plc)‌‌should‌‌keep‌‌records‌‌for‌‌6‌‌years‌‌(s.388)‌ ‌
- Must‌‌be‌‌kept‌‌at‌‌its‌‌registered‌‌office‌‌or‌‌where‌‌directors‌‌see‌‌fit‌ ‌
- Must‌‌always‌‌be‌‌open‌‌for‌‌inspection‌‌for‌‌the‌‌company’s‌‌officers‌‌or‌‌auditors‌ ‌
- Must‌‌provide‌‌financial‌‌statements‌‌(s.394)‌ ‌

The‌‌Agency‌‌Problem‌ ‌
Directors‌‌produce‌‌financial‌‌statements‌‌to‌‌alleviate‌‌shareholders‌‌concerns‌ ‌
- However‌‌misstatements‌‌can‌‌occur‌‌either‌‌through‌‌fraud‌‌or‌‌error‌ ‌
- True‌‌and‌‌fair‌‌view‌‌=‌‌honest‌‌and‌‌practical,‌‌unbiased‌‌and‌‌free‌‌from‌‌discrimination‌ ‌
- Companies‌‌Act‌‌has‌‌a‌‌control‌‌designed‌‌to‌‌review‌‌the‌‌financial‌‌statements‌‌and‌‌
supporting‌‌disclosures‌ ‌
- To‌‌ensure‌‌directors‌‌have‌‌been‌‌honest,‌‌factual,‌‌unbiased‌‌and‌‌free‌‌from‌‌
discrimination‌‌when‌‌reporting‌‌about‌‌the‌‌company‌ ‌

An‌‌Audit‌ ‌
=‌‌An‌‌independent‌‌review‌‌of‌‌the‌‌financial‌‌statements‌‌and‌‌disclosures‌‌produced‌‌by‌‌
directors‌‌to‌‌ensure‌‌that‌‌they‌‌are‌‌both‌‌honest‌‌and‌‌unbiased.‌ ‌
- External‌‌audits‌‌provide‌‌assurance‌‌to‌‌those‌‌who‌‌need‌‌it‌



3‌ ‌

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