Audit week 1

Question 1

What is the primary objective of auditing?

Answer 1

The objective of auditing is to enable auditors to express an opinion on whether the financial statements give a true and fair view of the entity’s affairs and have been prepared in accordance with the applicable reporting framework.

Question 2

How has the role of auditing evolved in light of corporate scandals?

Answer 2

Auditing has gained prominence due to corporate scandals, leading to scrutiny over auditors’ competence and independence, and emphasizing the need for transparency and effective corporate governance.

Question 3

What are the main components of audit risk?

Answer 3

Audit risk consists of:

Inherent Risk – The likelihood of material misstatements before considering controls.

Control Risk – The risk that internal controls fail to detect or prevent misstatements.

Detection Risk – The risk that the auditor fails to detect material misstatements.

Question 4

What is the scope of a statutory audit?

Answer 4

A statutory audit assesses whether:

Financial statements provide a true and fair view

Statements agree with accounting records

Compliance with Companies Acts and accounting standards

Proper accounting records have been maintained

Question 5

What is the purpose of audit planning?

Answer 5

Audit planning ensures the audit is conducted efficiently by assessing risk, determining materiality, and designing appropriate audit procedures.

Question 6

Why is risk assessment important in auditing?

Answer 6

Risk assessment helps auditors identify areas prone to material misstatement and focus their procedures on high-risk areas.

Question 7

What are the key sources of audit evidence?

Answer 7

Audit evidence includes:

Internal controls

Financial records

Third-party confirmations

Physical inspection

Reperformance of transactions