Auditing week 1

Question 1

What is a public company?

Answer 1

A company that sells its shares or bonds to the public, giving the public a valid interest in the proper use of the company’s resources

Question 2

What does the Occurrence assertion in management assertions refer to?

Answer 2

Transactions and events that have been recorded or disclosed have occurred and pertain to the entity

Question 3

What does the Completeness assertion involve?

Answer 3

All transactions and events that should have been recorded have been recorded

Question 4

What does the Authorization assertion ensure?

Answer 4

All transactions and events have been properly authorized

Question 5

What does Accuracy assertion verify?

Answer 5

Amounts and other data relating to recorded transactions and events have been recorded appropriately

Question 6

What is the purpose of the Cutoff assertion?

Answer 6

Transactions and events have been recorded in the correct accounting period

Question 7

What does the Classification assertion ensure?

Answer 7

Transactions and events have been recorded in the proper accounts

Question 8

What is the Presentation assertion about?

Answer 8

Transactions and events are appropriately aggregated or disaggregated and clearly described

Question 9

What does the Existence assertion confirm?

Answer 9

Assets, liabilities, and equity interests exist

Question 10

What does the Rights and Obligations assertion state?

Answer 10

The entity holds or controls the rights to assets, and liabilities are the obligations of the entity

Question 11

What does the Accuracy, Valuation, and Allocation assertion involve?

Answer 11

Assets, liabilities, and equity interests have been included at appropriate amounts

Question 12

What is the definition of Materiality in auditing?

Answer 12

The magnitude of an omission or misstatement of accounting information that makes it probable that the judgment of a reasonable person would have been changed

Question 13

What is Audit Risk?

Answer 13

The risk that the auditor mistakenly expresses a clean audit opinion when the financial statements are materially misstated

Question 14

What does reasonable assurance imply?

Answer 14

Some risk that a material misstatement could be present in the financial statements and the competent auditor will fail to detect it

Question 15

What is the purpose of audit evidence?

Answer 15

To assist the auditor in evaluating management’s financial statement assertions

Question 16

What are the two key attributes of audit evidence?

Answer 16

• Relevance
• Reliability

Question 17

What is the reason for using a sampling approach in audits?

Answer 17

It would be too costly for the auditor to examine every transaction

Question 18

What is included in the title line of the audit report for public company audits?

Answer 18

“Independent Auditor’s Report”

Question 19

What sections are included in the audit report?

Answer 19

• Opinion on the Financial Statements
• Basis for Opinion
• Critical Audit Matters

Question 20

What is an Unqualified audit report?

Answer 20

The most common type of report, indicating financial statements are free of material misstatements

Question 21

What does a Qualified audit report indicate?

Answer 21

The financial statements are fairly stated except for a specific misstatement identified by the auditor

Question 22

What does an Adverse audit opinion mean?

Answer 22

The financial statements are not fairly stated and should not be relied upon

Question 23

What does a Disclaimer of Opinion indicate?

Answer 23

It is not possible to express an opinion on the fairness of the financial statements due to a scope limitation

Question 24

What skills are essential for an auditor beyond accounting concepts?

Answer 24

• Logical thinking
• Reasoning
• Common sense
• Imagination
• Resourcefulness

Question 25

What does the auditor's report conclude with?

Answer 25

Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate

Question 26

What are the four main types of auditors?

Answer 26

External Auditors, Government Auditors, Forensic Auditors, Internal Auditors

Question 27

Name the Big 4 public accounting firms.

Answer 27

Deloitte, EY, PwC, KPMG

Question 28

What are the 3 categories of public accounting firms aside from the Big 4?

Answer 28

Mid-Tier, Regional, Local

Question 29

What is the primary responsibility of a Partner in an audit team?

Answer 29

Reach agreement with the auditee on the scope of the service to be provided

Question 30

What are the selected duties of a Manager in an audit team?

Answer 30

Ensure proper planning, supervise preparation, review working papers, recommend audit judgments

Question 31

What is a Senior/In-Charge's role in an audit team?

Answer 31

Assist in audit plan development, prepare budgets, assign tasks, supervise associates

Question 32

What are the main duties of an Associate/Staff in an audit team?

Answer 32

Perform assigned audit procedures, prepare documentation, inform seniors of problems

Question 33

List some notable corporate scandals that led to increased regulation in auditing.

Answer 33

Enron, Nortel, Livent, WorldCom, Arthur Andersen, Sino Forest

Question 34

What is the Sarbanes-Oxley Act known for?

Answer 34

Regulation of the audit profession, creation of PCAOB

Question 35

What is the primary responsibility of management in relation to financial statements?

Answer 35

Maintain effective internal control and ensure fairness of financial statements

Question 36

What are the five basic business processes organized by auditors for a financial statement audit?

Answer 36

Revenue Process, Financing Process, Purchasing Process, Human Resource Management Process, Inventory Management Process

Question 37

What is the primary body responsible for management oversight in Canadian corporations?

Answer 37

Board of Directors

Question 38

What does the audit committee do?

Answer 38

Oversees internal and external auditing work

Question 39

What is the role of the Canadian Securities Administrator (CSA)?

Answer 39

Regulates securities and auditing standards in Canada

Question 40

What are the main auditing standards organizations in Canada?

Answer 40

AASB, CPAB

Question 41

What does the acronym IAASB stand for?

Answer 41

International Auditing and Assurance Standards Board

Question 42

True or False: Auditing standards ensure that financial statement audits are inconsistent.

Answer 42

False

Question 43

What are the four categories of principles underlying an audit according to the AASB?

Answer 43

Purpose, Responsibilities, Performance, Reporting

Question 44

What is the purpose of an audit?

Answer 44

Enhance confidence of intended users in financial statements

Question 45

Fill in the blank: The auditor obtains _______ assurance about whether the financial statements are free from material misstatement.

Answer 45

reasonable

Question 46

What are the inherent limitations of an audit?

Answer 46

Nature of financial reporting, nature of audit procedures, time constraints

Question 47

What do auditors express in their report?

Answer 47

An opinion, modification of opinion, or denial of opinion

Question 48

What are the two classifications of auditing standards by the AASB?

Answer 48

Canadian Auditing Standards (CAS), International Standards on Auditing (ISA)

Question 49

What is the CPA’s Rules of Professional Conduct?

Answer 49

Guidance for acceptable behavior for auditors

Question 50

What is the definition of ethics in the context of auditing?

Answer 50

A system or code of conduct based on moral duties and obligations

Question 51

What is the definition of professionalism in auditing?

Answer 51

The conduct, aims, or qualities that characterize a profession or professional person