Chapter 1

Question 1

Assurance

Answer 1

Level of confidence that the info is credible

Question 2

Levels of confidence (2)

Answer 2

• Reasonable assurance (high level, good)
• Limited assurance (low level, bad)

Question 3

Materiality (2)

Answer 3

• Things that will greatly affect economic decisions
• Don’t look into error that aren’t material

Question 4

Assurance elements (5)

Answer 4

• Independent 3rd party
• Subject matter
• Criteria
• Evidence
• Written conclusion

Question 5

Accountability Relationship (2)

Answer 5

• Provide independence and ethical standard
• Excise professional judgement, integrity, professional skepticism

Question 6

Subject matter

Answer 6

What is being audited

Question 7

Criteria

Answer 7

Benchmark to evaluate subject matter

Question 8

Evidence

Answer 8

Info to assess if subject matter accords with criteria (document, observation, testimonies)

Question 9

Written conclusion (2)

Answer 9

• Differ in nature
• Inform degree of confidence

Question 10

Assurance vs. Auditing

Answer 10

• Assurance: Level of confidence
• Auditing: Increase assurance

Question 11

Concerns of FS users (5)

Answer 11

• Shareholders (investment)
• Banks (repayment)
• Company director (internal decisions)
• Suppliers & credit agencies (risks)
• Current employees (comfort to target)

Question 12

Misinformation

Answer 12

Unintentional mistake

Question 13

Disinformation

Answer 13

Intentional mistake

Question 14

Cause of informational risk (4)

Answer 14

• Remoteness of info
• Biases & motives
• Voluminous data
• Complex transaction

Question 15

Ways to reduce informational risk (3)

Answer 15

• Verify information
• Share information risk with management
• Provide audited FS

Question 16

Advantage of less risks (5)

Answer 16

• More chance to obtain external funds
• More leverage in negotiation
• Reduced debt service cost
• Better supplier terms
• Better comfort employees (retain top talent)

Question 17

Types of assurance engagements (4)

Answer 17

• FS audit
• Assurance engagement on compliance
• Performance audit
• Sustainability assurance engagement

Question 18

Internal auditor (6)

Answer 18

• Work for individual company
• Evaluate and improve risk management
• Do financial & internal control audits
• Do consulting activities
• Report directly to audit committee
• Lack independence

Question 19

Government Auditor (2)

Answer 19

• Performs audit function for government
• Independent from government entities

Question 20

Forensic accountants & fraud auditor (3)

Answer 20

• Investigate FS for fraud & misappropriation
• Perform fraud risk assessment on FS audit
• Combine accounting knowledge and investigative skills

Question 21

Sustainability auditor (2)

Answer 21

• Provide assurance in sustainability reports
• Need of technical expertise

Question 22

Public Accountants (2)

Answer 22

• Provide accounting services to the public
• Only public accounting firms can conduct FS audit

Question 23

Statutory Audit

Answer 23

Audit required by law

Question 24

Assurance Engagement Related to Historical Financial Information (3)

Answer 24

• Audit of Historical FS
• Review of Historical FS
• Audit of Financial Information Other Than FS (sales, receivables, inventory, balance sheet, operating statement)

Question 25

Related and Other Types of Services (4)

Answer 25

- Compilations - Tax Services - Management Advisory services - Accounting and book keeping services