Chapter 1

Question 1

Objective of an audit

Answer 1

of financial statements is to enable the auditor to express an opinion on whether the FS are prepared in all material aspects in accordance with an applicable financial reporting framework

Question 2

Objective of an auditor

Answer 2

to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, in order to enable them to to express an opinion on whether the FS are prepared in all material aspects in accordance with an applicable financial reporting framework

Question 3

An audit provides assurance to the shareholders and stakeholders of a company on the financial statements because it is independent and impartial

Answer 3

True

Question 4

Information is true

Answer 4

information must be factual and conforms with reality

Question 5

Information is fair

Answer 5

info is free from discrimination and bias and is in compliance with expected standards and rules

Question 6

present fairly

Answer 6

FS show a true and fair view

Question 7

Materiality

Answer 7

a matter is material if its omission or misstatement would reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Question 8

Reasonable assurance

Answer 8

the highest level of assurance that can be given since no audit can give 100% assurance as there are inherent limitations of an audit resulting in the audit only ever forming an opinion on evidence that is persuasive rather than conclusive

Question 9

Limitations of an audit

Answer 9

Audit evidence sometimes indicates what is possible nor certain
Limitations in accounting and control systems
Not all items in the FS are tested
Audit report has inherent limitations
Auditing is not objective, judgments have to be made
Audit report can be issued a long time after the end of the reporting period
Auditors can never certify that the accounts are correct, they can only ever express an opinon

Question 10

Assurance engagement

Answer 10

one where a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of intended users other than the responsible party about the outcome of the measurement or evaluation of an underlying subject matter against criteria

Question 11

Intended user

Answer 11

the individual/organisation that the practitioner expects will use the report

Question 12

Responsible party

Answer 12

party responsible for the underlying subject matter

Question 13

Practitioner

Answer 13

the individual (engagement partner, engagement team or as applicable the firm) who is conducting the engagement

Question 14

Elements of an assurance engagement

Answer 14

Criteria - the subject matter is measured against criteria in order to reach an opinion

Report - a written report containing the practitioner’s opinion is issued to the intended user in the form appropriate to a reasonable assurance engagement or limited assurance engagement

Evidence - sufficient appropriate evidence needs to be gathered to support the required level of assurance

Subject matter - the data to be evaluated that has been prepared by the responsible party such as financial performance, internal controls and behaviour, non financial performance

Three party relationship - the intended user, responsible party, practitioner

Question 15

Assurance

Answer 15

describes the process whereby one party is trying t provide a level of comfort to another about a subject matter

Question 16

Examples of assurance engagements

Answer 16

statutory audit
review of an entity’s financial results for the first half of the year
a review of the effectiveness of an entity’s internal control
a review of cash flow forecasts which will be presented to a bank to obtain funding
a review of threats which could affect the business ability to continue as a going concern

Question 17

Approach to conducting assurance engagements

Answer 17

Agree scope of work to be performed with client
Formalise the terms of engagement in an engagement letter
Plan the work required based on risk and level of assurance required
Obtain sufficient evidence on which to base the conclusion
Perform overall review and form opinion
Issue assurance report to client as per pre agreed format

Question 18

Benefits of assurance report

Answer 18

Reduces management bias
Any non standard or modified opinion draws attention to risk
Relevance of info is improved because of the expertise and knowledge of the assurance firm
Provides an independent opinion from an external source that enhances the credibility of the information

Question 19

Levels of assurance

Answer 19

Reasonable assurance - significant amount if testing and evaluation is required to support the practitioners conclusion

Limited assurance - a lower level of assurance. The nature, timing and extent of the procedures carried out by the practitioner in a limited assurance engagement would be limited compared with what is required in a reasonable assurance engagement. however the procedures performed should be planned to obtain a level of assurance which is meaningful in the practitioner’s judgment.

Question 20

Wording of reasonable assurance

Answer 20

in our opinion, internal control is effective in all material aspects based on XYZ criteria

Question 21

Wording of limited assurance

Answer 21

Based on our work described in this report, nothing has come to our attention that causes us to believe that internal control is not effective in all material aspects based on XYZ criteria