Chapter 1 Flashcards
(49 cards)
How many parties must a assurance engagement involve to be considered an assurance engagement?
Three parties (auditor, accountable party (management), and intended user (shareholders))
What are the five elements a assurance engagement must have?
Three party relationship
Appropriate subject matter
Suitable criteria
Sufficient appropriate evidence
Conclusion
What is appropriate subject matter for an assurance engagement?
This involves financial statements, systems and processes, all which must be capable of being evaluated
What is a suitable criteria for an assurance engagement?
This includes accounting standards, internal controls, applicable laws, regulations… to evaluate the subject matter against.
What is the sufficient appropriate evidence of an assurance engagement?
You need sufficient appropriate evidence to enable practitioner to evaluate the subject matter and support a conclusion
What is the conclusion aspect of an assurance engagement?
A conclusion provides a level of assurance about whether subject matter conforms to suitable criteria
What is the need for assurance services?
They provide some level of assurance to users about the reliability and credibility of information
Reducing information risk
What is information risk?
users will rely on incorrect information to make a decision
What reduces information risk?
Assurance services
What are causes of information risk?
Remoteness, complexity, competing incentives, and reliability
What is the most common type of assurance engagement?
Auditing financial statements (FS)
What are examples of assurance engagements?
Internal audits
Compliance audits
Performance audits
Forensic / Fraud audits
Environmental audits
What is the goal of an audit (FS)?
Express opinion on fairness of FS in accordance with applicable financial reporting framework
What is an audit of financial statements compared to ensure its proper?
Canadian auditing standards
What is the purpose of an audit?
Enhance the reliability & credibility of financial statements
Are audits a guarantee that financial statements are free from any errors?
No! Audited financial statements could still have errors and contain fraud.
Where do the limitations of auditing financial statements result from?
Subjectivity in financial reporting
The nature of conducting an audit (sampling and questioning the reliability of evidence)
The need for audits to be done in a timely manner
What are the three levels of assurance?
Reasonable assurance (audit)
Limited assurance (review)
No assurance (compilation)
What are the qualities that make up a reasonable assurance (audit)?
highest level of assurance
auditor gives a positive opinion (FS are fairly presented)
based on extensive testing
not 100% guaranteed but close
What are the qualities that make up a limited assurance (review)?
moderate level of assurance
nothing has come to the attention of the auditor that causes them to believe the financial statements aren’t presented fairly (negative assurance)
They didnt find any problems, but also didnt do enough work to say for certain
Not saying its fair, but saying they didnt see anything that makes the FS unfair
based on limited procedures (like inquiries and analysis)
What are the qualities that make up a no assurance (compilation)?
No opinion or assurance
Auditor just prepares the financial statements
There are no checks for accuracy or compliance
What is a unmodified (clean) audit opinion
It means that the financial statements are presented fairly in accordance with applicable financial reporting framework
What is sometimes added to an unmodified audit report?
Emphasis of matter paragraph
What is an emphasis of matter paragraph
Highlights important issues that is already disclosed in the financial statements
Examples: a lawsuit or going concern risk
Adding an emphasis of matter paragraph does not mean that the financial statements are incorrect, it just draws attention to something that is significant
