Chapter 1 Flashcards
(16 cards)
Working Papers
Paper or electronic documentation of the audit created by the audit team as evidence of the work completed.
Unmodified Opinion
The auditor’s opinion concluding that the financial statements are fairly presented. (Also called an “unqualified opinion.”)
Materiality
An amount or disclosure that is significant enough to make a difference to a user. For example, if a company reports a profit of $100,000 and the auditor finds an error resulting in an overstatement of net income by $10, this probably wouldn’t affect an investor’s decision. However, if the auditor finds an error overstating revenue by $50,000, or 50 percent of the profit, this likely would affect the user’s decision and would therefore be considered material.
Internal Control
The processes implemented and maintained by management to help the entity achieve its objectives.
Audit Risk
The risk that the auditor may express an inappropriate opinion. This means the auditor may indicate that the financial statements are not materially misstated when in fact they are.
Audit Plan
The list or description of audit procedures to be performed.
Audit File
The file where the evidence and documentation of the work performed are kept as a permanent record to support the opinion issued.
Assertions
Statements made by management regarding the recognition, measurement, and presentation and disclosure of items in the financial statements.
Types of Assurance Engagements
Common types of assurance engagements are:
1. financial statement audits
2. compliance audits
3. performance audits
4. comprehensive audits
5. internal audits
6. assurance on corporate social responsibility (CSR)
Financial Atatement Audit
an audit that provides reasonable assurance about whether the financial statements are prepared in all material respects in accordance with the financial reporting framework. To do this, the auditor methodically gathers evidence to corroborate the financial information presented by management. At the end of an audit engagement, the auditor issues a report indicating whether the financial information is fairly presented in accordance with the financial reporting framework.
Limitations of Financial Statement Audits
Auditors are not hired to comment on the quality of the investment, and only if the accounting was done in accordance with IFRS (does not express an opinion on the quality of management of the company). A financial statement audit is not a guarantee that the financial statements are free from fraud and error.
Compliance Audit
a compliance audit involves gathering evidence to ascertain whether the person or entity under review has followed the applicable rules, policies, procedures, laws, and regulations. (a tax audit is a commone example.)
Performance Audits
Performance audits are an assessment of the economy, efficiency, and effectiveness of an organization’s operations.
Comprehensive Audit
A comprehensive audit encompasses a range of audit and audit=related activities, such as financial statement audit, performance audit, and compliance audit
Internal Audit
An internal audit is an independent service within an entity that generally evaluates and improves risk management, internal control procedures, and elements of the governance process. Its function is determined by those charges with governance and management within the organization.
