Flashcards in Chapter 1 Deck (47):
is an engagement where a practitioner is engaged to issue a written report and concludes on a subject matter for which the accountable party is responsible.
a prerequisite for an assurance engagement is the existence of an ________, where one party is answerable to another for the subject matter
The financial framework chosen by management to prepare a company's financial statements. For example, an applicable framework for a reporting issuer would be International Financial Reporting Standards (IFRS). An applicable framework for a private enterprise could be Accounting Standards for Private Enterprises (ASPE), or it could be IFRS.
applicable financial reporting framework
Statements made by management regarding the recognition, measurement, and presentation and disclosure of items in the financial statements.
Information used by the auditor to support the audit opinion.
The file where the evidence and documentation of the work performed is kept as a permanent record to support the opinion issued.
The list or description of audit procedures to be performed.
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.
A structured representation of historical financial information, including the related notes.
The auditor's formal expression of opinion on whether the financial statements are in accordance with the applicable financial reporting framework.
independent auditor's report
The processes implemented and maintained by management to help the entity achieve its objectives.
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. The concept of materiality is one of the reasons why an audit never provides 100 percent assurance.
The quantity (sufficiency) and quality (appropriateness) of the evidence collected by the auditor.
sufficient and appropriate evidence
The auditor concludes that the financial statements are fairly presented.
Paper or electronic documentation of the audit created by the audit team as evidence of the work completed.
an entity whose shares, stock, or debt are listed on a stock exchange
the consistent and faithful application of accounting standards when preparing the financial statements
an audit to determine whether the entity has conformed with regulations, rules, or processes
an assessment of the economy, efficiency, and effectiveness of an organization's operations
an audit that encompasses a range of audit and audit-related activities, such as a financial statement audit, operational audit, and compliance audit
an independent service within an entity that generally evaluates and improves risk management, internal control procedures, and elements of the governance process
non-audit firms that provide assurance services on non-financial information, such as corporate social responsibility and environmental disclosures
assurance that provides high but not absolute assurance on the reliability of the subject matter
assurance that provides negative assurance on the reliability of the subject matter
engagement in which the auditor does adequate work to report whether or not anything came to their attention that would lead them to believe that the information being assured is not fairly presented
what results when an auditor completes a set of tasks requested by the client and reports factually on the results of that work to the client
engagement in which an auditor compiles a set of financial statements based on the information provided by the client, ensuring mathematical accuracy
the communication issued when the auditor performs a compilation engagement
Notice to Reader
a clean audit opinion; the auditor concludes that the financial statements are fairly presented
what results when an auditor will issue an unmodified audit opinion when there is a significant issue that is adequately disclosed and there is a need to draw the attention of the user to it
Emphasis of matter
opinion provided when the auditor concludes that the financial statements contain a material (significant) misstatement
Agency theoryInformation hypothesisInsurance hypothesis
tells us that due to the remoteness of the owners from the entity, the complexity of items included in the financial statements, and competing incentives between the owners and managers, the owners (principals) have an incentive to hire an auditor (incur a monitoring cost) to assess the fair presentation of the information contained in the financial statements prepared by their managers (agents).
tells us that due to the demand for reliable, high-quality information, various user groups, including shareholders, banks, and other lenders, will demand that financial statements be audited to aid their decision-making.
tells us that investors will demand that financial statements be audited as a way of insuring against some of their loss should their investment fail.
Canadian Securities Administrators
The audit expectation gap can be reduced by:
auditors performing their duties appropriately, complying with auditing standards, and meeting the minimum standards of performance that should be expected of all auditorspeer reviews of audits to ensure that auditing standards have been applied correctlyauditing standards being reviewed and updated on a regular basis to enhance the work being done by auditorseducation of the publicenhanced reporting to explain what processes have been followed in arriving at an audit (reasonable assurance) or a review (limited assurance) opinion (significant improvements have been introduced by standard-setters improving assurance reporting)assurance providers reporting accurately the level of assurance being provided (reasonable, limited, or none).
The parties relevant to an assurance engagement are:
assurance practitioner, users, responsible party.
Under the Canada Business Corporations Act the auditor has a responsibility to:
form an opinion on the fair presentation of the financial statements.
Performance audits are useful because:
they are concerned with the economy, efficiency, and effectiveness of an organization's activities.
The function of internal audit is determined by:
those charged with governance and management.
Negative assurance means:
he auditor has done adequate work to report whether or not anything came to their attention that would lead them to believe that the information being assured is not fairly presented.
A “clean” audit report is issued when:
the audit opinion is unqualified and unmodified.
Those charged with governance have a responsibility to ensure that the information in financial statements is:
relevant and reliable.comparable and understandable.fairly presented
Agency theory explains that audits are demanded because:
conflicts can arise between managers and owners.
The insurance hypothesis means:
an audit acts as insurance.