Chapter 1 - Introduction to Auditing

Question 1

What is assurance?

Answer 1

It is the level of confidence one feels in the information on the financial statement.

Question 2

What is an assurance engagement?

Answer 2

It is an independent assessment done by an auditor to perform and provide an opinion on the statements usually for a fee.

Question 3

What is levels of assurance?

Answer 3

There is both a moderate and a high level of assurance that can be determined, in which it directly impacts what needs to be judged to ensure sufficient and appropriate audit evidence to provide an appropriate conclusion.

Question 4

What is reasonable assurance?

Answer 4

It is a high level of assurance regarding the subject matter and the criteria but it is not 100%

Question 5

What is limited assurance?

Answer 5

It is assurance that is acceptable for that particular engagement, however it is significantly lower than reasonable assurance on the subject matter

Question 6

What is materiality?

Answer 6

Materiality is the size of the misstatements when aggregated or disaggregated can cause t he view of the user of the financial statement to shift and take an action that they would have not otherwise.

Question 7

What is the role of the auditor in materiality?

Answer 7

To provide reasonable assurance that the subject matter is free of material misstatement and to have professional judgement throughout.

Question 8

What are the key features of an assurance engagement

Answer 8

1. Third party relations
2. subject matter
3. Criteria
4. Evidence
5. Written conclusion.

Question 9

Describe the accountability relationship

Answer 9

1. Management will provide the investor with information
2. The investor will provide managers with money
3. There is a relationship of trust between the two parties and the role of the auditor is to step in and ensure the validity and the confirmation of the relationship.

Question 10

Why are assurance services valued?

Answer 10

Assurance services are valued because they validate and clarify for the user of the financial statement that the information that they see is correct and accurate without bias

Question 11

What are the ethical requirements auditors must abide by?

Answer 11

1. Professional Behaviour
2. Professional judgement and professional skepticism
3. Independence
4. Confidentiality
5. Objectivity

Question 12

What is subject matter?

Answer 12

It is the matter of interests like the financial statements, for whom the benefit of the assurance engagement is being conducted for.

Question 13

What is criteria?

Answer 13

It is the benchmark to which the subject matter will be measured and evaluated?

Question 14

What is subject matter information?

Answer 14

It is the management representations of the financial statements and performance against the criteria

Question 15

What is evidence?

Answer 15

Evidence is any information that can be used by the auditor to assess whether the information being audited is stated in accordance with the established criteria.

Question 16

What are different forms of audit evidence?

Answer 16

1. Physical document
2. Electronic document
3. Observations
4. Oral testimony
5. Written / Electronic communication with an outsider.

Question 17

What is required to satisfy the purpose of the audit?

Answer 17

Auditors must obtain sufficient quality and quantity of evidence.

Question 18

What is the written conclusion?

Answer 18

It inform the reader of the degree of confidence that the assurance provider has between the information and the established criteria.

Question 19

What does the written conclusion contain?

Answer 19

1. The conclusion
2. Subject that was tested
3. The criteria for the evaluation
4. There work that was o be done
5. How the auditor got to their conclusion/

Question 20

What is auditing? Who does auditing?

Answer 20

Auditing is what auditors do. It is the collection of sufficient appropriate audit evidence to form a conclusion regarding the relationship between the subject matter and the criteria. Independent competent individuals

Question 21

What is information risk?

Answer 21

Information risk is the chance that the users of the financial statement will make decisions that are based upon inaccurate information

Question 22

How do we reduce information risk? Why does this information risk exist?

Answer 22

By performing an audit. Information risk exists because there is naturally a conflict of interest between the managers and the investors, thus the auditors job is to prevent the conflict of interest

Question 23

What are some causes of information risk?

Answer 23

1. Voluminous of data
2. Remoteness of information
3. Complex Transaction Exchanges
4. Bias and motives of the provider.

Question 24

How do we reduce information risk? What is the most common way for uses to obtain more reliable information?

Answer 24

1. Assess the information of the client yourself.
2. Share the information risk with the management of the firm.
3. Assess audited financial statements released by the firm.

(Management of the private company or the audit committee of a public company will engage the external auditor to provide assurance to users that the financial statements are reliable)

Question 25

According to CAS 200.11 what are the audit objectives?

Answer 25

1. To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects in accordance with an applicable financial reporting framework. 2. To report on the financial statement and communicate as required by the CAS's

Question 26

According to CAS 200.17 what is the objective of the audit evidence?

Answer 26

To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby enable the audit to draw reasonable conclusions on which to base the audit opinion.

Question 27

What is a financial statement audit?

Answer 27

Determine whether the financial statements are stated in accordance to particular criteria.

Question 28

What is compliance audit?

Answer 28

Determine whether the audit complied with specific laws, regulations, rules, or provisions of contracts / grant agreements.

Question 29

What is performance / operation audit?

Answer 29

It is a review of any part of an organizations operating procedures / methods for the purpose of evaluating the efficiency and effectiveness.

Question 30

What is the sustainability audit ?

Answer 30

Assess whether sustainability reports are in accordance with a sustainability framework.

Question 31

What are the 6 different types of accountants?

Answer 31

1. Internal auditor 2. Government auditor 3. CRA auditor 4. Forensic accountants / fraud auditors 5. Sustainability auditors 6. Public accountant.

Question 32

What are privileges that only public accountants have?

Answer 32

1. Public accounting firms can conduct financial statement audits or reviews, 2. Only Canadian CPA's with a public accountant license can sign an assurance report 3. Canadian provinces restrict the audit attest function to those public accountants licensed in that province

Question 33

What is accounting?

Answer 33

Recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making.

Question 34

What do we do when we audit accounting data?

Answer 34

Concern is with evaluating whether the recorded information reasonably reflects the economic events that occurred during the account period within the specified dollar ranges.

Question 35

What are the three main assurance serviced offer by public accountants?

Answer 35

1. Audit of historical financial statements 2. Review of the historical financial statements 3. Review of the historical financial documents other than the F/S

Question 36

What are other

Answer 36

1. Audit of the effectiveness of internal controls 2. Audit of controls of the service organization. 3. Assurance of the compliance Assurance of GHG Assurance of non financial information.

Question 37

What are the 4 related non assurance services provided?

Answer 37

1. Compilations 2. Tax 3. Manager advisory 4. Accounting and bookkeeping.