Chapter 1: Overview of Audit and Assurance

Question 1

Applicable Financial Reporting Framework

Answer 1

the financial framework selected by management to prepare the company’s financial statements.

Question 1

Assurance Engagement

Answer 1

practitioner (auditor) engaged to issue a written conclusion on a subject matter for which a responsible party is accountable to intended users.

Question 2

Assertions

Answer 2

statements made by management regarding the recognition, measurement, and presentation and disclosure of items in the financial statements.

Question 3

Internal Control

Answer 3

the processes implemented and maintained by management to help entities achieve their objectives.

Question 4

Materiality

Answer 4

maximum amount of misstatement (or omission) the auditor can tolerate and still issue a clean opinion.

Question 5

Sufficient and Appropriate Evidence

Answer 5

relates to the quantity and quality of the evidence collected by the auditor.

Question 6

Financial Statement Audit

Answer 6

an engagement designed to express an opinion whether the financial statements are prepared in all material respects in accordance with a financial reporting framework.

Question 7

What are the two limitations of financial statement audit?

Answer 7

• An audit doesn’t guarantee that the financial statements are free from fraud/error.
• Judgement is required in the preparation of the financial statements.

Question 8

What are the five other types of audit?

Answer 8

• Compliance Audit
• Performance Audit
• Comprehensive Audit
• Internal Audit
• Corporate Social Responsibility Audit

Question 9

Compliance Audit

Answer 9

assesses an organization’s compliance with certain rules/regulations.

Question 10

Performance Audit

Answer 10

refers to efficiency & effectiveness of an organization’s operations.

Question 11

Comprehensive Audit

Answer 11

Combines financial statement audit, compliance audit, and performance audit.

Question 12

Internal Audit

Answer 12

provides assurance about various aspects of an organization’s activities.

Question 13

Corporate Social Responsibility Audit

Answer 13

includes voluntary reporting about environmental, employee, and social subject matter.

Question 14

Reasonable Assurance

Answer 14

gathering sufficient evidence to form a positive expression of opinion regarding whether the information being assured is presented fairly.

Question 15

Limited Assurance

Answer 15

gathering sufficient evidence to form a conclusion regarding the reliability of the information being assured.

• The practitioner expresses a conclusion on whether anything has come to their attention to lead them to believe the information being assured is not in accordance with the financial reporting framework.

Question 16

No Assurance

Answer 16

practitioner reports on factual findings and does not express any opinion.

• Here a practitioner compiles the financial information as provided by the client ensuring mathematical accuracy.

Question 17

Emphasis of Matter

Answer 17

used so that the reader can pay appropriate attention to the issue raised, but does not change the auditor’s opinion.

Question 18

Unqualified vs. Qualified Audit Report

Answer 18

Unqualified: is good and it means that they didn’t have to change anything.

Qualified: is bad and it means they had to change something.

Question 19

Adverse Opinion

Answer 19

arises when the financial statements are misstated and the misstatement is material and pervasive.

Question 20

Disclaimer of Opinion

Answer 20

arises when there is an inability to obtain sufficient appropriate audit evidence and the possible effects are material and pervasive.

Question 21

What attributes should the information on the financial statement include?

Answer 21

• relevant
• reliable
• comparable
• understandable
• fair presentation

Question 22

What are the three responsibilities that auditors have?

Answer 22

Professional scepticism: maintaining independence of the entity by having a questioning mind and thoroughly investigating all evidence presented.

Professional Judgement: use of expertise, knowledge, and training obtained by the auditor.

Due Care: being diligent, applying technical and statute-backed standards, and documenting each stage of the audit process.

Question 23

Auditing and Assurance Standards Board (AASB)

Answer 23

formulate high quality audit standards (Canadian Auditing Standards).

Question 24

Canadian Public Accountability Board

Answer 24

objective to provide high quality audits (audits must pass CPAB inspection).

Question 25

CPA Canada

Answer 25

national body of accounting profession in Canada.

Question 26

Audit Expectation Gap

Answer 26

the difference between the expectations of assurance providers and financial statement or other users.

Question 27

In what six ways can the expectation gap be reduced?

Answer 27

-Auditors performing their duties appropriately, complying with standards, and meeting the minimum standards of performance. - Undertaking peer reviews of work performed. - Reviewing and updating auditing standards. - Educating the public. - Enhanced reporting explaining audit processes and levels of opinion auditors provide. - Providers reporting accurately the level of assurance being provided

Question 28

Is an audit guaranteed to detect fraud?

Answer 28

No an audit does not guarantee fraud.

Question 29

Do all incorporated entities have to get audits?

Answer 29

No, publicly traded companies must get an audit but no incorporated entities.

Question 30

Compilation Engagement

Answer 30

the auditor formats financial statements based on the information provided by the client ensuring mathematical accuracy but does perform any procedures to assure that the information is not materially misstated. PROVIDES NO ASSURANCE AND NO OPINION.

Question 31

Review Engagement

Answer 31

the auditor will gather sufficient evidence upon which to conclude on the reliability of the information being assured with observation. More evidence is gathered than a compilation engagement. PROVIDES LIMITED ASSURANCE AND A CONCLUSION, BUT NO OPINION.

Question 32

Audit

Answer 32

the auditor has conducted audit procedures and gathered sufficient evidence to provide an opinion on the fair presentation of the financial statements. PROVIDES REASONABLE ASSURANCE AND IS THE HIGHEST LEVEL OF ASSURANCE.

Question 33

What is the report for a compilation engagement?

Answer 33

Called: Compilation Engagement Report Includes a statement that the auditor has compiled the financial information. There will be an indication of where the information can be found and there will be a description of the auditors and managements responsibilities. Then will statement that it does not express an audit opinion.

Question 34

What is the report for an audit engagement?

Answer 34

Called: Independent Auditor’s Report. The auditor will state, in an unmodified opinion, that they believe that the statements present fairly the financial position and financial performance of the client in accordance with the applicable financial framework.

Question 35

What is the report for a review engagement?

Answer 35

Called: Independent Practitioner’s Review Engagement Report. The report will outline management’s responsibility for the financial statements as well as the practitioner’s responsibility. If no material issues were noted, the report will include a statement written in the negative that will conclude that that nothing has come to the practitioner’s attention that would lead them to believe that the financial statements were not presented fairly, in all material respects, in accordance with the financial reporting framework.