Chapter 1 Section 1: Audited Financial Statements - The Basics

Question 1

Is there ever a time when you should go against GAAP?

Answer 1

Yes, if it presents the material more fairly

Question 2

What are the responsibilities of management?

Answer 2

Financial statements, internal control, and providing the auditor with access to the information needed

Question 3

What are the three requirements for the preparation and fair presentation of the financial statements?

Answer 3

Identify the applicable financial reporting framework
Prepare and present fairly the financial statements in accordance with the framework
Include an adequate description of the framework in the financials

Question 4

What is the responsibility of the auditor?

Answer 4

Attest function - expressing an opinion on the audit and having competence to perform the audit

Question 5

What level of assurance does the auditor need to have?

Answer 5

Reasonable assurance

Question 6

Define reasonable assurance

Answer 6

A high, but not absolute, level of assurance

Question 7

What are the three inherent limitations of an audit?

Answer 7

The nature of financial reporting (judgment calls)
The nature of the audit procedures (fraud and errors)
Timeliness of financial reporting and the balance between cost and benefit