Unit 1

Question 1

What is an assurance engagement?

Answer 1

Assurance provider (practitioner) comes up with an opinion on info provided by their client to a third party.
•	Designed to increase the confidence of the intended users.

Question 2

What is materiality?

Answer 2

Max amount of misstatement auditor can tolerate and still issue an unmodified/clean audit opinion.

Question 3

What are Internal Controls?

Answer 3

Process to help achieve management objectives.

Question 4

What is assertion?

Answer 4

Statements by management regarding recognition, measurement, presentation, and disclosure of items in FS.

Question 5

What is pervasive?

Answer 5

Misstatement affecting several accounts on the financial statement.

Question 6

Who demands audit and assurance?

Answer 6

• Banks/Lenders, Investors, gov’t, suppliers, customers

- b/c of information risk

Question 7

What is the cause of information risk?

Answer 7

o Remoteness (Fair representation)
o Accounting complexity
o Competition
o Reliable Info

Question 8

What are 5 types of assurance services?

Answer 8

• Financial statement audit
• compliance audit
• performance/operational audit
• comprehensive audit
• internal audit

Question 9

What is a financial statement audit?

Answer 9

o Report if they have fairly followed framework.

Question 10

What is a compliance audit?

Answer 10

o Determine whether they have followed applicable rules, policies, procedures, laws and regulations.

Question 11

What is an performance/operational audit?

Answer 11

o Concerned with economy, efficiency, and effectiveness of organization activities.
o Economy: Cost of inputs wages and materials.
o Efficiency: Use of minimum inputs to achieve outputs.
o Effectiveness: achievement of goals or production of outputs.

Question 12

What is a comphrehensive audit?

Answer 12

o May contain components from FS, compliance, and performance audits.

Question 13

What is an internal audit?

Answer 13

o To provide assurance about various aspects of an organization’s activities.
o Typically conducted by employees of organization being audited but can be outsourced.
o Concerned with evaluating, improving risk management, internal control processes, and elements of the governance process.
o Internal audits often conduct performance audits, compliance audits, internal control assessments and reviews.

Question 14

What is corporate social responsibility?

Answer 14

o Includes environmental, employee and social reporting.

Question 15

What are the different levels of assurance?

Answer 15

• Reasonable assurance
• limited/moderate assurance
• no assurance

Question 16

What is reasonable assurance?

Answer 16

o To gather sufficient evidence to form a positive opinion whether info being assured is presented fairly.
o Auditor has done adequate work to report reasonable certainty info is assured or not.

Question 17

What is limited/moderate assurance?

Answer 17

o Gather sufficient evidence to support the practitioner’s conclusions.
o Auditor report whether anything came up that would lead them to believe that the info being assured is not prepared in accordance to financial framework.
o Auditor will not conduct detailed testing.
o Auditor can only say that nothing makes them believe otherwise.
o Review engagement is an assurance for company’s historical FS. Review may be requested when client requires some assurance but not audit level.

Question 18

What is no assurance?

Answer 18

• No Assurance:

o the practitioner performs a service for the client for which no assurance is provided.

Question 19

What are the different auditing opinions?

Answer 19

• Unmodified (clean)
• qualified
• adverse
• discalimer

Question 20

What is an unmodified/unqualified opinion?

Answer 20

o FS not materially misstated.
o May include emphasis of matter. This draws attention to an issue the auditor believes is adequately explained in notes of FS.

Question 21

What is a qualified opinion?

Answer 21

o Auditor believes that “except for” the matters explained in the audit report the FS can be relied upon by reader.
o Is used when matter of concern can be identified, quantified and explained in audit report.
o Is material and not Pervasive (misstatement is not restricted to accounts or elements of FS or if it is restricted, the misstatements affect a large amount of the FS or are missing important notes to the users understanding of FS).

Question 22

What is an adverse opinion?

Answer 22

o Auditor has evidence that identify misstatements that are material and pervasive to FS.

Question 23

What is a discalimer opinion?

Answer 23

o Unable to obtain sufficient appropriate evidence to base the opinion and that FS could be material and pervasive.

Question 24

What are the responsibilities of the preparer?

Answer 24

o Relevant - information that impacts decisions
o Reliable - free from material misstatement (errors).
o Comparable – must be able to be compared to past and future FS (any changes must be made to past ones as well).
o Understandable – reader should be able to gather info from it (any necessary notes are provided to make it understandable).
o Fairly Presented (Truth) – Consistent and faithful application of accounting standards or applicable frameworks.

Question 25

What are the responsibilities of the auditor?

Answer 25

o Professional Scepticism – Remains independent from the entity and its management, staff when completing the audit. Investigates all evidence presented.
o Professional Judgement – Must use expertise and knowledge when conducting audit. Does the info provided cover preparer’s responsibilities?

Question 26

What is the audit expectation gap? What is it caused by?

Answer 26

• Occurs when there is a difference between expectation of assurance providers and FS users. Occurs when user beliefs do not align with what an auditor has done.
• Caused by unrealistic user expectations such as:

Question 27

What are 5 unrealistic expectations from users?

Answer 27

o The auditor is providing complete assurance.
o The auditor is guaranteeing the future viability of the entity.
o An unqualified (clean) audit opinion is an indicator of complete accuracy.
o The auditor will find any fraud.
o The auditor has checked all transactions.

Question 28

What are some ways to reduce the expectation gap?

Answer 28

o auditors performing their duties appropriately
o peer reviews of audits to ensure that auditing standards have been applied correctly
o auditing standards being reviewed and updated on a regular basis to enhance the work being done by auditors
o education of the public
o enhanced reporting to explain what processes have been followed in arriving at an audit
o assurance providers reporting accurately the level of assurance being provided (reasonable, limited, or none)

Question 29

What are the four main steps to an audit?

Answer 29

1. Client acceptance or continuance
2. Planning
3. Execution
4. Concluding and reporting

Question 30

What are limitations of an audit?

Answer 30

• The nature of financial reporting
• The nature of audit procedures
• The need for the audit to be conducted within a reasonable period of time and at a reasonable cost

Question 31

What is a review engagament?

Answer 31

• also called the limited assurance, is to perform sufficient procedures and gather sufficient evidence to support the practitioner’s conclusion.
• done through analytical procedures and he had discussions with management
• not likely to review of the internal controls of the entity

Question 32

What is a compilation?

Answer 32

prepareation of financial statements as a service

Question 33

What degree of assurance does a notice to reader provide?

Answer 33

no assurance

Question 34

How is a negative expression worded?

Answer 34

there is nothing that has come to the attention of the auditors that would lead them to believe that the information being assured is not true and fair.