Flashcards in Workshop 1 - Intoduction to audit and assurance Deck (23):
What is an assurance engagement?
Engagement in which an assurance practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria
List the different assurance services
Financial report audits
What are the limitations of an audit?
No guarantee that the financial report is free from error or fraud
Audit procedures and processes are required to be performed within a reasonable period and a reasonable cost.
Judgement is required in the process of preparation of the financial report
What elements does a comprehensive audit comprise of?
Financial report audit
List the different levels of assurance.
Describe reasonable assurance.
Gather evidence to form a positive expression. Highest level of assurance provided but is not absolute assurance.
Describe limited assurance.
Gather evidence to provide a negative expression.
Auditor is only able to say nothing makes them believe otherwise.
What is no assurance?
Reporting the facts of their findings and not providing assurance.
Define an unmodified opinion.
Financial report is true and fair, presents fairly the financial position of the company, information complies with AAS and Corp Act.
What is the difference between the two modified audit opinions.
Modified with inclusion of an 'emphasis matter' does not affect the audit opinion. Draws attention to a section in the report.
Modified and affects the audit opinion by a qualified, adverse or disclaimer opinion.
When an auditor believes that except for the effects of a matter that is explained in the audit report the financial report can be relied upon is said to be?
What is meant by pervasive?
Misstatements that are not confined to individual accounts or elements of a financial report or if confined the misstatements affect an extensive portion of a financial report or are disclosures that are vital to a user’s understanding of the financial report.
When is a qualified opinion used?
When the matter of concern can be identified, quantified and explained in the audit report. The matter of concern is material but not pervasive.
When is it appropriate to use an adverse opinion?
Auditor has evidence that identified misstatements, individually or in aggregate, are material and persuasive to the financial report.
When is a disclaimer of opinion used?
Auditor is unable to obtain sufficient appropriate audit evidence on which to base an opinion on and concludes that the possible effects on the financial report could be material and pervasive.
What is the auditor responsibility in an audit?
Which theories explain the demand for an audit?
1. Agency theory
2. Information hypothesis
3. Insurance hypothesis
Why do owners and managers have an incentive to hire an auditor?
Owners - assess the information provided by management
Managers - show they have prepared true and fair financial reports.
Why might investors demand audited financial reports?
To insure against potential losses.
What does the information hypothesis tell us?
Demand for reliable, high-quality information, various user groups will demand that financial reports be audited to aid decision making.
Which entities require an audit?
Registered schemes and disclosing entities
Propriety companies - Large
What is the audit expectation gap?
difference between the expectations of assurance providers and financial report or other users.