A1 M2: Audit Engagements

Question 1

The purpose of an audit is provide financial statement users with an _______ on whether the financial statements are presented fairly, in all material respects, in accordance with the _____________

Answer 1

Opinion; Applicable framework

Question 2

Who prepares the financial statements?

Answer 2

Management- not the auditor

Question 3

Management is responsible not only for preparing the financial statements, but is also responsible for what two things?

Answer 3

Internal Control and providing the auditor with information related to the audit

Question 4

Because the auditor is not responsible for preparing the financial statements, what is he/she responsible for in regards to the financials?

Answer 4

Forming an opinion on them based on the audit

Question 5

What factors into professional skepticism and who should make the assessment every year?

Answer 5

Professional judgment and the auditor conducting the audit should make the assessment every year

Question 6

What is professional skepticism?

Answer 6

The recognition that circumstances may exist that cause the f.statements to be materially misstated

Question 7

What three conditions could indicate possible fraud?

Answer 7

Pressure, opportunity, and rationalization

Question 8

Throughout an engagement, the auditor must be independent in both ______ and _______

Answer 8

Fact and Appearance

Question 9

To obtain reasonable assurance, the auditor should obtain ___________ to reduce audit risk to an acceptably low level

Answer 9

Sufficient Appropriate Audit Evidence

Question 10

T/F: If a company has weak internal control, an adverse opinion must be issued?

Answer 10

False. Weak internal control does not equal an adverse opinion

Question 11

Reasonable assurance is a high but not ______ level of assurance

Answer 11

Absolute Level

Question 12

What reasons constitute why an auditor cannot obtain abolition assurance that the financial statements are free from material misstatements?

Answer 12

The nature of financial reporting (judgment by management), nature of audit procedures (not having access to all information), and the cost/benefit factor

Question 13

Non issuers have the choice of either a ________ or ___________ kind of audit

Answer 13

Financial Statement Audit only or Integrated Audit

Question 14

What is a financial statement audit only audit?

Answer 14

An opinion is rendered on the fairness of the financial statements

Question 15

What is an integrated audit?

Answer 15

Two opinions are rendered: One on the fairness of the financial statements and one on the operating effectiveness of internal controls over financial reporting

Question 16

Unlike non-issuers, issuers cannot have a financial statement audit only audit. They must have a ________ to audit both the financials and internal controls

Answer 16

Integrated Audit

Question 17

What are the two objectives of a financial statement audit?

Answer 17

Obtain reasonable assurance that the financials are free from material misstatement. And to report on the financials

Question 18

What are the two objectives of auditing the internal controls?

Answer 18

Express an opinion on the effectivness of IC and obtain reasonable assurance about whether material weaknesses exist

Question 19

What three things does management need to do to fairly prepare/present the financial statements?

Answer 19

1. Identify the applicable framework
2. Prepare and fairly present the financials with the applicable framework
3. Include a description of the framework in the financial statements

Question 20

T/F: The auditor should assume that management is honest and dishonest.

Answer 20

False. Auditor should not do this

Question 21

An auditor should not ______ with GAAS unless the auditor has complied with all of GAAS relevant to the engagement

Answer 21

Represent compliance