ACCT3600 Lec 1 Intro

Question 1

What is the definition of ASSURANCE ENGAGEMENT?

Answer 1

an engagement in which a practitioner aims to obtain SUFFICIENT APPROPRIATE EVIDENCE in order to express a conclusion designed to ENHANCE THE DEGREE OF CONFIDENCE for the intended users about the evaluation of an underlying subject matter against criteria

Question 2

What are the 5 ELEMENTS of an assurance engagement?

Answer 2

1. Three-party relationship (assurance practitioner, responsible party, intended users)
2. Underlying subject matter
3. Criteria (e.g. AASB)
4. Sufficient appropriate evidence
5. A written assurance report

Question 3

What are the 3 TYPES of assurance engagements in order of confidence provided to users?

Answer 3

1. Reasonable assurance engagements (Audit)
   - expressed in positive means “there are no misstatements”
2. Limited assurance engagements (Review)
   - expressed in negative means “nothing has come to my attention”
3. Agreed-upon procedures
   - cannot undertake evidence collection outside those agreed upon.
   - only issues report of factual findings, no conclusion drawn, therefore technically not of an “assurance” nature.

Question 4

Which of the following statements best describes the term ‘assurance services’?

A. Services designed to express an independent opinion on the truth and fairness of a financial report.

B. Services designed to provide confidence as to the integrity and security of e-commerce business to consumers undertaking internet transactions.

C. Independent professional services that improve the quality of information for decision makers.

D. Services that result in better outcomes through the improvement of operation.

Answer 4

C. Independent professional services that improve the quality of information for decision makers.

Question 5

What is the SCOPE of an audit opinion?

Answer 5

Purpose of an auditors opinion is to enhance degree of confidence for intended users that the financial reports give a “true and fair” view and is free from misstatement.

NOT an assurance as to the future viability of the entity nor an opinion as to the efficiency or effectiveness with which management.

Question 6

What does AUDITOR INDEPENDENCE consist of?

And why is it important?

Answer 6

1. Actual independence
2. Perceived independence

Only an INDEPENDENT auditor can exercise PROFESSIONAL SCEPTICISM !

Question 7

What are the 5 THREATS to auditor independence?

Answer 7

1. Self interest
   - personal financial interests of the auditor or relative are involved.
   - e.g. undue dependence on fees, potential employment.
2. Self review
   - auditor is evaluating a situation that is a consequence of a previous judgment or advice by the auditor themselves or auditor’s firm.
   - e.g. member of assurance team used to work at client company.
3. Advocacy
   - When the auditor promotes a position or opinion to the point where subsequent objectivity may be compromised.
   - e.g. promoter of client’s shares, legal representor for client.
4. Familiarity
   - thus auditor becomes too sympathetic to the interests of another party.
   - e.g. acceptance of gifts / hospitality.
5. Intimidation
   - auditor’s actions may be compromised by actual or perceived threats.

Question 8

1. The CEO threatens to change auditors unless an unqualified opinion is issued
2. Each member of the audit team received a holiday cruise as a gift from the client
3. The audit partner owns a significant amount of shares in the client company
4. The audit partner is the brother-in-law of the client company’s director
5. The audit firm is promoting a new issue of shares from the client company
6. The audit firm is acting as an advocate on behalf of the client in a dispute with a third party
7. Management is pressuring the firm to reduce its audit hours in order to reduce the fees
8. The audit partner has been approached about becoming a board member with the client company next year
9. A member of the audit team was recently a director of the client company
10. The audit must cover an inventory valuation system which was implemented by the audit firm after last year’s audit

Answer 8

1. Intimidation
2. Familiarity
3. Self-interest
4. Familiarity
5. Advocacy
6. Advocacy
7. Intimidation
8. Self-interest
9. Self-review
10. Self-review

Question 9

What is PROFESSIONAL SCEPTICISM?

Answer 9

an attitude that includes a QUESTIONING MIND, being alert to conditions that may indicate possible misstatements due to error/fraud, and a critical assessment of audit evidence.