AUD 1 - Audit Engagements

Question 1

What is the purpose of an audit function (GAAS)?

Answer 1

The purpose of an audit function is to provide financial statement users with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework?

Question 2

What is applicable financial reporting framework?

Answer 2

Financial reporting framework that is acceptable in view of the nature of the entity and the objective of the financial statements (U.S. GAAP, IFRS)

Question 3

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

Answer 3

1) Identification of the applicable financial reporting framework
2) Preparation and fair presentation of the financial statements in accordance with the framework
3) Inclusion of an adequate description of the framework in the financial statements

Question 4

What are management’s responsibilities?

Answer 4

1) Financial Statements - Preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework
2) Internal Control - The design, implementation, and maintenance (DIM) of internal control relevant to the preparation and fair presentation of financial statements
3) Providing the auditor with access to information and persons within the entity needed to complete the audit

Question 5

What are auditor’s responsibilities?

Answer 5

• Attest function (to give an opinion)

1) Maintaining professional skepticism
2) Complying with relevant ethical requirements
3) Exercising professional judgement throughout the planning and performance of the audit
4) Obtaining sufficient appropriate audit evidence
5) Complying with generally accepted auditing standards (GAAS)

Question 6

Define professional skepticism as it relates to auditor’s responsibilities??

Answer 6

• Professional judgement

- Make assessment yourself, each year

Question 7

What are the three elements (environment) of fraud?

Answer 7

1) Pressure
2) Opportunity
3) Rationalization

Question 8

Define ethical standards as they relate to auditor’s responsibilities?

Answer 8

The auditor must be independent of an entity when performing an engagement in accordance with GAAS

Question 9

Define professional judgement as it relates to auditor’s responsibilities?

Answer 9

In an audit, professional judgement is necessary when making decisions about:

1) Materiality
2) Audit risk
3) The nature, extent, and timing of audit procedures (NET)
4) Evaluating whether sufficient, appropriate evidence has been obtained to SUPPORT audit opinion (not FS)
5) Evaluating management’s judgments in applying the applicable financial reporting framework
6) Drawing conclusions based on the audit evidence obtained