Audit Basics and Independence

Question 1

What is the Purpose of an audit?

Answer 1

To enable the auditor to express an opinion, based on evidence, about a matter of accountability, which is the responsibility of another party.

Question 2

What are the types of Audit engagements?

Answer 2

• Financial Statement audit (external)
• Internal Audits (compliance or performance)

Question 3

Who performs and appoints financial statement auditors?

Answer 3

Qualified auditors or audit frims, appointed by shareholders, members or trustees, usually on directors/committee recommendation.

Question 4

What is auditor independence and why is it importnant?

Answer 4

Independence means being free from bias. It is crucial because users rely on auditors to provide a trustworthy opinion without being influenced by management.

Question 5

What are the two types of auditor independence?

Answer 5

• Independence of Mind
• Independence of appearance

Question 6

What are the five threats to auditor independence?

Answer 6

• Self interest
• Self review
• Advocacy
• Familiarity
• Intimidation

Question 7

Give examples of self interest threats

Answer 7

• Direct financial interest
• Dependence on fees
• Business relationships
• Loans/Guarantees with client

Question 8

How can auditors safeguard their independence?

Answer 8

• Education and training
• Peer reviews
• Rotation of senior staff
• Independence policies and procedures
• Managing prohibited clients and conflicts of interest