Audit Overview Notes

Question 1

Primary function of Independent Audit

Answer 1

lend credibility to the FS prepared by the entity

Question 2

Auditing(PSA)- Objective of FS Audit

Answer 2

enable the auditor to express an opinion whether the FS are prepared, in all material respects, in accordance with an identified Financial reporting framework

Question 3

Auditing Definition (American Acctg Asso)

Answer 3

systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users.

Question 4

Assertions

Answer 4

representations made by an auditee about economic actions and events

Question 5

Auditor’s objective

Answer 5

determine whether these assertions are valid

Question 6

established criteria

Answer 6

needed to judge the validity of the assertions

- establish and inform the users of the basis against w/c the assertions have been evaluated or measured

Question 7

Types of audits (FCO)

Answer 7

a. FS audit
b. compliance Audit
c. operational Audit

Question 8

FS Audit

Answer 8

determine whether the FS are fairly presented in accordance with an identified FRF

Question 9

Compliance Audit

Answer 9

Review of an organization’s procedures to determine whether the organization has adhered to specific procedures, rules or regulations.

Question 10

Operational Audit

Answer 10

assess entity’s performance, identify areas for improvements and make recommendations to improve performance

Question 11

2 Common Characteristics of Types of Audits

Answer 11

1. systematic examination and evaluation of evidence which are undertaken to ascertain whether assertions comply with established criteria
2. communication of the results of the examination, usually in a written report, to the party by whom, or on whose behalf, the auditor was appointed

Question 12

Types of Auditors

Answer 12

a. External
b. Internal
c. Government

Question 13

External Auditor

Answer 13

• performs FS Audit

- independent CPA

Question 14

Internal Auditor

Answer 14

• performs Operational Audit
• entity’s own employees who investigate and appraise the effectiveness and efficiency of operations and internal controls

Question 15

Govt auditors

Answer 15

• performs compliance audit

- govt employees, determine whether person, entities comply with govt laws and regulation

Question 16

Mgt responsibility

Answer 16

-prepares and present the fs in accordance with the FRF

Question 17

Auditors Responsibility

Answer 17

• form and express an opinion on these FS based on his audit (but not a guarantee that it is dependable))

Question 18

Reasonable assurance

Answer 18

audit conducted in accord with PSA,

- fs taken as a whole are free from material misstatements

Question 19

Result of inherent limitations

Answer 19

a. sampling risk (not the entire population)
b. non-sampling risk (human weakness/ opinion
permeated by judgement)
c. reliance on mgt representation
d. inherent limitations of the client’s accounting and internal control systems
e. nature of evidence(does not contain hard facts)
-audit evidence is generally persuasive rather than conclusive in nature.

Question 20

General Principles governing FS audit

Answer 20

a. auditor should comply with the Code of Prof. Ethics for CPA promulgated by BOA
b. auditor should conduct an audit in accordance with PSA

c.auditor should plan and perform the audit w/ an attitude of professional skepticism recognizing that circumstances may exist w/c may cause the FS to be materially misstated
(neither assumes honest or dishonesty)

Question 21

Need for an Independent FS Audit

Answer 21

a. conflict of interest bet. mgt and users of FS
b. expertise- hire to verify
c. remoteness- users of FS are usually prevented from directly assessing the reliability of the info.
d. financial consequences- misleading fin info could have substantial economic consequences for a decision maker

Question 22

Theoretical Framework of auditing

Answer 22

a. audit function operates on the assumption that all financial data are verifiable
b. the auditor should always maintain independence with respect to the FS under audit
c. there should be no long-term conflict between the auditor and the client mgt.
d. effective IC system reduces the possibility of errors and fraud affecting the FS
e. consistent application of GAAP or PFRS results in fair presentation of FS
f. what was held true in the past will continue to hold true in the future in the absence of known conditions to the contrary.
g. an audit benefits the public