Auditing week 1 Flashcards
Auditing week 1
What is a public company?
A company that sells its shares or bonds to the public, giving the public a valid interest in the proper use of the company’s resources
What does the Occurrence assertion in management assertions refer to?
Transactions and events that have been recorded or disclosed have occurred and pertain to the entity
What does the Completeness assertion involve?
All transactions and events that should have been recorded have been recorded
What does the Authorization assertion ensure?
All transactions and events have been properly authorized
What does Accuracy assertion verify?
Amounts and other data relating to recorded transactions and events have been recorded appropriately
What is the purpose of the Cutoff assertion?
Transactions and events have been recorded in the correct accounting period
What does the Classification assertion ensure?
Transactions and events have been recorded in the proper accounts
What is the Presentation assertion about?
Transactions and events are appropriately aggregated or disaggregated and clearly described
What does the Existence assertion confirm?
Assets, liabilities, and equity interests exist
What does the Rights and Obligations assertion state?
The entity holds or controls the rights to assets, and liabilities are the obligations of the entity
What does the Accuracy, Valuation, and Allocation assertion involve?
Assets, liabilities, and equity interests have been included at appropriate amounts
What is the definition of Materiality in auditing?
The magnitude of an omission or misstatement of accounting information that makes it probable that the judgment of a reasonable person would have been changed
What is Audit Risk?
The risk that the auditor mistakenly expresses a clean audit opinion when the financial statements are materially misstated
What does reasonable assurance imply?
Some risk that a material misstatement could be present in the financial statements and the competent auditor will fail to detect it
What is the purpose of audit evidence?
To assist the auditor in evaluating management’s financial statement assertions
What are the two key attributes of audit evidence?
- Relevance
- Reliability
What is the reason for using a sampling approach in audits?
It would be too costly for the auditor to examine every transaction
What is included in the title line of the audit report for public company audits?
“Independent Auditor’s Report”
What sections are included in the audit report?
- Opinion on the Financial Statements
- Basis for Opinion
- Critical Audit Matters
What is an Unqualified audit report?
The most common type of report, indicating financial statements are free of material misstatements
What does a Qualified audit report indicate?
The financial statements are fairly stated except for a specific misstatement identified by the auditor
What does an Adverse audit opinion mean?
The financial statements are not fairly stated and should not be relied upon
What does a Disclaimer of Opinion indicate?
It is not possible to express an opinion on the fairness of the financial statements due to a scope limitation
What skills are essential for an auditor beyond accounting concepts?
- Logical thinking
- Reasoning
- Common sense
- Imagination
- Resourcefulness
What does the auditor’s report conclude with?
Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate
What are the four main types of auditors?
External Auditors, Government Auditors, Forensic Auditors, Internal Auditors
Name the Big 4 public accounting firms.
Deloitte, EY, PwC, KPMG
What are the 3 categories of public accounting firms aside from the Big 4?
Mid-Tier, Regional, Local
What is the primary responsibility of a Partner in an audit team?
Reach agreement with the auditee on the scope of the service to be provided
What are the selected duties of a Manager in an audit team?
Ensure proper planning, supervise preparation, review working papers, recommend audit judgments
What is a Senior/In-Charge’s role in an audit team?
Assist in audit plan development, prepare budgets, assign tasks, supervise associates
What are the main duties of an Associate/Staff in an audit team?
Perform assigned audit procedures, prepare documentation, inform seniors of problems
List some notable corporate scandals that led to increased regulation in auditing.
Enron, Nortel, Livent, WorldCom, Arthur Andersen, Sino Forest
What is the Sarbanes-Oxley Act known for?
Regulation of the audit profession, creation of PCAOB
What is the primary responsibility of management in relation to financial statements?
Maintain effective internal control and ensure fairness of financial statements
What are the five basic business processes organized by auditors for a financial statement audit?
Revenue Process, Financing Process, Purchasing Process, Human Resource Management Process, Inventory Management Process
What is the primary body responsible for management oversight in Canadian corporations?
Board of Directors
What does the audit committee do?
Oversees internal and external auditing work
What is the role of the Canadian Securities Administrator (CSA)?
Regulates securities and auditing standards in Canada
What are the main auditing standards organizations in Canada?
AASB, CPAB
What does the acronym IAASB stand for?
International Auditing and Assurance Standards Board
True or False: Auditing standards ensure that financial statement audits are inconsistent.
False
What are the four categories of principles underlying an audit according to the AASB?
Purpose, Responsibilities, Performance, Reporting
What is the purpose of an audit?
Enhance confidence of intended users in financial statements
Fill in the blank: The auditor obtains _______ assurance about whether the financial statements are free from material misstatement.
reasonable
What are the inherent limitations of an audit?
Nature of financial reporting, nature of audit procedures, time constraints
What do auditors express in their report?
An opinion, modification of opinion, or denial of opinion
What are the two classifications of auditing standards by the AASB?
Canadian Auditing Standards (CAS), International Standards on Auditing (ISA)
What is the CPA’s Rules of Professional Conduct?
Guidance for acceptable behavior for auditors
What is the definition of ethics in the context of auditing?
A system or code of conduct based on moral duties and obligations
What is the definition of professionalism in auditing?
The conduct, aims, or qualities that characterize a profession or professional person
