Basic Concepts of Auditing. Chapter 2

Question 1

What is meant by True and Fair
View?

Answer 1

True means free from errors, and
Fair means free from undue bias in F/S
Term “True and fair view” indicates that judgment
is applied in F/S.

Question 2

Define Fair presentation
Framework?

Answer 2

Requires compliance with
framework, and acknowledges
additional disclosure or departure
to achieve fair presentation.
An example is IFRS.

Question 3

Define Compliance
Framework?

Answer 3

Requires compliance with framework,
and does not contain
acknowledgements (regarding
additional disclosures or departure).
An example is Tax-basis Framework

Question 4

Define Applicable Financial
Reporting Framework

Answer 4

AFRF is the framework adopted by
management and TCWG, in preparation of
F/S considering legal requirements,
nature of entity, nature of F/S, and
purpose of F/S.
Auditor shall not accept proposed audit
engagement, if AFRF is NOT acceptable.

Question 5

Define Responsibilities of
Management/Premise?

Answer 5

1. For financial statements.
2. For internal controls;
3. To provide information to auditor.

Question 6

Define Overall Objectives/
Responsibilities of Auditor

Answer 6

1. To obtain reasonable assurance.
2. To issue report which includes
   auditor’s opinion.
3. To communicate findings as required
   by ISAs.

Question 7

Define Responsibilities Of
Stakeholders / Expectation Gap

Answer 7

1. Auditor prepares financial statements.
2. Auditor checks 100% transactions.
3. Auditor provides absolute assurance.
4. Auditor is responsible to prevent and detect fraud.
5. Auditor is responsible to express opinion on
   internal controls.

Question 8

Define Professional Judgment?

Answer 8

Professional Judgment is the application of
Cumulative Audit Knowledge, Experience and
Training to reach an appropriate course of
action.

Question 9

Define Professional Skepticism:

Answer 9

Professional skepticism is an attitude that
includes a questioning mind, being alert to
conditions which indicate misstatement, and
critical assessment of audit evidence.

Question 10

Define Independence:

Answer 10

Independence means auditor should
be free to perform audit procedures
without any bias or influence.

Question 11

Define Areas where Professional Judgment is applied?

Answer 11

1. Planning of audit (risk, materiality)
2. Performance of audit (procedures)
3. Reporting stage (opinion)

Question 12

Define Advantages/Importance of Professional
Skepticism?

Answer 12

Professional skepticism helps to avoid:
1. Overlooking.
2. Over-generalizing.
3. Using inappropriate assumptions.

Question 13

Define Examples of situations creating
threat to independence:

Answer 13

1. Financial interests
2. Business relationships
3. Family and personal relationships
4. Employment with audit client
5. Inducements
6. Providing non-assurance services

Question 14

Define Situations causing increase in risk/professional skepticism?

Answer 14

1. Unusual growth or decrease of sales.
2. Management’s bonuses based on financial performance.
3. Significant transactions at year end.
4. Inconsistency between different sources of evidences
5. Significant related party transactions.
6. Lack of competence or integrity.
7. Defective inventory.
8. Closure of a factory
9. Bankruptcy of debtor.
10. Pending litigations against company

Question 15

Exception to follow requirements of ISA:?

Answer 15

A required procedure will not be performed if it is:

Question 16

Define Functions/Role/Activities of IFAC?

Answer 16

1. Development of standards.
2. Facilitating implementation of standards.
3. Promoting accountants worldwide.
4. Speaking out on public interest issues.

Question 17

Define Functions/Role/Activities of IAASB:

Answer 17

1. Develops and promotes standards
   for assurance and related services.
2. Facilitates in adoption and
   implementation of standards.
3. Issues IAPS to help auditors in
   implementing ISAs.