BASICS OF AUDITING Flashcards
What is an Assurance Engagement?
An assurance engagement is an engagement in which a practitioner obtains
evidence about evaluation of a subject matter against a suitable criterion
and expresses his conclusion to enhance the confidence of the intended
users
What is Limited Assurance
It is a moderate level of assurance which is expressed in a negative form
What is Reasonable Assurance?
It is a high, but not absolute, level of assurance expressed in a positive form
What are the Limitations of Audit?
- Testing is performed on sampling basis due to time and cost limitations.
- Fraud involving collusion and complex techniques is harder to detect.
- Some accounts in financial statements involve estimates and
judgements which are difficult to calculate and verify. - Management may not provide complete information to the auditor.
- Auditors do not have specific legal powers
What is Applicable Financial Reporting
Framework?
It is the financial reporting framework adopted by the management
considering legal and regulatory requirements, nature of entity and
financial statements, and purpose of financial statements
What are the Responsibilities of
Management?
- Preparation and presentation of financial statements.
- Designing and implementing necessary internal controls for fair
preparation of financial statements. - Providing unrestricted access to all relevant information necessary for
obtaining audit evidence.
What is Expectation Gap?
It is the difference between the public perception and statutory role and
responsibilities of the external audit.
What is Professional Judgement?
Professional Judgement is the application of knowledge, training and
experience in the context of accounting, audit and ethical standards to
reach an appropriate course of action.
What is Professional Skepticism?
Professional skepticism is the use of a questioning mind, being alert to
conditions which may indicate a possible misstatement and critical
assessment of audit evidence.
What is Independence in the context
of an auditor?
Independence of an auditor means that the audit should be free from any
bias and influence to perform his duties
What is Audit Evidence
Audit evidence is the information used by the auditor to arrive at a
conclusion on which the audit opinion is based. Audit evidence should be
sufficient and appropriate
Sufficiency
Sufficiency deals with the quantity of the audit evidence. It is affected by
factors such as:
- Materiality and complexity of an item;
- Assessed risk of material misstatement;
- Auditor’s knowledge and experience of the business;
- Quality of audit evidence; and
- Strength of internal controls
Appropriateness
Appropriateness is the measure of quality of the audit evidence. It is
affected by the relevance and reliability of the information.
Relevance deals with the logical connection between the assertion and
procedure performed.
Reliability
Reliability deals with the source, nature and circumstances under which the
information is obtained. Examples include:
- Original documents over photocopies
- Documentary evidence over oral form
- Externally obtained evidence over internal evidence
- Directly obtained information over indirectly obtained evidence
What is an Audit Procedure?
Audit procedures are methods and techniques used by the auditors to
obtain evidence. They include analytical procedures, external confirmation,
inquiry, inspection, observation, reperformance and recalculation.
Analytical Procedures
Analytical procedures are the evaluation of financial information through
comparison and plausible relationships between financial and non-financial
data
External Confirmation
External confirmations are a process of obtaining information from third
parties through direct written communication.
