Chapter 1 - Introduction to Auditing Flashcards
What is assurance?
It is the level of confidence one feels in the information on the financial statement.
What is an assurance engagement?
It is an independent assessment done by an auditor to perform and provide an opinion on the statements usually for a fee.
What is levels of assurance?
There is both a moderate and a high level of assurance that can be determined, in which it directly impacts what needs to be judged to ensure sufficient and appropriate audit evidence to provide an appropriate conclusion.
What is reasonable assurance?
It is a high level of assurance regarding the subject matter and the criteria but it is not 100%
What is limited assurance?
It is assurance that is acceptable for that particular engagement, however it is significantly lower than reasonable assurance on the subject matter
What is materiality?
Materiality is the size of the misstatements when aggregated or disaggregated can cause t he view of the user of the financial statement to shift and take an action that they would have not otherwise.
What is the role of the auditor in materiality?
To provide reasonable assurance that the subject matter is free of material misstatement and to have professional judgement throughout.
What are the key features of an assurance engagement
- Third party relations
- subject matter
- Criteria
- Evidence
- Written conclusion.
Describe the accountability relationship
- Management will provide the investor with information
- The investor will provide managers with money
- There is a relationship of trust between the two parties and the role of the auditor is to step in and ensure the validity and the confirmation of the relationship.
Why are assurance services valued?
Assurance services are valued because they validate and clarify for the user of the financial statement that the information that they see is correct and accurate without bias
What are the ethical requirements auditors must abide by?
- Professional Behaviour
- Professional judgement and professional skepticism
- Independence
- Confidentiality
- Objectivity
What is subject matter?
It is the matter of interests like the financial statements, for whom the benefit of the assurance engagement is being conducted for.
What is criteria?
It is the benchmark to which the subject matter will be measured and evaluated?
What is subject matter information?
It is the management representations of the financial statements and performance against the criteria
What is evidence?
Evidence is any information that can be used by the auditor to assess whether the information being audited is stated in accordance with the established criteria.
What are different forms of audit evidence?
- Physical document
- Electronic document
- Observations
- Oral testimony
- Written / Electronic communication with an outsider.
What is required to satisfy the purpose of the audit?
Auditors must obtain sufficient quality and quantity of evidence.
What is the written conclusion?
It inform the reader of the degree of confidence that the assurance provider has between the information and the established criteria.
What does the written conclusion contain?
- The conclusion
- Subject that was tested
- The criteria for the evaluation
- There work that was o be done
- How the auditor got to their conclusion/
What is auditing? Who does auditing?
Auditing is what auditors do. It is the collection of sufficient appropriate audit evidence to form a conclusion regarding the relationship between the subject matter and the criteria. Independent competent individuals
What is information risk?
Information risk is the chance that the users of the financial statement will make decisions that are based upon inaccurate information
How do we reduce information risk? Why does this information risk exist?
By performing an audit. Information risk exists because there is naturally a conflict of interest between the managers and the investors, thus the auditors job is to prevent the conflict of interest
What are some causes of information risk?
- Voluminous of data
- Remoteness of information
- Complex Transaction Exchanges
- Bias and motives of the provider.
How do we reduce information risk? What is the most common way for uses to obtain more reliable information?
- Assess the information of the client yourself.
- Share the information risk with the management of the firm.
- Assess audited financial statements released by the firm.
(Management of the private company or the audit committee of a public company will engage the external auditor to provide assurance to users that the financial statements are reliable)
According to CAS 200.11 what are the audit objectives?
- To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects in accordance with an applicable financial reporting framework.
- To report on the financial statement and communicate as required by the CAS’s
According to CAS 200.17 what is the objective of the audit evidence?
To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby enable the audit to draw reasonable conclusions on which to base the audit opinion.
What is a financial statement audit?
Determine whether the financial statements are stated in accordance to particular criteria.
What is compliance audit?
Determine whether the audit complied with specific laws, regulations, rules, or provisions of contracts / grant agreements.
What is performance / operation audit?
It is a review of any part of an organizations operating procedures / methods for the purpose of evaluating the efficiency and effectiveness.
What is the sustainability audit ?
Assess whether sustainability reports are in accordance with a sustainability framework.
What are the 6 different types of accountants?
- Internal auditor
- Government auditor
- CRA auditor
- Forensic accountants / fraud auditors
- Sustainability auditors
- Public accountant.
What are privileges that only public accountants have?
- Public accounting firms can conduct financial statement audits or reviews,
- Only Canadian CPA’s with a public accountant license can sign an assurance report
- Canadian provinces restrict the audit attest function to those public accountants licensed in that province
What is accounting?
Recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making.
What do we do when we audit accounting data?
Concern is with evaluating whether the recorded information reasonably reflects the economic events that occurred during the account period within the specified dollar ranges.
What are the three main assurance serviced offer by public accountants?
- Audit of historical financial statements
- Review of the historical financial statements
- Review of the historical financial documents other than the F/S
What are other
- Audit of the effectiveness of internal controls
- Audit of controls of the service organization.
- Assurance of the compliance
Assurance of GHG
Assurance of non financial information.
What are the 4 related non assurance services provided?
- Compilations
- Tax
- Manager advisory
- Accounting and bookkeeping.
