Chapter 1: Overview of Audit and Assurance Flashcards

1
Q

Applicable Financial Reporting Framework

A

the financial framework selected by management to prepare the company’s financial statements.

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1
Q

Assurance Engagement

A

practitioner (auditor) engaged to issue a written conclusion on a subject matter for which a responsible party is accountable to intended users.

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2
Q

Assertions

A

statements made by management regarding the recognition, measurement, and presentation and disclosure of items in the financial statements.

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3
Q

Internal Control

A

the processes implemented and maintained by management to help entities achieve their objectives.

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4
Q

Materiality

A

maximum amount of misstatement (or omission) the auditor can tolerate and still issue a clean opinion.

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5
Q

Sufficient and Appropriate Evidence

A

relates to the quantity and quality of the evidence collected by the auditor.

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6
Q

Financial Statement Audit

A

an engagement designed to express an opinion whether the financial statements are prepared in all material respects in accordance with a financial reporting framework.

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7
Q

What are the two limitations of financial statement audit?

A
  • An audit doesn’t guarantee that the financial statements are free from fraud/error.
  • Judgement is required in the preparation of the financial statements.
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8
Q

What are the five other types of audit?

A
  • Compliance Audit
  • Performance Audit
  • Comprehensive Audit
  • Internal Audit
  • Corporate Social Responsibility Audit
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9
Q

Compliance Audit

A

assesses an organization’s compliance with certain rules/regulations.

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10
Q

Performance Audit

A

refers to efficiency & effectiveness of an organization’s operations.

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11
Q

Comprehensive Audit

A

Combines financial statement audit, compliance audit, and performance audit.

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12
Q

Internal Audit

A

provides assurance about various aspects of an organization’s activities.

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13
Q

Corporate Social Responsibility Audit

A

includes voluntary reporting about environmental, employee, and social subject matter.

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14
Q

Reasonable Assurance

A

gathering sufficient evidence to form a positive expression of opinion regarding whether the information being assured is presented fairly.

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15
Q

Limited Assurance

A

gathering sufficient evidence to form a conclusion regarding the reliability of the information being assured.

  • The practitioner expresses a conclusion on whether anything has come to their attention to lead them to believe the information being assured is not in accordance with the financial reporting framework.
16
Q

No Assurance

A

practitioner reports on factual findings and does not express any opinion.

  • Here a practitioner compiles the financial information as provided by the client ensuring mathematical accuracy.
17
Q

Emphasis of Matter

A

used so that the reader can pay appropriate attention to the issue raised, but does not change the auditor’s opinion.

18
Q

Unqualified vs. Qualified Audit Report

A

Unqualified: is good and it means that they didn’t have to change anything.

Qualified: is bad and it means they had to change something.

19
Q

Adverse Opinion

A

arises when the financial statements are misstated and the misstatement is material and pervasive.

20
Q

Disclaimer of Opinion

A

arises when there is an inability to obtain sufficient appropriate audit evidence and the possible effects are material and pervasive.

21
Q

What attributes should the information on the financial statement include?

A
  • relevant
  • reliable
  • comparable
  • understandable
  • fair presentation
22
Q

What are the three responsibilities that auditors have?

A

Professional scepticism: maintaining independence of the entity by having a questioning mind and thoroughly investigating all evidence presented.

Professional Judgement: use of expertise, knowledge, and training obtained by the auditor.

Due Care: being diligent, applying technical and statute-backed standards, and documenting each stage of the audit process.

23
Q

Auditing and Assurance Standards Board (AASB)

A

formulate high quality audit standards (Canadian Auditing Standards).

24
Q

Canadian Public Accountability Board

A

objective to provide high quality audits (audits must pass CPAB inspection).

25
Q

CPA Canada

A

national body of accounting profession in Canada.

26
Q

Audit Expectation Gap

A

the difference between the expectations of assurance providers and financial statement or other users.

27
Q

In what six ways can the expectation gap be reduced?

A

-Auditors performing their duties appropriately, complying with standards, and meeting the minimum standards of performance.
- Undertaking peer reviews of work performed.
- Reviewing and updating auditing standards.
- Educating the public.
- Enhanced reporting explaining audit processes and levels of opinion auditors provide.
- Providers reporting accurately the level of assurance being provided

28
Q

Is an audit guaranteed to detect fraud?

A

No an audit does not guarantee fraud.

29
Q

Do all incorporated entities have to get audits?

A

No, publicly traded companies must get an audit but no incorporated entities.

30
Q

Compilation Engagement

A

the auditor formats financial statements based on the information provided by the client ensuring mathematical accuracy but does perform any procedures to assure that the information is not materially misstated.

PROVIDES NO ASSURANCE AND NO OPINION.

31
Q

Review Engagement

A

the auditor will gather sufficient evidence upon which to conclude on the reliability of the information being assured with observation. More evidence is gathered than a compilation engagement.

PROVIDES LIMITED ASSURANCE AND A CONCLUSION, BUT NO OPINION.

32
Q

Audit

A

the auditor has conducted audit procedures and gathered sufficient evidence to provide an opinion on the fair presentation of the financial statements.

PROVIDES REASONABLE ASSURANCE AND IS THE HIGHEST LEVEL OF ASSURANCE.

33
Q

What is the report for a compilation engagement?

A

Called: Compilation Engagement Report

Includes a statement that the auditor has compiled the financial information. There will be an indication of where the information can be found and there will be a description of the auditors and managements responsibilities. Then will statement that it does not express an audit opinion.

34
Q

What is the report for an audit engagement?

A

Called: Independent Auditor’s Report.

The auditor will state, in an unmodified opinion, that they believe that the statements present fairly the financial position and financial performance of the client in accordance with the applicable financial framework.

35
Q

What is the report for a review engagement?

A

Called: Independent Practitioner’s Review Engagement Report.

The report will outline management’s responsibility for the financial statements as well as the practitioner’s responsibility. If no material issues were noted, the report will include a statement written in the negative that will conclude that that nothing has come to the practitioner’s attention that would lead them to believe that the financial statements were not presented fairly, in all material respects, in accordance with the financial reporting framework.