Chapter 1 - Reintroduction to audit and assurance

Question 1

What is the definition of assurance?

Answer 1

• practitioner expresses conclusion
• enhance confidence of intended users
• other than responsible party
• subject matter against suitable criteria

Question 2

What type/level of assurance for an audit?

Answer 2

reasonable/high

Question 3

What type/level of assurance for a review of financial information?

Answer 3

limited/moderate

Question 4

Higher assurance requires more work.

TRUE/FALSE

Answer 4

TRUE

Question 5

Name 3 benefits of assurance.

Answer 5

1. Enhanced CREDIBILITY
2. reduces MANAGEMENT BIAS
3. can spot DEFICIENCIES in information

Question 6

What are the objectives of the auditor when doing an audit?

1.

2.

Answer 6

1. Reasonable assurance that F/S are free from material misstatement and prepared according to financial reporting framework.
2. Report on F/S to those charged with governance.

Question 7

Companies Act 2006: Small private limited companies are exempt from an audit if they satisfy 2/3 of the following criteria:

If exempt, what must they do?

Answer 7

1. No more than 50 employees
2. Turnover not more than £10.2 million
3. Gross Assets not more than £5.1 million

Need to include a statement in F/S

Question 8

If the parent company guarantees the subsidiary’s liability, do they need an Audit?

Answer 8

NO

Question 9

Which companies still need an Audit even if they meet the criteria for an exemption?

Answer 9

Banks

Insurance companies

Plcs

If a shareholder who owns more than 10% asks for one

Question 10

What are the benefits of audit?

Answer 10

1. Independent scrutiny of business by professionals
2. Additional insurance for third parties (banks, tax authorities)
3. Promotes discipline
   - to maintain accounting records
   - reduce risk of misstatement
   - non compliance with statutory responsibilities
4. Subsidiary benefits: reports to management on deficiencies in internal control systems