Chapter 2

Question 1

What are the 5 threats to independence?

Answer 1

1. Self-review
2. Self-interest
3. Advocacy
4. Familiarity
5. Intimidation

Question 2

CPA’s must remain independent in ___ and in ___

Answer 2

Fact and Appearance

Question 3

CPA must comply with

Answer 3

Professional ethics code which requires
- Integrity
- Objectivity
- Professional Competency
- Due care
- Confidentiality

Question 4

Canadian Public Accountability Board

Answer 4

Oversees auditors of public company, came to be due to the Sarbanes-Oxley Act (SOX), uses profession’s auditing, ethics, independence, and quality control standards

Question 5

Key Features of SOX

Answer 5

• Increased oversight of auditors
• Increased penalties for wrongdoers
• More timely and extensive financial disclosures
• More timely and extensive disclosure of how firms are governed
• New options of recourse for aggrieved shareholders
• Increased legal liability for auditors

Question 6

Governance Guidelines established by Canadian Market Regulators

Answer 6

Collective name of Canada developed provincial-level regulations/guidelines, also called Canadian Governance Guidelines or CGG

Question 7

Generally Accepted Auditing Standards

Answer 7

Identify the objectives and key principles of the financial statement audit

Question 8

Objective of an Audit

Answer 8

Enable the auditor to express an opinion on whether the financial statements are prepared in all material respects with an acceptable financial reporting framework

Question 9

General Standard: 3 Relevant Professional Ethical Requirements

Answer 9

1. Competence
2. Objectivity and Independence
3. Due professional care

Question 10

Competence

Answer 10

Adequate technical training and proficiency

Question 11

Objectivity and Independence

Answer 11

Be intellectually honest, unbiased and impartial. Must be independent in fact and appearance

Question 12

Due Professional Care

Answer 12

Observance and adherence of the rules of professional ethics and generally accepted audit principles (GAAS)

Question 13

Examination Standards

Answer 13

Conduct audit in accordance with Canadian Audit Standards and the Canadian Audit Practice Notes

Question 14

Auditor should obtain _____ that the financial statements taken as a whole are free from material misstatement

Answer 14

reasonable assurance

Question 15

Audit Risk

Answer 15

Risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated

Question 16

Auditor should ______ to reduce audit risk to an acceptably low level that is consistent with the objective of the audit

Answer 16

plan and perform an audit

Question 17

Audit Program

Answer 17

List of procedures an auditor will need to perform to complete the audit – a written audit program is desirable

Question 18

Understanding the _____ is an absolute necessity

Answer 18

client’s business

Question 19

Why is timing important consideration in Audit planning?

Answer 19

Needs to begin well before year end as auditing takes time

Question 20

What is the importance of internal controls?

Answer 20

Reduces the probability of errors or irregularities in the financial statements – helps control risks

Question 21

What does CAS 200 require?

Answer 21

Auditors obtain enough evidence to justify opinions, evidence must be reliable and relevant

Question 22

The audit report should distinguish between the responsibilities of ______ and _____

Answer 22

Management and auditor

• Auditor should determing whether the financial reporting framework adopted by managhement in preparing financial statements is acceptable

Question 23

Unmodified opinion audit report

Answer 23

good – the auditor is not calling attention to anything that may be wrong in the statements

Question 24

Modified opinion audit report

Answer 24

bad, the auditor reports a departure from GAAP or a limitation in the scope of the audit

Question 25

Standard Report

Answer 25

1. Title
2. Address
3. Introductory Paragraph in the Opinion Section
4. Opinion/Basis for Opinion Paragraph in the Opinion Section
5. Key Audit Matters
6. Management and Corporate Governance Responsibilities
7. Auditors Responsibilities and Description of the Audit
8. Signature
9. Date
10. Auditor’s Address

Question 26

Auditor Opinion reflects accordance with _______

Answer 26

Canadian GAAP

Question 27

Auditor Opinion Implies

Answer 27

1. Accounting principles used are generally accepted
2. Accounting principles are appropriate
3. Statement ad notes are informative
4. Classification and summarization is appropriate
5. Statements are accurate within materiality
6. Adequate disclosure has been made

Question 28

Assertion

Answer 28

A statement about some aspect of a subject matter

Question 29

Quality Control

Answer 29

Actions taken to evaluate compliance with professional standards as defined in the CPA Canada Handbook and provincial rules of professional conduct