Chapters 1-2

Question 1

what does the management do in the agency theory

Answer 1

manage the company and prepares FS

Question 2

what do the shareholders do in the agency theory

Answer 2

own the company, measure performance and appoint independant auditors

Question 3

what do the auditors do

Answer 3

adds credibility to the FS

Question 4

What are the two different wordings for an audit opinion

Answer 4

“presented fairly” OR “give a true and fair view”

Question 5

definition of materiality

Answer 5

Materiality is an expression of the relative significance or importance of a particular matter in the FS. A matter is material if its omission or misstatement would reasonably be expected to influence the decisions of users of the FS.

Question 6

What is reasonable assurance

Answer 6

Reasonable assurance is not absolute assurance because there are inherant limitations of an audit which result in the auditor forming an opinion on evidence that is persuasive rather than conclusive.

Question 7

3 limitations of auditing

Answer 7

Auditing is not objective, judgements have to be made.
Audit evidence sometimes indicates what is possible and not certain.
Not all items in the FS are tested.

Question 8

5 elements of an audit engagement

Answer 8

practitioner
intended user
responsible party
subject matter
criteria

Question 9

what kind of audit leads to the highest level of assurance

Answer 9

statutory audit

Question 10

what kind of audit leads to limited assurance

Answer 10

all other audits other than statutory

Question 11

what kind of audit report is that of a reasonable assurance audit (statutory audit)

Answer 11

positive

Question 12

what kind of audit report is that of limited assurance

Answer 12

negative

Question 13

why is a limited assurance audit report negative?

Answer 13

the evidence gathered is limited

Question 14

what are auditors rights (5)

Answer 14

access to companys books and records
to receive info and explanations
receive notice of general meetings
speak at general meetings on matters that concern them
receive a copy of any written resolution

Question 15

who can appoint a companys auditors

Answer 15

directors
shareholder
secretary of state

Question 16

how are auditors usually appointed

Answer 16

annually by shareholder, but directors may appoint first auditor or to fill a ‘casual vacancy’

Question 17

4 ways to remove auditors

Answer 17

notice of removal
representations
statement of circumstances
auditors rights

Question 18

4 ways auditors may resign

Answer 18

notice of resignation
statements of circumstances
convene general meeting
statement prior to general meeting

Question 19

what is corporate governance

Answer 19

the internal systems or means by which companies are directed and controlled

Question 20

what are the 6 prinicipes of corporate governance

Answer 20

ensuring the basis of an effective CG framework
the rights of shareholders and key ownership functions
equitable treatment of shareholders
role of stakeholders in CG
disclosure and transparency
responsibility of the board

Question 21

5 roles of the audit committee

Answer 21

monitor FS
recommend appointment/removal or external auditors
to consider annually if there is a need for internal auditi
to approve remuneration for external auditors
to monitor and review internal audit department

Question 22

advantages of audit committees

Answer 22

increased confidence in FS
Allows ED’s to devote attention to management
increases independance on internal auditors

Question 23

disadvantages of audit committees

Answer 23

costs may be increased
difficult to select NED’s with necessary competence
can dissuade auditors of raising matters of judgement

Question 24

Who is a steward of of the shareholders investements

Answer 24

directors

Question 25

who is the agents of the shareholders

Answer 25

directors

Question 26

whats the objective of a review engagement

Answer 26

to enable an auditor to state whether anything has come to their attention to cause them believe that the FS are NOT prepared in accordance with the appropriate framework

Question 27

4 places auditing is subject to regulation from

Answer 27

national legislation
national regulation and standard setting
international standard setting
professional bodies

Question 28

5 auditors rights

Answer 28

access a companys books and records
receieve information and explanations
receieve notice of or attend GMs
speak at GMs 
recieve a copy of any written resolution

Question 29

when can the directors appoint auditors

Answer 29

before the first period of appointing auditors
following a period where the company didnt have an auditor
to fill a casual vacancy

Question 30

when can shareholders appoint auditors

Answer 30

during a period for appointing auditors
if a company failed to appoint an auditor
if directors fail to do so

Question 31

when can secretary of state appoint auditors

Answer 31

if no auditors are appointed as per directors/ shareholders

Question 32

who are the IAASB

Answer 32

International auditing and assurance standards board

Question 33

what is the objective of the IAASB

Answer 33

to serve the public interest by setting high quality auditing and assurance standards