Chp 1 to Chp 2.5 Flashcards
What is assurance engagement?
an engagement performed by an auditor or consultant to enhance the reliability of the subject matter
what are the 3 parties needed for assurance engagement?
- Users (shareholders)
- Practitioner (gathers info, verifies info)
- Accountable party (Company responsible for preparing Financial statements)
What des unmodified opinion mean
Auditors opinion concluding that the financial statements are fairly presented
Which is the risk that users will rely on incorrect information to make a decision. What does this define?
Information Risk
What are the 4 causes of information risk, * these causes are also reasons why users demand audits
- Remoteness
- (Don’t have access to company under
review so is info fair/relevant) - Complexity
- Complex accounting disclosure - Competing incentives
- Company present to achieve own objective - Reliability
There are 3 theories to why audits occur what are they?
- Agency Theory
- Information Hypothesis
- Insurance hypothesis
What is Agency Theory?
When conflict between Manager and owner so you hire audit to make sure there is accuracy.
What is Information Hypothesis?
That there is high demand for high quality information we need audit.
What is Insurance hypothesis?
investors will demand that financial statements be audited as a way of insuring against some of their loss should their investment fail.
Who are the main users of company financial statements?
- Investors
- Suppliers
- Cusotmers
- Lenders
- Employees
- governments
- General public
what are the 6 types of assurance service?
- Financial statement audit
- Compliance audits
- performance audit
- Comprehensive audit
- Internal audit
- CSR
What is the process of financial statement audit?
- Risk assessment (Where is greatest risk)
- Determine a strategy
- Divided sections and create an audit working program
- Audit work checked by senior audit
What are compliance audit?
gathering evidence to ascertain whether the person or entity under review has followed the applicable rules, policies etc
What is performance audit?
Concerned with the economy, efficiency, and effectiveness of an organizations activities.
Performance audits are conducted by internal audits, True or false?
True.
What does comprehensive audit mean?
Made up of elements from financial, compliance, and performance audit
Expand on Internal audit
they evaluate and improve risk management, internal control and elements of governance process
