Chp 1 to Chp 2.5 Flashcards

1
Q

What is assurance engagement?

A

an engagement performed by an auditor or consultant to enhance the reliability of the subject matter

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2
Q

what are the 3 parties needed for assurance engagement?

A
  1. Users (shareholders)
  2. Practitioner (gathers info, verifies info)
  3. Accountable party (Company responsible for preparing Financial statements)
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3
Q

What des unmodified opinion mean

A

Auditors opinion concluding that the financial statements are fairly presented

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4
Q

Which is the risk that users will rely on incorrect information to make a decision. What does this define?

A

Information Risk

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5
Q

What are the 4 causes of information risk, * these causes are also reasons why users demand audits

A
  1. Remoteness
    - (Don’t have access to company under
    review so is info fair/relevant)
  2. Complexity
    - Complex accounting disclosure
  3. Competing incentives
    - Company present to achieve own objective
  4. Reliability
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6
Q

There are 3 theories to why audits occur what are they?

A
  1. Agency Theory
  2. Information Hypothesis
  3. Insurance hypothesis
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7
Q

What is Agency Theory?

A

When conflict between Manager and owner so you hire audit to make sure there is accuracy.

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8
Q

What is Information Hypothesis?

A

That there is high demand for high quality information we need audit.

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9
Q

What is Insurance hypothesis?

A

investors will demand that financial statements be audited as a way of insuring against some of their loss should their investment fail.

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10
Q

Who are the main users of company financial statements?

A
  1. Investors
  2. Suppliers
  3. Cusotmers
  4. Lenders
  5. Employees
  6. governments
  7. General public
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11
Q

what are the 6 types of assurance service?

A
  1. Financial statement audit
  2. Compliance audits
  3. performance audit
  4. Comprehensive audit
  5. Internal audit
  6. CSR
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12
Q

What is the process of financial statement audit?

A
  1. Risk assessment (Where is greatest risk)
  2. Determine a strategy
  3. Divided sections and create an audit working program
  4. Audit work checked by senior audit
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13
Q

What are compliance audit?

A

gathering evidence to ascertain whether the person or entity under review has followed the applicable rules, policies etc

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14
Q

What is performance audit?

A

Concerned with the economy, efficiency, and effectiveness of an organizations activities.

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15
Q

Performance audits are conducted by internal audits, True or false?

A

True.

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16
Q

What does comprehensive audit mean?

A

Made up of elements from financial, compliance, and performance audit

17
Q

Expand on Internal audit

A

they evaluate and improve risk management, internal control and elements of governance process