Demand for independent auditing

Question 1

what is an audit

Answer 1

opinion by an independent auditor on whether financial statements are in all material aspects present fairly in accordance with GAAP

Question 2

Accounting (GAAP)

Answer 2

is the recording, classifying, and summarizing of economic events to provide financial information for decision making

Question 3

Auditors (GAAS)

Answer 3

focus on determining whether recorded information properly reflects the economic events that occurred during the accounting period, in addition to understand accounting, auditors must possess expertise in the accumulation and interpretation of audit evidence

Question 4

endogenous (audit)

Answer 4

independent audit reduces incentive problems of the manager and should exist in earliest firms

Question 5

exogenous (audit)

Answer 5

audit textbooks: recent product of government intervention

Question 6

independence of mind

Answer 6

state of mind that permits the expression of a conclusion without being affected by influences that compromise judgment, allowing to act with integrity, and exercise objectivity and professional skepticism

Question 7

independence of appearance

Answer 7

the avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information would reasonably conclude that a firm’s/auditor’s integrity, objectivity, or professional skepticism has been compromised

Question 8

independence in ISAs (international standards of accounting)

Answer 8

• auditors are professionals
• auditors are judicial
• auditors are economic

Question 9

auditors are professionals

Answer 9

independence of mind is assumed, ethical people from life experience and socialization

Question 10

auditors are judicial

Answer 10

gatekeepers to securities markets, independence of both appearance and mind

Question 11

auditors are economic

Answer 11

auditors pursue more than just the audit - independence of appearance

Question 12

Social responsibility of the auditor

Answer 12

the auditor-confidential agent derives his general function in society from the need for expert and independent examination and the need for an expert and independent opinion based on that examination

Question 13

theory of inspired confidence

Answer 13

the accountant is obliged to carry out his/her work in such way that he/she does not betray the expectations which he/she evokes in the sensible layman; and conversely, the accountant may nog arouse greater expectations than can be justified by the work done