Introduction to AA Flashcards
Why does an audit provide assurance?
Because the audit is independent and impartial.
How are management accountable to the shareholders?
Management act as agents for the body of the shareholders. They are accountable to the shareholders for their stewardship of the entity’s assets which are placed under their control.
They achieve this by preparing financial statements which are presented to the shareholders.
What is the definition ‘true’?
Information is factual and conforms with reality. The information should conform with required standards and law.
The financial statements should have been correctly extracted from the books and records.
What is the definition ‘fair’?
Information is free from discrimination and bias and in compliance with expected standards and laws.
The financial statements should reflect the substance of the company’s underlying transactions.
What is the definition of ‘presented fairly’?
The financial statements show a true and fair view. They are factual and free from bias.
What is meant by ‘reasonable assurance’?
The auditor’s opinion enhances the credibility of the financial statements, by providing reasonable assurance that the financial statements are free from material misstatement.
No auditor can give 100% guarantee, but
reasonable assurance is the highest level of assurance that can be given.
What is the process of forming an opinion and reporting on the financial statements?
At the end of the process the auditor should be able to express their opinion as to whether the financial statements have been prepared, in all material aspects, in accordance with the applicable financial reporting framework.
The opinion is expressed on the auditor’s report and if the auditor is satisfied that the financial statements are presented fairly, they will issue a report which gives an unmodified opinion.
What is meant by materiality?
A matter is material if its omission or misstatement would reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Materiality depends on the size of the item or error judged in the particular circumstances.
