Session 1.1 Flashcards
CH2
What are the 4 types of auditors?
External
Internal
Government
Forensic
What are the 3 broad types of services?
Auditing
Assurance
Non-audit (Tax planning, management advisory, consulting (when not auditing to avoid conflict of interest))
What are the 3 key elements of the job of a Staff auditor?
- Perform the audit procedure assigned to them
- Prepare adequate and appropriate documentation of the completed work
- Inform the senior about any issue encountered (acct or auditing)
What are the government (US and CAN) regulations put in place post-Enron?
US: Sarbanes-Oxley and Investor Protection Act –> PCAOB
CAN: Bill 198 and Budget Measure Act –> Canadian Public Accountability Board
What are some unrealistic expectations the public has towards auditors (5)
- 100% assurance
- Guaranteed viability of the client
- Unqualified opinion = complete accuracy
- Auditors find ALL frauds
- Auditors check ALL transactions
What is the auditor’s responsibility?
- To provide, with reasonable assurance (95%), that the F/S are free from material misstatements
What does the audit mean about the firm’s financial success?
Nothing in particular, it just confirms that rules have been complied with.
(says nothing about a firm being successful or bound to fail)
What are some ways to bridge the gap between public’s unrealistic expectations and the auditors’ responsibilities? (6)
- Perform audits with a minimum standard of performance while following the standards
- Peer review of your work
- Review and update of the standards
- Public education
- Enhanced explaining of the audit process and levels of opinions provided to the entity
- Accurately provide the level of assurance
Who is responsible for the preparation and issuance of the F/S?
MANAGEMENT (not the auditor)
Clearly communicating this helps reduce the expectation gap
What’s important about the knowledge assessment of a client?
You want to understand the conditions behind an entity’s business model
Broad: Economy (interest rates, exchanges rates, etc)
Middle: Industry (competitors, channels, strategy)
Center: Entity (customers, shareholders, suppliers)
Why is a system of corporate governance necessary in a firm?
To oversee and supervise managers
We want the BoD to be objective and effective
Broad: BoD
Center: Audit Committee
What is the audit committee?
A subset of independent board members overseeing internal and external auditing work.
Acts as a safe harbour for auditors when management is uncooperative
What standards do we follow in Canada?
Canadian Auditing Standards (CAS)
* Important for evaluation of the quality of the performance
* Ensures audit are done in a consistent and thorough manner
What are the 4 types of principles underlying an audit?
- Purpose and premise of the audit
- Responsibilities of the auditor
- Performance of the audit
- Reporting
What are the 3 types of responsibilities of the auditor?
- Ethical
- Professional
- Legal
Auditors are responsible for having appropriate competence and capabilities to perform the audit; complying with relevant ethical requirements; and maintaining professional skepticism and exercising professional judgment, throughout the planning and performance of the audit.
What are the 3 things regarding F/S management must do?
- Prepare fair financial statements
- Design and implementation and maintenance of internal control
- Provide to auditor all relevant information to the F/S
What are the purposes and premises of an audit?
For the auditor to issue an opinion based on a financial framework AND
to ensure that management fulfill its responsibilities
