The Role of Auditing and Ethical Decision Making (Topic 1) Flashcards
What is the objective of assurance engagements?

What is the need for assurance services?
- Many parties provide reports to users as an aid in making decisions. - Reports potentially may be biased due to the vested interests of the report providers. - Users may demand that the credibility of the report be enhanced by having an independent expert examine it. - Assurance engagement: ‘an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria’.
What are the types of assurance engagements?
(Figure from notes)
What are the types of assurance engagements?
(Figure from notes)
Reasonable v. Limited assurance?
(Table in notes)
What is accounting?
‘The recording, classifying and summarising of economic events in a logical manner for the purpose of providing financial information for decision making’ (Arens et al 2007, p. 14)
What is auditing?
‘A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria, and communicating the results to interested users.’ (AAA cited in Gay & Simnett)
What is the auditor-client-public relationship?
- The auditor’s primary reporting responsibility is to resource providers of the client entity; however, the client entity usually engages the auditor and pays the auditor’s fees. - The auditor also discusses the audit findings with management prior to releasing information to the resource providers. - In order to combat pressures on independence and objectivity, the auditing profession has issued a series of ethical rulings and professional standards to guide the auditor in the conduct of his or her duties.
What is the expectation gap?
The gap between society’s expectations of auditors and auditors’ performance as perceived by society. (Figure from notes)
What are the major issues in the expectation gap?
- The nature and meaning of audit reporting messages 2. Early warning by auditors of corporate failure 3. Auditor’s responsibility for the detection and reporting of earnings management and fraud 4. The auditor’s ability to communicate different levels of assurance
What are the regulations of auditing?
Auditing is regulated by a combination of self-regulatory bodies (e.g. ICAA) and governmental regulatory agencies: - Financial Reporting Council (FRC): a statutory body established in 1999 with oversight role of the accounting standard-setting process. Role recently expanded to include broad oversight of auditing standard-setting and the monitoring of auditor independence. - Auditing and Assurance Standards Board (AUASB): reconstituted as an independent statutory body on 1 July 2004 and responsible for the development of auditing and assurance standards. -Accounting Professional & Ethical Standards Board (APESB): created in 2008 as a body independent of the profession with responsibility for setting ethical standards. Two other government agencies are also involved in the regulation of auditors: 1. Australian Securities and Investments Commission (ASIC) - the administering authority for the corporations Act 2001 2. The Companies Auditors and Liquidators Disciplinary Board (CALDB) determines whether a registered auditor or liquidator has failed to carry out his or her duties properly or is not a fit and proper person to be registered -
What are the roles of auditing standards?
- Australian Auditing standards developed by the AUASB - The standards prescribe the basic principles and essential procedures governing the conduct of an auditor - For audits conducted under the Corporations Act 2001 since 1 July 2006, the auditing standards must be applied, thus giving them legal authority - Failure to observe these standards may expose a member to investigation and disciplinary action from the Australian Securities and Investments Commission (ASIC) - Failure to observe these
What are ASAs ?
- Australian auditing standards now designated as ASAs and have the same numbering as the equivalent ISAs - ASAs consist of paragraphs that are either mandatory requirements, identified in bold type (black lettering); or explanatory guidance, identified in normal type (grey lettering)
What are AUSs?
There are still two AUSs (AUS 804 & 810), which assurance engagements on other than financial reports prepared in accordance with the Corporations Act 2001
What are AGSs?
Auditing Guidance Standards (AGS): provide guidance on procedural matters or industry-specific issues, but do not establish new principles or amend existing standards.
