Topic 1 - Intro to Auditing Flashcards
what is the Definition of an audit? (5)
■ systematic process
■ objectively obtain and evaluate evidence
■ about assertions concerning economic
actions and events
■ ascertain the degree of correspondence
between those assertions and established
criteria
■ communicate the results to interested users
What are the four phases of the systematic process?
Four phases of an audit: ■ Client acceptance/ continuance ■ Plan the audit ■ Perform audit tests ■ Complete the audit and report
What prescribes and guides an audit? (3)
- auditing standards
- code of ethics
- legislation
How do we ensure that evidence is objective?
- it is free from bias
- auditors must be independent from client
- auditors must exercise professional skepticism
how do auditors objectively obtain and evaluate
evidence?
■ Obtain evidence by applying
accepted procedures and processes
■ Draw conclusions based on what the evidence suggests
What is a set of assertions made by management
about the entity’s economic performance
and position?
Financial statements
what are the established criteria in a financial statement audit?
the accounting standards
What are four key questions in ascertaining the degree of correspondence between assertions and established criteria?
■are the accounting treatments valid?
■are estimates reasonable?
■are the disclosures appropriate?
■what is material?
who is the audit report for?
members/ shareholders
What four issues are addressed in the “client acceptance stage” of an audit?
■Reasons for the audit
■The financial reporting framework
■Client characteristics
■Auditor characteristics
What three issues are addressed in the “Planning the Audit” stage of an audit?
■Understand the client and its environment, including internal controls.
■Risk assessment
■Develop an audit strategy
What is business risk?
the risk that an entity’s business objectives
will not be attained as a result of external
and internal factors and pressures.
ultimately, the risk associated with the
entity’s survival and profitability.
What are the Fundamental Principles Underlying an Audit that an auditor must bare in mind? (5)
￭Integrity ￭Objectivity ￭Professional competence and due care ￭Confidentiality ￭Professional behaviour
what is Auditor Independence?
Ability to provide an opinion without being
affected by influences that compromise
professional judgment.
Which three things must an auditor exercise to maintain independence?
- integrity,
- objectivity
- professional skepticism.
What is Professional Judgement?
the application of relevant training, knowledge and experience in making informed decisions regarding audit engagement
What is Professional Skepticism?
An attitude that includes a questioning mind and a critical assessment of audit evidence.
What must the auditor this of the management when exercising Professional Skepticism?
that management is either honest nor dishonest.
What are three Reasons for an Audit?
■Statutory requirements (public interest, pty companies)
■The economic demand for audits (info risk)
■The benefits of an audit
which type of companies are required to be audited?
Public companies, large pty, companies limited by guarantee earning more than $1m.
If directed small ptys, companies limited by guarantee earning less than $1m many still have to be audited.
what is info risk?
The risk that information on which a business decision is made is inaccurate.
What are four causes of info risk?
■Remoteness of information
■Biases and motives of the provider
■Voluminous data
■Complexity of exchange transactions
what are four major benefits of an external audit?
■Obtain access to capital markets (ASX requirement)
■Have a lower cost of capital
■A deterrent to inefficiency and fraud
■Control and operational improvement
What is the purpose of assurance?
designed to enhance the degree of confidence of the intended user, base on evidence and evaluation of assurance provider.
