week 1 - audit

Question 1

what does it mean by true and fair view?

Answer 1

• reasonable confidence and assurance that the statements are free of material misstatements
• no omissions or misstatements would reasonable influence the decisions

Question 2

Difficulties auditors face to ensure accounts are FREE of MATERIAL MISSTATEMENTS:

Answer 2

1. Insufficient evidence e.g. invoices
2. judgement e.g. useful lives of fixed assets

Question 3

what do auditors need to do?

Answer 3

• not to mislead the reader
• a certain degree of accuracy
• supplemented by explanatory notes
• reasonable view of financial affairs and results
  true and fair

Question 4

What type of companies are REQUIRED BY LAW to have an audit of their financial statements:

Answer 4

• limited companies
• building societies
• trade unions

Question 5

What type of companies may choose not to have an audit?

Answer 5

• sole traders and partnerships
• “small” companies
• clubs and charities

Question 6

Who is responsible for the financial statements?

Answer 6

• directors of the company
• must comply with the Companies Act 1985 AND applicable reporting framework

Question 7

What are the responsibilities of the boards of directors?

Answer 7

• produce financial statements
• safeguard companys assets
• preventing and detecting fraud and other irregularities

Question 8

What is an external auditor?

Answer 8

• examining/checking whether the accounting records form a reliable basis for the preparation of the financial statements
• properly planning, performing and evaluating the audit work
• detecting material misstatments
• providing an independent opinion on the financial statements
• detecting and preventing fraud

Question 9

Why do we need audits?

Answer 9

for people that are interested in financial statements:
- shareholders
- bankers
- creditors
- public
- employees
this is to provide credibility and to ensure directors arent being misleading

Question 10

what are the types of Audit?

Answer 10

1. Financial statement audits - most common
2. Compliance audits - relevant to the public sector
3. Operational audits - internal auditing

Question 11

Internal Auditors:

Answer 11

• employees who audit their own company exclusively
• mostly perform operational audits
• examine all or part of organisations activities
• Criteria are the efficiency
  and/or effectiveness of the
  company operations
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