Week 1 - Why Are Auditors Needed

Question 1

Types of audits

Answer 1

Internal/external audits 
Compliance audits 
Tax audits 
IT system audits 
Quality audits 
Environmental audits 
Foresenic audits 
Value-for-money audits

Question 2

Why is an audit needed

Answer 2

-Separation of ownership&control
-Conflicts of interest between principals&agent
-managers may use the companys reaources for own benefit
-audit is the best way to prevent mistakes
-provides a preventive/detective/reporting control
Provides benefits for auditee and society in general - bc it reduces risk

Question 3

Preventive

Answer 3

The knowledge thst an audit will take place may prevent carelessness, which may lead to error and fraud

Question 4

Detectiveness

Answer 4

An audit should detect material misstatements

Question 5

Reporting

Answer 5

An auditor will report material misstatement - this would damage a companys rep. And possibly raise its cost of capital

Question 6

Justification of audit

Answer 6

Info hypothesis

Insurance hypothesis

Question 7

Info hypothesis

Answer 7

Info becomes more reliable and useful as the result of audit.
Agency theory - audit provides reassurance

Question 8

Insurnance hupothesis

Answer 8

Basically is when the auditor has given advice but it didnt pay off and lost - they may be able to fight a case of negligence

Question 9

The financial auditor

Answer 9

Must be registered - therefore must be qualified accountant
Can be sole trader/ partnership/company
Is external to the audited organisation

Question 10

An assurance engagement is defined as

Answer 10

To inform the 3rd party of the subject matter

Question 11

An assurance engagement involves 5 elements

Answer 11

• 3-part relationship - practioner, responsible party, intended users
• Appropriate:
  subject matter
  criteria
  Evidence
• report

Question 12

A typical assurance report would incl.:

Answer 12

Title 
Level of assurance/subject matter info 
Identification of responsible party 
Summary of the work performed 
Conclusion 
Signature 
Date

Question 13

Audit

Answer 13

Checks accuracy 
Flags up misuse
Auditing is the first step 
Carried out by internal/external auditor 
Making sure ethical presentation

Question 14

Assurance

Answer 14

Specialises in assessing and improving the quality of the information in a company
Assurance is followed after audit
Carried out by audit firm
Verify accuracy

Question 15

Why do we need theory of auditing

Answer 15

to ensure that the entity is traded fairly and in accordance with accounting standards

Question 16

The conceptual framework of auditing

Answer 16

Social purpose of auditing
Postulates
Concepts

Question 17

The social purpose of auditing

Answer 17

A social audit helps go narrow gaps between vision/goal and reality, between efficiency and effectiveness
To be able to understand, measure, verify, report on and to improve the social performance of the organisation

Question 18

Postulates

Answer 18

There is no necessary conflict of interest between the auditor and the management of the enterprise under audit

Question 19

Concepts of auditing

Answer 19

The process of checking the financial statements along with other accounting information of a business entity

Question 20

The concepts of auditing

Answer 20

Credibility
Process
Communication
Performance

Question 21

What is envelopegate?

Question 22

Limited assurance

Answer 22

Is less than what is provided in an audit

Question 23

Reasonable assurance

Answer 23

A high level of assurance regarding material misstatements, but not an absolute one