week 3 - Audit 3

Question 1

What are the five fundamental principles of professional ethics?

Answer 1

1. Integrity – Be honest and straightforward.
2. Objectivity – Avoid bias or conflicts of interest.
3. Professional competence and due care – Maintain knowledge and skill levels.
4. Confidentiality – Do not disclose client information without permission.
   5.Professional behaviour – Comply with laws and avoid discrediting the profession.

Question 2

What are the main threats to auditor independence?

Answer 2

1. Self-interest threat – Financial gain affecting judgment.
2. Self-review threat – Auditing work the firm previously performed.
3. Advocacy threat – Promoting a client’s position.
4. Familiarity threat – Close relationships influencing objectivity.
5. Intimidation threat – Pressure from management.

Question 3

What is materiality in auditing?

Answer 3

Materiality is the threshold above which misstatements affect user decisions on financial statements.

Question 4

How does materiality affect the type of audit opinion?

Answer 4

1. Immaterial misstatements → Unqualified opinion
2. Material but isolated misstatements → Qualified (except for) opinion
3. Highly material misstatements → Adverse or Disclaimer opinion

Question 5

What is professional scepticism?

Answer 5

A questioning mindset that helps auditors detect errors or fraud by critically assessing evidence.

Question 6

Why is professional scepticism crucial?

Answer 6

1. Prevents over-reliance on management representations.
2. Helps detect fraudulent activities.
3. Ensures high audit quality, especially in uncertain economic times.