Chapter 1 reading guide

Question 1

What is the definition of auditing?

Answer 1

The accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.

Question 2

how do internal auditors maintain independence 4

Answer 2

1. reporting to the audit committee
2. following the code of ethics
3. avoiding involvement in operational decision making
4. maintaining professional skepticism

Question 3

What is professional skepticism?

Answer 3

an auditor’s questioning mind and critical assessment of audit evidence - it means accepting the information provided but remaining alert that the posibility of misstatement is possible due to error or fraud

Question 4

What is an assurance engagement?

Answer 4

an independent professional service in which the assurance provider expresses a conclusion on the outcome of an evaluation or measurement of a subject matter against criteria

Question 5

what are the five required elements of an assurance engagement?

Answer 5

three-party accountability relationship

subject matter

criteria

evidence

written conclusion

Question 6

three-party accountability relationship

Answer 6

auditor, management, shareholders

Question 7

subject matter definition

Answer 7

item being evaluated (for example the financial statements)

Question 8

criteria definition

Answer 8

standards used for evaluations (IFRS, ASPE)

Question 9

evidence definition

Answer 9

information gathered to support the conclusion

Question 10

written conclusion definition

Answer 10

formal report expressing the assurance provider’s level of confidence

Question 11

What is information risk? What 4 things can cause information risk?

Answer 11

Information risk is the risk that financial or business info is wrong

causes:

remoteness of information
Bias and motives of the provider
voluminous data
complex exchange transactions

Question 12

What are three common audit services? What do these audits cover?

Answer 12

financial statement audit - financial statements complying with IFRS or ASPE

compliance audit - complying with laws and regulations

operational audit - efficiency and effectiveness of operations

Question 13

What are the common types of auditors?

Answer 13

• internal auditor
• government auditor
• cra auditor
• forensic accountant/ fraud auditor
• sustainability auditor
• public accountant (external auditor)

Question 14

Why might a company not required to have their financial statements audited, have their
statements audited?

Answer 14

• reduce information risk
• increase credibility with stakeholders
• meet financing and contractual requirements
• strengthen internal controls and management oversight
• sale or growth preparation