Lecture 1 - Audit Framework

Question 1

Auditing defined -

Answer 1

A systematic process of:

• Objectively obtaining and evaluating evidence regarding assertions about economic actions and events
• To ascertain the degree of correspondence between those assertions and established criteria
• And communicating the results to interested users

Question 2

Assurance services defined -

Answer 2

An engagement in which practitioner 
expresses a conclusion:
- Designed to enhance the degree of 
confidence of the intended users other 
than the responsible party
- About the outcome of the evaluation 
or measurement of a subject matter 
against criteria.

Question 3

Audit is engaged by:

Answer 3

Directors on behalf of shareholders

Question 4

Assurance is engaged by:

Answer 4

An interested party

Question 5

Nature of work - auditing

Answer 5

• Strict guidelines

Question 6

Quality of audit evidence is

Answer 6

Stringent

Question 7

Quality of assurance is

Answer 7

Usually less detailed

Question 8

Four basic aims of audit:

Answer 8

1. Whether financial statements & accompanying notes are in accordance with specified criteria.
2. The effectiveness & appropriateness of internal control systems over financial reporting.
3. The possibility of fraud occurring within the organisations.
4. The likelihood that the organisation will continue

Question 9

Audit risk definition

Answer 9

Audit risk is the risk that the auditor expresses
an inappropriate audit opinion when the financial
statements are materially misstated

Question 10

Reasonable assurance is….

Answer 10

• The auditor’s standard report states that the audit provides only reasonable assurance that the financial statements do not contain material misstatements.
• Reasonable assurance implies some risk that a
  material misstatement could be present in the financial statements and the auditor will fail to detect it.

Question 11

Materiality is…..

Answer 11

• Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements.
• Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances.

Question 12

Audit evidence for financial statements are…..

Answer 12

Evidence that assists the auditor in
evaluating management’s financial statement
assertions consists of:
-The underlying accounting data
-And any other corroborating information available to the auditor.
-The auditor will be concerned with:
Relevance Reliability

Question 13

An auditor’s has a responsibility to…..

Answer 13

Plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud

Question 14

The objective of an audit is …..

Answer 14

To enable the auditor to express an opinion whether the
financial statements are prepared, in all material aspects, in accordance with an identified financial
reporting framework.

Question 15

Standard audit report with an unmodified opinion is…

Answer 15

• The most common type of audit report issued
• Because management’s assertions
  about the entity’s financial statements are
  usually found to conform to the financial
  reporting framework.

Question 16

Audit report with a qualified opinion is….

Answer 16

Issued for either a material scope
limitation or departure from the financial
reporting framework.

Question 17

Audit report with disclaimer of opinion is…..

Answer 17

Issued for lack of sufficient appropriate evidence to form an opinion on the overall financial statements

Question 18

Audit report with adverse opinion

Answer 18

Issued when the overall financial statements do not present fairly (give a true and fair view) in accordance with the financial reporting framework