Auditing for Quiz 1 PDF

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Auditing for Quiz 1...

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Which of the following are true statements? A. An auditor is responsible for detecting fraud. B. When an auditor issues an opinion, they are guaranteeing the company will continue into the future. C. An unqualified audit opinion guarantees that the financial statements are 100% correct. D. The auditor tests a sample of transactions. E. The primary responsibility for fraud prevention and detection remains with those charged with governance. F. Peer reviews of audits ensure that auditing standards have been applied correctly. G. An unqualified opinion does not guarantee that there are no misstatements, but it does mean that there is no fraud at that entity. - D. The auditor tests a sample of transactions. E. The primary responsibility for fraud prevention and detection remains with those charged with governance. F. Peer reviews of audits ensure that auditing standards have been applied correctly. Which of the following are assurance engagements? A. Reviewing the processing of sales invoices to assess the efficiency of the process. B. Compiling financial statements with the issuance of a Notice to Reader report. C. Preparing a tax return. D. Providing management consulting services and issuing a list of recommendations for improvements. E. Reviewing financial statements with the issuance of a review engagement report. F. Review by the Workers' Compensation Board of wages and remittances of an entity to ensure required remittances are made properly. G. Requesting a report to evaluate the effectiveness of the oversight of security operations at a provincial correctional institution. - A. Reviewing the processing of sales invoices to assess the efficiency of the process. E. Reviewing financial statements with the issuance of a review engagement report. F. Review by the Workers' Compensation Board of wages and remittances of an entity to ensure required remittances are made properly. G. Requesting a report to evaluate the effectiveness of the oversight of security operations at a provincial correctional institution.

Bravo Bags is a luggage retailer that operates out of a shopping mall. As required by the landlord, Bravo Bags has hired Brad Pope, CPA, to provide a report to the landlord indicating whether Bravo Bags has met the requirements of its lease agreement in terms of reporting the store's sales information.Which of the following are true for Bravo Bags? - Remoteness is why the landlord may be requesting a report on the store sales information.

The required parties for an assurance engagement are met—the landlord is the intended user, the auditor is the practitioner, and Bravo Bags is the responsible party.

The landlord would like to enhance the reliability of the sales figures reported. Statements made by management regarding the recognition, measurement, and presentation and disclosure of items in the financial statements. - Assertions Where the evidence and documentation of the work performed are kept as a permanent record to support the opinion issued. - Audit File The financial framework chosen by management to prepare a company's financial statements. Applicable Financial Reporting Framework Information used by the auditor to support the audit opinion. - Audit Evidence The risk that the auditor may express an inappropriate opinion. - Audit risk The list or description of audit procedures to be performed. - Audit Plan A structured representation of historical financial information, including the related notes. - Financial Statements The processes implemented and maintained by management to help the entity achieve its objectives. Internal Control The auditor's formal expression of opinion on whether the financial statements are in accordance with the applicable financial reporting framework. - Independent Auditor's Report Theory tells us that due to the demand for reliable, high-quality information, various user groups, including shareholders, banks, and other lenders, will demand that financial statements be audited to aid their decision-making. - Information Hypothesis Theory tells us that investors will demand that financial statements be audited as a way of insuring against some of their loss should their investment fail. - Insurance Hypothesis

Theory tells us that due to the remoteness of the owners from the entity, the complexity of items included in the financial statements, and competing incentives between the owners and managers, the owners (principals) have an incentive to hire an auditor (incur a monitoring cost) to assess the fair presentation of the information contained in the financial statements prepared by their managers (agents). Select the appropriate theory.Agency theoryInformation hypothesisInsurance hypothesis - Agent Theory What does "assurance" mean in the financial reporting context? - Both a review and an audit provide some level of assurance An assurance engagement is one where sufficient appropriate evidence is gathered to express a conclusion An assurance engagement enhances the confidence of the users of the financial statements In order for the financial statements to give the users a high level of credibility, what qualities must an "assurer" possess? - Knowledge and expertise in the assurance field

Trained accountants

Professional scepticism Which of the following apply to an emphasis of matter paragraph? A. It is a paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements. B. It is included in the audit report whenever the auditor finds an issue with the client. C. The purpose of the paragraph is to ensure that the reader pays appropriate attention to the issue when reading the financial statements. D. If the audit report includes an emphasis of matter paragraph, it becomes a modified opinion. E. The emphasis of matter paragraph is used when the entity has not disclosed an issue in its report and the auditor believes an issue should be disclosed. F. A common circumstance that warrants an emphasis of matter paragraph is the existence of a significant uncertainty, the resolution of which may materially affect the financial statements. - A. It is a paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements.

C. The purpose of the paragraph is to ensure that the reader pays appropriate attention to the issue when reading the financial statements. F. A common circumstance that warrants an emphasis of matter paragraph is the existence of a significant uncertainty, the resolution of which may materially affect the financial statements. Which of the following are included as an auditor's responsibility? A. Use professional judgement B. Issue an unmodified opinion C. Act with due care D. Use professional skepticism E. Discover all errors and fraud - A,C,D What is professional skepticism as it relates to auditors? A Ability to apply accounting and auditing standards to the audit work performed B Ability to use one's training, expertise and knowledge in making decisions C Being diligent and performing their job properly D Attitude that includes a questioning mind and a critical assessment of audit evidence - D The audit expectation gap is caused by unrealistic user expectations. Which of the following is an unrealistic user expectation? A The auditor provides reasonable assurance B The auditor guarantees the future viability of the entity C The auditor finds all errors and fraud D The auditor tests a sample of transactions E An unmodified opinion is an indicator of complete accuracy - B C E The audit expectation gap occurs when there is a A Difference between the expectations of the assurance providers and the financial statement users. B Difference between the expectations of management and the financial statement users. C Realistic user expectations. D No difference between the expectations of the assurance providers and the financial statement users. -

Auditor's Responsibility - To obtain reasonable assurance about whether the financial statements are free from material misstatement.

Conduct the audit in accordance with Canadian generally accepted auditing standards.

Establish an appropriate level of materiality. Management Responsibilities - Selection and preparation of the financial statements in accordance with the appropriate financial reporting framework.

Ensuring that there are adequate internal controls in place so that the prepared financial statements are free from material misstatement.

Providing the unrestricted access to personnel and documents as needed. Which of the following are true with respect to an audit committee? A. It will help to improve the quality of the financial reporting; the audit committee will assist by reviewing the financial statements. B. Having an audit committee is optional for public companies in Canada. C. The audit committee will be responsible for appointing the external auditors, and this will strengthen the auditors' independence and contribute to a channel of communication and forum of issues. D. The audit committee also pre-approves all non-audit services. E. The audit committee is elected by the shareholders. F. It is recommended that the CEO be a member of the audit committee. - A, C, D Auditing engagement - Gather evidence using a combination of the following procedures: inspection, observation, confirmation, recalculation, re-performance, analytical procedures, and inquiry. Review engagement - Gather evidence using a combination of analytical procedures and inquiry Compilation Engagement - Check mathematical accuracy. Which of the following apply to an emphasis of matter paragraph?

A. It is a paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements. B. It is included in the audit report whenever the auditor finds an issue with the client. C. The purpose of the paragraph is to ensure that the reader pays appropriate attention to the issue when reading the financial statements. D. If the audit report includes an emphasis of matter paragraph, it becomes a modified opinion. E. The emphasis of matter paragraph is used when the entity has not disclosed an issue in its report and the auditor believes an issue should be disclosed. F. A common circumstance that warrants an emphasis of matter paragraph is the existence of a significant uncertainty, the resolution of which may materially affect the financial statements. - A. C. F Which of the following matters are to be included in an audit engagement letter? A. The objective and scope of the audit. B. Confirmation that the auditor is independent. C. The responsibilities of the auditor. D. The responsibilities of management. E. Identification of the financial reporting framework for the preparation of the financial statements. F. The number of hours the audit will take to perform. G. Expected form and content of any reports to be issued. H. Whether the auditor will rely on the work of the internal auditors. - A, C, D, E, G Which of the following statements is not true regarding engagement letters? Engagement letters set out the terms of the audit engagement Engagement letters are prepared before commencing every audit engagement Engagement letters are prepared by the client and acknowledged by the auditor before the commencement of each audit Engagement letters are a form of contract between the auditor and the client - Engagement letters are prepared by the client and acknowledged by the auditor before the commencement of each audit An example of the three parties in an assurance engagement would be: auditor, general public, employees

audit client, supplier, auditor audit client, employee, customer auditor, shareholder, general public - audit client, supplier, auditor...