Audit Chapter 1 - Intro

Assurance engagement

Assurance engagement

An engagement performed by an auditor or consultant to enhance the reliability of the subject matter.

Applicable financial reporting framework

The financial framework chosen by management to prepare a company’s financial statements.

Assertions

Statements made by management regarding the recognition, measurement, and presentation and disclosure of items in the financial statements.

Audit evidence

Information used by the auditor to support the audit opinion.

Audit file

The file where the evidence and documentation of the work performed are kept as a permanent record to support the opinion issued.

Audit plan

The list or description of audit procedures to be performed.

Audit risk

The risk that the auditor may express an inappropriate opinion. This means that the auditor may indicate that the financial statements are not materially misstated when in fact they are.

Financial statements

A structured representation of historical financial information, including the required disclosures.

Independent auditor’s report

The auditor’s formal expression of opinion on whether the financial statements are in accordance with the applicable financial reporting framework.

Internal control

The processes implemented and maintained by management to help the entity achieve its objectives.

Material

An amount or disclosure that is significant enough to make a difference to a user.

Sufficient and appropriate evidence

The quantity (sufficiency) and quality (appropriateness) of the evidence collected by the auditor.

Unmodified opinion

The auditor’s opinion concluding that the financial statements are fairly represented.

Working papers

Paper or electronic documentation of the audit created by the audit team as evidence of the work completed.

Information risk

Risk that users will rely on incorrect information to make a decision.

Agency theory

Due to the remoteness of the owners from the entity, the complexity of items included in the financial statements, and competing incentives between owners and managers, the owners (principals) have an incentive to hire an auditor to assess the fair presentation of the information contained in the financial statements prepared by their managers.

Information hypothesis

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.

Insurance hypothesis

Investors will demand that financial statements be audited as a way of insuring against some of their loss should their investment fail.

Financial statement audit

An audit that provides reasonable assurance about whether the financial statements are prepared in all material respects in accordance with the financial reporting framework.

Listed entity

An entity whose shares or debt are listed on a stock exchange.

Fair presentation

The consistent and faithful application of accounting standards when preparing the financial statements.

Compliance audit

An audit to determine whether the entity has conformed with regulations, rules, or processes.

Performance audit

An assessment of the economy, efficiency, and effectiveness of an organization’s operations.

Comprehensive audit

An audit that encompasses a range of audit and audit-related activities, such as a financial statement audit, performance audit, and compliance audit.

Internal audit

An independent service within an entity that generally evaluates and improves risk management, internal control procedures, and elements of the governance process.

Those charged with governance

Generally the board of directors, and may include management of an entity, concerned with evaluating and improving risk management, internal control procedures, and elements of the governance process.

Corporate social responsibility

A range of activities undertaken voluntarily by a corporation. Disclosures include environmental, employee, and social reporting.

Consulting firms

Non-audit firms that provide assurance services on non-financial information, such as corporate social responsibility and environmental disclosures.

Reasonable assurance

Assurance that provides high but not absolute assurance on the reliability of the subject matter.

Limited assurance

The level of assurance obtained where engagement risk is reduced to an acceptable level and the evidence gathered is at least sufficient for the practitioner to conclude and provide a level of assurance that is likely to enhance the intended users’ confidence about the financial statements.

Review engagement

Engagement in which the practitioner does adequate work to provide limited assurance.

No assurance

What results when a practitioner completes a set of tasks requested by the client and reported factually on the results of that work to the client.

Compilation engagement

Engagement that provides no assurance, where the practitioner compiles the financial information in accordance with the basis of accounting disclosed in the financial statements.

Compliation engagement report

The communication issued when the practitioner performs a compilation engagement.

Unmodified opinion

A clean audit opinion. The auditor concludes that the financial statements are fairly presented.

Emphasis of matter

What results when an auditor issues a unmodified audit opinion where there is a significant issue that is adequately disclosed and here is a need to draw the attention to the suer to it in the audit report.

Adverse opinion

Opinion provided when the auditor concludes that there is a pervasive material misstatement in the financial statements.

Disclaimer of opinion

Opinion provided when the impact of a scope limitation is so extreme that an auditor is unable to obtain sufficient appropriate evidence to base an opinion.

Auditing and assurance standards board (AASB)

Purpose is to serve public interest by setting high-quality auditing and assurance standards.

Canadian securities association (CSA)

Objective of improving, coordinating, and harmonizing regulation of Canadian capital markets. Regulates disclosure requirements for publicly listed entities. Requires public companies to issue annual audited financial statements in accordance with GAAP.

Canadian public accountability board

The CSA requires auditors of reporting issuers to be a registered member and to be in good standing with this organization. It is a national body responsible for the regulation of public accounting firms. They also inspect auditors of reporting issuers (1-3 years).