Audit Lec 1

List the Elements of an Assurance Engagement

1. Accountability relationship

2. Subject Matter

3. Criteria

4. Evidence

5. A written conclusion

Give examples of the 5 elements of an assurance enegagement

1. Three-Party Accountability – an accountability relationship exists between Virms (auditor), Geogian Bay Bank (user), and Regional Delivert Service (the responsible party).

2. Subject Matter – Virms is being asked to issue a report about qualitative and quantitative information relating to trucks.

3. Criteria – There are three criteria which must be evaluated and reported

4. Evidence – Susan Virms will accumulate and evaluate four basic types of evidence

5. Written Conclusion - The report results are to include:

Define auditing

•Auditing is the accumulation and evaluation of evidence regarding assertions about subject matter information to determine the degree of correspondence between the assertions and established criteria, and to report the results to interested users.

What would be your own simple example of audititng?

Auditing is basically checking someone’s homework (the assertions) against an answer key (the criteria) using proof (the evidence) to see if they match, and then telling people who care (the users) what you found.

What is the economic demand for auditing?

Define professional judgement

analytical, systematic, and objective judgment carried out with integrity and recognition of responsibility to those affected by its consequences.

Define Integrity and independence in mind

(integrity) the quality of being honest and courageous. (Independence) the auditor’s ability to exercise objectivity.

Define Professional Skeptisim

an attitude that includes a questioning mind, a critical assessment of audit evidence, and the willingness to challenge the auditee’s assertions.

What characteristics would an reliable auditor have?

Independent – seen as independent of automotive manufacturers.

Competent – able to perform proper assessments and collect reliable and unbiased data

Trustworthy (competence and character (honesty, self-control, courage, independence, objectivity, sense of public interest)

What are the common incentives and pressures of an audit.

·       Economic – client fees, maintain good cost recovery

·       Social – pressure from client or audit partners to adjust the reported opinion

·       Impact on performance responsibilities – issue incorrect report

List the 4 common information risks with examples

• Remoteness of Information -

• Biases and Motives of the Provider

• Voluminous Data -

• Complex Exchange Transactions -

List the three ways to reduce information risk

1. User verifies information - The user may go to the business premises to examine records and obtain information about the reliability of the statements. Normally, this is impractical because of cost

2. User shares information risk with management. There is considerable legal precedent indicating that management is responsible for providing reliable information to users. If users rely on inaccurate financial statements and as a result incur a loss, they may have the basis for a lawsuit against management.

3. Audited financial statements are provided. The most common way for users to obtain reliable information is to have an independent audit.

Define the importance of the structure of an accounting firm?

•The structure of public accounting firms should foster independence, competence and mitigate litigation risk.

What are the principles underlying a F/S audit?

Important qualities that the auditor should possess

• Exercise Professional Competence and Due Care

• Comply With Ethical and Independence Requirements

• Maintain Professional Skepticism and Exercise Professional Judgment .

What are the performance responsabilites of an auditor?

• Adequate Planning and Supervision

• Determine and Apply Materiality

• Identify and Assess Risks of Material Misstatement

• Sufficient Appropriate Evidence

List the 4 drivers of audit quality

• The right teams

• The right support

• In-Process Reviews

• Assign Accountability for and Monitor Audit Quality

Define Quality Control

policies and procedures used by a public accounting firm to make sure that the firm meets its professional responsibilities.

List the elements of quality control