MGAD10H3 Chapter Notes - Chapter 1: International Financial Reporting Standards, Financial Audit, Audit Evidence

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23 Sep 2012

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Chapter 1: introduction and overview of audit and assurance. Term applicable financial reporting framework assertions audit evidence audit file audit plan audit risk financial statements independent auditor"s report internal control material materiality. The financial framework chosen by management to prepare a company"s financial statements. An applicable framework for a private enterprise could be accounting standards for private enterprises (aspe), or it could be international financial reporting standards (ifrs). Statements made by management regarding the recognition, measurement, and presentation and disclosure of items in the financial statements. Information used by the auditor to support the audit opinion. The file where the evidence and documentation of the work performed is kept as a permanent record to support the opinion issued. The list or description of audit procedures to be performed. The risk that the auditor may express an inappropriate opinion. This means the auditor may indicate that the financial statements are not materially misstated when in fact they are.

Related Questions

Indicate whether you agree or disagree with the following statements and explain your reasoning:

a) Rejean feels that an internal auditor that reports to the chief financial officer of the company can be as independent as an auditor that reports to the audit committee.

b) Angela discovered a very material overstatement in the financial statements. She felt the misstatement would have an impact on the decisions of users of the financial statements, and indicated to her audit senior that she would be including it as an âemphasis of matterâ paragraph in the audit report.

c) An auditor is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

d) An assurance engagement involves evaluation or measurement of subject matter against criteria.

The auditors provide an opinion on whether the financial statements are presented in accordance with the:

Select one:

a. Applicable financial reporting framework.

b. Current industry standards.

c. Attestation standards.

d. Generally accepted auditing standards.

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1â28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Clientâs management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditorsâ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditorsâ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the clientâs operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a companyâs policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a companyâs internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a companyâs legal department.

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MGAD10H3 Chapter Notes - Chapter 1: International Financial Reporting Standards, Financial Audit, Audit Evidence

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