Chapter 1.docx

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Department
Financial Accounting
Course
MGAD10H3
Professor
Henry Wong
Semester
Fall

Description
Chapter 1: Introduction and Overview of Audit and Assurance 1.1 Auditing and Assurance Defined assurance engagement performed by an auditor or consultant to enhance the reliability of the subject matter accountability relationship situation in which one party is answerable to another for the subject matter an assurance practitioner may be an auditor working in public practice providing assurance on financial statements or a consultant providing assurance about environment disclosures for a financial statement audit, the company is the accountable party, its shareholders are the users, and the subject matter is the financial statements 1.1.1 Auditing and assurance terms defined Term Definition applicable financial The financial framework chosen by management to prepare a companys financial statements. An applicable reporting framework framework for a private enterprise could be Accounting Standards for Private Enterprises (ASPE), or it could be International Financial Reporting Standards (IFRS). 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 is 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 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 related notes. independent auditors The auditors formal expression of opinion on whether the financial statements are in accordance with the report applicable financial reporting framework. internal control The processes implemented and maintained by management to help the entity achieve its objective. material An amount or disclosure that is significant enough to make a difference to the user. The concept of materiality is one of the reasons why an audit never provides 100% assurance. materiality The maximum amount of misstatement or omission the auditor can tolerate and still issue an unmodified or clean audit opinion. sufficient and The quantity (sufficiency) and quality (appropriateness) of the evidence collected by the auditor. appropriate evidence unmodified opinion The auditor concludes that the financial statements are fairly presented. working papers Paper or electronic documentation of the audit created by the audit team as evidence of the work completed. 1.2 Different Assurance Services common types of assurance engagements are financial statement audits, compliance audits, operational audits, comprehensive audits, and internal audits 1.2.1 Financial statement audits 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 to do this, the auditor methodically gathers evidence to corroborate the financial information presented by management at the end of the audit engagement, the auditor issues a report indicating whether the financial information is fairly presented in accordance with the financial reporting framework listed entity an entity whose shares, stock, or debt are listed on a stock exchange it is the auditors responsibility to form an opinion on the fair presentation of the financial statements fair presentation the consistent and faithful application of accounting standards when preparing the statements Limitations of a financial statement audit the limitations of an audit result from the nature of financial reporting, the nature of audit procedures, and the need for the audit to be conducted within a reasonable period of time and at a reasonable cost (CAS 200) the nature of financial reporting refers to the use of judgment when preparing financial statements, because of the subjectivity required when arriving at accounting estimates the nature of audit procedures refers to the reliance on evidence provided by the client and its management the timeliness and cost of a financial statement audit refers to the pressure an auditor faces to complete the audit within a certain time frame at a reasonable cost1.2.2 Compliance audits compliance audit an audit to determine whether the entity has conformed with regulations, rules, or processes an example is a tax audit, which is used to determine whether an individual or company has completed a tax return in accordance with the Income Tax Act within an organization, management may specify that certain processes be followed when completing a function 1.2.3 Operational audits operational audits an assessment of the economy, efficiency, and effectiveness of an organizations operations economy refers to the cost of outputs, including wages and materials efficiency refers to the relationship between inputs and outputs; specifically, efficiency refers to the use of the minimum amount of inputs to achieve a given output effectiveness refers to the achievement of certain goals or the production of a certain level of outputs operational audits are generally conducted by an organizations internal auditors, or they may be outsourced operational audits are sometimes referred to as value for money audits, performance audits, or efficiency audits 1.2.4 Comprehensive audits comprehensive audit an audit that encompasses a range of audit and audit-related activities, such as a financial statement audit, operational audit, and compliance audit comprehensive audits are most commonly occur in the public sector, where compliance with various regulations is examined as part of the financial statement audit 1.2.5 Internal audits internal audit an independent service within an entity that generally evaluates and improves risk management, internal control procedures, and elements of the governance process is typically conducted by employees of the organization being audited, but can be outsourced to an external audit firm as such, the function is determined by those charged with governance and management within the organization while the functions of internal audits vary widely from one organization to another, they are often concerned with evaluating and improving risk management, internal control procedures,
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