Audit Nature and Objective

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Questions and Answers

What is the primary objective of an audit?

To improve operational efficiency.

To detect and prevent fraud.

To ensure the company’s financial health.

To express an opinion on the financial statements. (correct)

Which of the following is not a scope of audit?

Evaluation of internal controls.

Examination of financial statements.

Assessment of compliance with laws and regulations.

Preparation of financial statements. (correct)

What is the benefit of an audit?

Reduction in company’s expenses.

Assurance to stakeholders. (correct)

Increased operational efficiency.

Detection of all frauds.

Which of the following describes an auditor’s responsibility?

To express an opinion based on evidence obtained. Signup and view all the answers

What is an element of an assurance engagement?

Practitioner. Signup and view all the answers

What is the purpose of an assurance engagement?

To enhance the degree of confidence of intended users. Signup and view all the answers

What is true about limited assurance engagements?

They provide a lower level of assurance than reasonable assurance engagements. Signup and view all the answers

Who is the responsible party in an assurance engagement?

The management. Signup and view all the answers

Who is responsible for distinguishing a review from an audit?

The auditor Signup and view all the answers

What is the primary difference between a review and an audit?

A review provides limited assurance Signup and view all the answers

Which quality is essential for an auditor to possess?

Integrity Signup and view all the answers

Which standard applies to the audit of historical financial information?

Standards on Auditing (SAs) Signup and view all the answers

Why are standards on auditing important?

They establish benchmarks for audit quality Signup and view all the answers

Which component is not typically part of an assurance engagement?

Independent financial statements Signup and view all the answers

What is the primary purpose of Standards on Quality Control (SQCs)?

To establish standards for a firm’s system of quality control Signup and view all the answers

What does SA 200 deal with?

Overall objectives of the independent auditor Signup and view all the answers

Study Notes

Nature of an Audit

An audit is a review of financial statements to provide assurance.
It is not an investigation of fraud within an organization.

Objective of an Audit

The primary objective of an audit is to express an opinion on the financial statements.

Scope of Audit

The scope of an audit includes examination of financial statements and evaluation of internal controls.
It does not include preparation of financial statements.

Auditor's Responsibility

An auditor's responsibility is to express an opinion based on evidence obtained.
It is not to ensure financial statements are free from all errors or to give an absolute assurance.

Benefits of Audit

One of the benefits of an audit is assurance to stakeholders.

Assurance Engagements

An element of an assurance engagement is a practitioner.
The purpose of an assurance engagement is to enhance the degree of confidence of intended users.
The responsible party in an assurance engagement is the company management.

Limited Assurance Engagements

Limited assurance engagements provide a lower level of assurance than reasonable assurance engagements.
They do not provide absolute assurance.

Reviews and Audits

A review provides limited assurance and distinguishes it from an audit.

Qualities of Auditing Standards

An auditor must possess integrity as a quality.
The quality applies to the audit of historical financial information.

Importance of Standards on Auditing

Standards on auditing are important as they establish benchmarks for audit quality.

Components of an Assurance Engagement

Components of an assurance engagement include sufficient appropriate evidence, suitable criteria, and a written assurance report.
Independent financial statements are not a component of an assurance engagement.

Standards on Quality Control

The purpose of Standards on Quality Control is to establish standards for a firm's system of quality control.

Evidence in an Assurance Engagement

Evidence in an assurance engagement should be sufficient and appropriate.

Standards on Auditing

SA 200 deals with the overall objectives of the independent auditor.
Audit documentation is not optional.

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Description

This quiz assesses your understanding of the nature and primary objective of an audit, including its relationship with financial statements and fraud detection.