Audit of Financial Statements: Scope and Competence

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Questions and Answers

What is the basis of the audit of financial statements?

Forecasted financial information

Predictive financial information

Historical financial information (correct)

Real-time financial information

What is outside the domain of an auditor's competence?

Authentication of documents (correct)

Tax planning and compliance

Financial statement analysis

Physical verification of assets

What is an audit not equivalent to?

Risk assessment

Official investigation (correct)

Financial statement analysis

Compliance review

What is a key characteristic of an investigation?

Critical examination of accounts with a special purpose Signup and view all the answers

Why is an auditor not expected to determine the suitability and life of civil structures?

Because it requires different skillsets Signup and view all the answers

What is a limitation of an auditor's role?

Lack of legal powers of search or recording statements Signup and view all the answers

What is the primary objective of an auditor in ensuring the financial statements are not misleading?

To verify that the financial statements are a true and fair representation of the company's financial position. Signup and view all the answers

What is the main benefit of auditing to users of financial statements?

It lends credibility to the financial statements and provides confidence to users. Signup and view all the answers

What is the term for the process of ensuring that financial statement amounts are properly classified, described, and disclosed in conformity with accounting standards?

Classification and disclosure Signup and view all the answers

What is the nature of auditing, as it draws from diverse subjects?

Interdisciplinary Signup and view all the answers

What is the primary concern of an auditor when reporting on financial matters of a business?

Ensuring compliance with accounting principles and techniques Signup and view all the answers

What is the auditor's responsibility in ensuring that financial statements are not misleading?

To verify that the financial statements are a true and fair representation of the company's financial position. Signup and view all the answers

What is the essential quality an auditor should possess to critically review financial statements?

Exhaustive knowledge of accounting principles and techniques Signup and view all the answers

What is the primary purpose of an audit report?

To express an opinion on the company's financial statements. Signup and view all the answers

What is the auditor's role in relation to financial statements?

Reviewing and reporting on financial statements Signup and view all the answers

What is the sine qua non of the practice of auditing?

Exhaustive knowledge of accounting Signup and view all the answers

Why is it necessary for an auditor to have tact and caution?

To deal with clients and stakeholders Signup and view all the answers

What is the fundamental requirement for an auditor to hold a position of trust?

Highest degree of integrity Signup and view all the answers

Study Notes

Characteristics of Audit

Audit of financial statements is based on historical financial information
Audit scope does not include duties outside the auditor's competence, such as determining the physical condition of assets or suitability of civil structures

Distinction between Audit and Investigation

Audit is not an official investigation into alleged wrongdoing
Audit is distinct from investigation, which is a critical examination of accounts with a special purpose, such as checking for fraud
Investigation may involve specific legal powers of search or recording statements of witnesses on oath

Auditor's Role and Responsibilities

Auditor ensures financial statements are drawn up with reference to entries in the books of account
Auditor verifies that financial statements are supported by sufficient and appropriate evidence
Auditor ensures information conveyed by the statements is clear and unambiguous
Auditor confirms financial statement amounts are properly classified, described, and disclosed in conformity with accounting standards

Nature of Auditing

Auditing provides assurance to users of financial statements
Auditing lends credibility to financial statements
Audited financial statements provide confidence to users that financial information can be relied upon

Interdisciplinary Nature of Auditing

Auditing draws from diverse subjects, including accountancy, law, behavioural science, statistics, economics, and financial management
Auditing makes use of these subjects to provide a comprehensive understanding of financial matters

Qualities of an Auditor

Auditor should possess personal qualities such as tact, caution, firmness, good temper, integrity, discretion, industry, judgement, patience, clear-headedness, and reliability
Auditor should have a high degree of integrity, backed by adequate independence
Auditor should have an exhaustive knowledge of accounting principles and techniques

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Description

Test your understanding of the audit of financial statements, including its basis on historical financial information and the scope of an auditor's duties. Learn what is included and excluded from an auditor's responsibilities.