18 Questions
What is the basis of the audit of financial statements?
Historical financial information
What is outside the domain of an auditor's competence?
Authentication of documents
What is an audit not equivalent to?
Official investigation
What is a key characteristic of an investigation?
Critical examination of accounts with a special purpose
Why is an auditor not expected to determine the suitability and life of civil structures?
Because it requires different skillsets
What is a limitation of an auditor's role?
Lack of legal powers of search or recording statements
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.
What is the main benefit of auditing to users of financial statements?
It lends credibility to the financial statements and provides confidence to users.
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
What is the nature of auditing, as it draws from diverse subjects?
Interdisciplinary
What is the primary concern of an auditor when reporting on financial matters of a business?
Ensuring compliance with accounting principles and techniques
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.
What is the essential quality an auditor should possess to critically review financial statements?
Exhaustive knowledge of accounting principles and techniques
What is the primary purpose of an audit report?
To express an opinion on the company's financial statements.
What is the auditor's role in relation to financial statements?
Reviewing and reporting on financial statements
What is the sine qua non of the practice of auditing?
Exhaustive knowledge of accounting
Why is it necessary for an auditor to have tact and caution?
To deal with clients and stakeholders
What is the fundamental requirement for an auditor to hold a position of trust?
Highest degree of integrity
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
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.
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