Podcast
Questions and Answers
The purpose of an audit is to enhance the degree of ______ in financial statements.
The purpose of an audit is to enhance the degree of ______ in financial statements.
confidence
A material ______ in financial statements includes an error in amount, classification, presentation, or disclosure.
A material ______ in financial statements includes an error in amount, classification, presentation, or disclosure.
misstatement
Risk ______ involves identifying and assessing the risks of material misstatements in financial statements.
Risk ______ involves identifying and assessing the risks of material misstatements in financial statements.
assessment
Auditors gather information about the ______ and its environment to understand the risks of material misstatements.
Auditors gather information about the ______ and its environment to understand the risks of material misstatements.
Signup and view all the answers
The goal of an audit is to express an ______ that the financial statements are prepared in accordance with an applicable financial reporting framework.
The goal of an audit is to express an ______ that the financial statements are prepared in accordance with an applicable financial reporting framework.
Signup and view all the answers
Auditors perform ______ procedures to gather information about the entity and its environment.
Auditors perform ______ procedures to gather information about the entity and its environment.
Signup and view all the answers
Risk ______ is important because it helps auditors to identify and assess the risks of material misstatements.
Risk ______ is important because it helps auditors to identify and assess the risks of material misstatements.
Signup and view all the answers
Auditors assess the ______ of material misstatements at the financial statement ______.
Auditors assess the ______ of material misstatements at the financial statement ______.
Signup and view all the answers
The auditor is required to identify and assess the risks of _______________ misstatement:
The auditor is required to identify and assess the risks of _______________ misstatement:
Signup and view all the answers
The auditor identifies risks at the _______________ statement level and at the assertion level:
The auditor identifies risks at the _______________ statement level and at the assertion level:
Signup and view all the answers
The auditor gathers information about the _______________ and its environment:
The auditor gathers information about the _______________ and its environment:
Signup and view all the answers
The auditor identifies and assesses risks of _______________ misstatements:
The auditor identifies and assesses risks of _______________ misstatements:
Signup and view all the answers
Assurance engagement _______________, including audit risk, is one such kind.
Assurance engagement _______________, including audit risk, is one such kind.
Signup and view all the answers
The risk of material _______________ can be decomposed into inherent risk and control risk.
The risk of material _______________ can be decomposed into inherent risk and control risk.
Signup and view all the answers
The auditor considers whether the risks are of a magnitude that could result in a _______________ misstatement of the financial statements:
The auditor considers whether the risks are of a magnitude that could result in a _______________ misstatement of the financial statements:
Signup and view all the answers
The auditor considers the likelihood that the risks could result in a _______________ misstatement of the financial statements:
The auditor considers the likelihood that the risks could result in a _______________ misstatement of the financial statements:
Signup and view all the answers
ISA 200 states that inherent risk and control risk are considered at the _______________ level.
ISA 200 states that inherent risk and control risk are considered at the _______________ level.
Signup and view all the answers
The auditor considers the inherent risk and control risk at the overall _______________ statement level.
The auditor considers the inherent risk and control risk at the overall _______________ statement level.
Signup and view all the answers
The auditor performs _______________ assessment procedures to gather information:
The auditor performs _______________ assessment procedures to gather information:
Signup and view all the answers
The auditor relates risks to what can go wrong at the _______________ level:
The auditor relates risks to what can go wrong at the _______________ level:
Signup and view all the answers
The risk at the overall financial statement level often relates to an entity's _______________ environment.
The risk at the overall financial statement level often relates to an entity's _______________ environment.
Signup and view all the answers
Inherent risk and control risk should exist at the entity's _______________ environment.
Inherent risk and control risk should exist at the entity's _______________ environment.
Signup and view all the answers
Audit risk is a type of _______________ engagement risk.
Audit risk is a type of _______________ engagement risk.
Signup and view all the answers
The risk of material misstatement can be further broken down into _______________ risk and control risk.
The risk of material misstatement can be further broken down into _______________ risk and control risk.
Signup and view all the answers
ISA 315 requires the auditor to obtain an understanding of the entity's selection and application of ______ policies
ISA 315 requires the auditor to obtain an understanding of the entity's selection and application of ______ policies
Signup and view all the answers
The auditor should investigate a company's ______ position
The auditor should investigate a company's ______ position
Signup and view all the answers
ISA 315 requires the auditor to obtain an understanding of the entity's ______ and strategies
ISA 315 requires the auditor to obtain an understanding of the entity's ______ and strategies
Signup and view all the answers
Risks of material misstatement may be greater for significant ______ matters requiring accounting estimates or revenue recognition.
Risks of material misstatement may be greater for significant ______ matters requiring accounting estimates or revenue recognition.
Signup and view all the answers
Business risk is defined as a risk resulting from significant ______, events, circumstances, actions or inactions
Business risk is defined as a risk resulting from significant ______, events, circumstances, actions or inactions
Signup and view all the answers
XYZ Company, a client, lacks sufficient ______ capital to continue operations.
XYZ Company, a client, lacks sufficient ______ capital to continue operations.
Signup and view all the answers
Auditors may use a ______-oriented framework to understand the client's business risks
Auditors may use a ______-oriented framework to understand the client's business risks
Signup and view all the answers
The first step in the strategy-oriented framework is to understand the client's ______ advantage
The first step in the strategy-oriented framework is to understand the client's ______ advantage
Signup and view all the answers
The client is very close to violating ______ covenants.
The client is very close to violating ______ covenants.
Signup and view all the answers
Misstatements or omissions are material if they could reasonably be expected to ______ the economic decisions of users.
Misstatements or omissions are material if they could reasonably be expected to ______ the economic decisions of users.
Signup and view all the answers
The auditor should document the understanding of the client's ability to create ______ and generate future cash flows
The auditor should document the understanding of the client's ability to create ______ and generate future cash flows
Signup and view all the answers
The final step in the strategy-oriented framework is to compare reported financial results to ______ and design additional audit test work
The final step in the strategy-oriented framework is to compare reported financial results to ______ and design additional audit test work
Signup and view all the answers
Judgements about materiality are made in light of surrounding ______, and are affected by the size or nature of a misstatement.
Judgements about materiality are made in light of surrounding ______, and are affected by the size or nature of a misstatement.
Signup and view all the answers
Materiality is influenced by ______, nature, and circumstances.
Materiality is influenced by ______, nature, and circumstances.
Signup and view all the answers
The nature of an item is a ______ characteristic.
The nature of an item is a ______ characteristic.
Signup and view all the answers
The materiality of an error depends upon the ______ of its occurrence.
The materiality of an error depends upon the ______ of its occurrence.
Signup and view all the answers
Study Notes
Purpose of Audit
- Enhance degree of confidence in financial statements
- Express opinion that financial statements are prepared in all material respects, in accordance with applicable financial reporting framework
Misstatement
- Defined as an amount, classification, presentation, or disclosure that is not in accordance with the applicable financial reporting framework
Reasonable Assurance
- Obtained through performance of risk assessment procedures
- Involves understanding the entity and its environment, including internal control
- Identification and assessment of risks of material misstatement at the financial statement and assertion levels
Risk
- Inherent risk: the risk of material misstatement due to an inherent characteristic or factor
- Control risk: the risk that a material misstatement will not be prevented or detected on a timely basis by an entity's internal control
- Detection risk: the risk that the auditor's procedures will not detect a material misstatement
- Audit risk: the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated
Identifying and Assessing the Risk of Material Misstatement
- Performed based on understanding of the entity and its environment
- Involves identifying risks at the financial statement and assertion levels
- Risks are assessed for magnitude, likelihood, and potential impact on financial statements
Selection and Application of Accounting Policies
- Auditor obtains an understanding of the entity's selection and application of accounting policies
- Assessment of whether accounting policies are appropriate for the entity's business and consistent with applicable financial reporting framework
Business Risks
- Defined as risks resulting from significant conditions, events, circumstances, actions, or inactions that could adversely affect an entity's ability to achieve its objectives and execute its strategies
Audit Strategy
- May involve a strategy-oriented framework, including understanding the client's strategic advantage, risks, and key processes
- Involves measuring and benchmarking process performance, and documenting the entity's ability to create value and generate future cash flows
Significant Risk
- Relates to judgemental matters and significant non-routine transactions
- Risks of material misstatement may be greater for significant judgemental matters requiring accounting estimates or revenue recognition
Materiality
- Defined as misstatements or omissions that could reasonably be expected to influence the economic decisions of users of financial statements
- Influenced by size, nature, and circumstances of the misstatement or omission
- Judgements about materiality are made in light of surrounding circumstances and consideration of the common financial information needs of users as a group
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz covers the purpose of an audit, misstatements, and risk assessment in auditing. It helps you understand the concepts of enhancing confidence and expressing opinions on financial statements.
