Podcast
Questions and Answers
What is a primary reason the accounting profession is seen as a defense against fraud?
What is a primary reason the accounting profession is seen as a defense against fraud?
Which group in society is often less aware of fraud threats according to the discussion?
Which group in society is often less aware of fraud threats according to the discussion?
What does 'professional skepticism' require from auditors?
What does 'professional skepticism' require from auditors?
What is the role of the CPA Canada Handbook section CAS 240 concerning fraud?
What is the role of the CPA Canada Handbook section CAS 240 concerning fraud?
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What challenge is often faced regarding audit quality in relation to the expectation gap?
What challenge is often faced regarding audit quality in relation to the expectation gap?
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What is an important aspect of understanding a company's profitability for accountants and auditors?
What is an important aspect of understanding a company's profitability for accountants and auditors?
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What does the phrase 'Be relentlessly curious' imply for accountants and auditors?
What does the phrase 'Be relentlessly curious' imply for accountants and auditors?
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How has the CPAB's focus on fraud changed in recent years?
How has the CPAB's focus on fraud changed in recent years?
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What is the primary reason for applying performance materiality in audits?
What is the primary reason for applying performance materiality in audits?
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Which of the following best describes the sampling error in auditing?
Which of the following best describes the sampling error in auditing?
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What does the concept of professional skepticism demand from auditors?
What does the concept of professional skepticism demand from auditors?
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What was one of the historical methods used to derive performance materiality?
What was one of the historical methods used to derive performance materiality?
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What is a key red flag indicating potential issues in audit risk analysis?
What is a key red flag indicating potential issues in audit risk analysis?
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Which concept refers to the assumption that non-sampling error is zero during audits?
Which concept refers to the assumption that non-sampling error is zero during audits?
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What is a common misconception about the relationship between sampling error and materiality?
What is a common misconception about the relationship between sampling error and materiality?
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What aspect of audit planning specifically involves component auditors?
What aspect of audit planning specifically involves component auditors?
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Study Notes
CPAB Fraud Landscape
- CPAB released a document emphasizing fraud in 2023, its second such document in three years.
- Fraud is rapidly evolving, and society isn't adequately prepared to counter this threat.
- The accounting profession is considered a major line of defense against fraud, requiring knowledge of fraud techniques.
- Older people in society are often vulnerable to fraud.
- Audit quality is consistently being discussed and researched.
- The expectation gap may be growing faster than efforts to improve audit quality.
- All stakeholders need to be vigilant about the risk of fraud.
- Accountants and auditors should be relentlessly curious about how companies are profitable.
- Understanding how a company earns its money is crucial for auditors.
- Professional skepticism is crucial.
- Many auditors fall victim to assuming that those they deal with won't mislead them.
- Insufficient professional skepticism has contributed to audit failures in the past.
- Auditors must exercise professional skepticism as a professional requirement.
Key Issues from CPAB 2020 Interim
- Insufficient challenge to fair value estimates
- Concerns about insufficient or incorrect understanding of underlying accounting and business processes
- Business combinations – example of Chrysler's mergers and cultural incompatibility.
- Confirmation Bias is prevalent
- Risk analysis, including due diligence, is essential in modern businesses.
- Major personnel changes can signal red flags.
Component Auditors
- Auditors of subsidiaries are often the same as the auditors of the parent company for efficiency purposes.
- Audit planning requires collaboration among component auditors.
- Component materiality is an essential aspect of planning.
- Many auditors are uncomfortable with statistical auditing but it has become less common in practice as software can provide calculations.
Materiality and Sampling Error
- Materiality is a key concept to consider during audits.
- Auditors use sampling to estimate the total misstatement in a population.
- The point estimate of misstatement is not sufficient to determine if the population is materially misstated.
- Sampling error and non-sampling error are major concerns when using sampling.
- Big 4 accounting firms assume non-sampling error is zero due to their hiring and review practices.
- Sampling error is added to the point estimate to account for the risk.
- Performance materiality is defined as materiality minus sampling error (assuming non-sampling error is zero).
- Most auditors are unaware of this calculation.
- Auditors commonly use 75% of materiality as performance materiality.
Rules of Professional Conduct
- CPA rules of professional conduct are outlined in the CPA Ontario Handbook, not the CPA Canada Handbook.
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Description
This quiz examines the evolving landscape of fraud as highlighted by CPAB in 2023. It emphasizes the critical role of accountants and auditors in understanding and combating fraud, as well as the importance of professional skepticism in ensuring audit quality. Stay informed about the risks and responsibilities within the accounting profession.
