12 Questions
What is the primary task of the auditor in relation to the organization's financial statements?
To ensure the financial statements are fairly presented
Which of the following is NOT one of the management assertions about the financial health of an entity?
Accuracy or Precision
What is the purpose of substantive tests in an audit?
To ensure accounting databases reflect transactions accurately
What is the role of auditors when ascertaining materiality in an audit?
To assess if misstatements found are material
Which type of tests help auditors establish whether internal controls are functioning properly?
Tests of controls
What type of evidence is sought by auditors in the IT environment?
Evidence on reliability of computer controls
What is the main focus of a Financial Audit?
Verifying compliance with regulatory standards
Which standard is applied to ensure financial statements are in compliance with generally accepted accounting principles?
GAAP
Why is a logical framework important for conducting an audit in an IT environment?
To identify all important processes in the absence of physical verification
What is a significant component of both external (financial) and internal audits due to modern information systems?
IT Audit
Why is a systematic approach particularly important in the IT audit environment?
Due to the complexity arising from the lack of physical procedures for visual verification
Which type of audit focuses on the computer-based aspects of an organization’s information system?
IT Audit
Study Notes
Financial Audit vs. CIS Audit
- Financial auditing ensures a corporation's internal controls, guidelines, mechanisms, and policies are adequate, functional, and compliant with regulatory standards.
- Financial auditing applies GAAS to ensure financial statements are accurate, complete, and compliant with GAAP.
- CIS audit focuses on the computer-based aspects of an organization's information system, including assessing proper implementation, operation, and control of computer resources.
Basic Components of an Audit
Systematic Process
- Conducting an audit is a systematic and logical process that applies to all forms of information systems.
- A systematic approach is particularly important in the IT environment due to the lack of physical procedures.
Management Assertions
- Management assertions are a set of claims about the financial health of an entity.
- The auditor's task is to determine whether the financial statements are fairly presented.
- Management assertions include:
- Existence or Occurrence
- Completeness
- Rights and Obligations
- Valuation or Allocation
- Presentation and Disclosure
Obtaining Evidence
- Auditors seek evidence that corroborates management assertions.
- In the IT environment, evidence is gathered relating to the reliability of computer controls and the contents of databases.
- Evidence is collected through:
- Tests of controls (establishing internal controls functionality)
- Substantive tests (determining accounting databases accuracy)
Ascertainment of Materiality
- The auditor must determine whether weaknesses in internal controls and misstatements are material.
- Assessing materiality is an auditor's judgment.
Explore the differences between Financial Audit and CIS Audit, focusing on internal controls, guidelines, compliance with regulatory standards, and GAAS. Understand the importance of ensuring accurate financial statements and compliance with industry requirements.
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