Inherent Limitations of an Audit

Play an AI-generated podcast conversation about this lesson

What aspect of financial reporting contributes to the inherent limitations of an audit?

Decrease in relevance of information over time
Future events affecting an entity
Judgment by management (correct)
Nature of audit procedures

What is a key reason why an audit is not an official investigation into alleged wrongdoing?

Nature of audit procedures
Timeliness of financial reporting
Inherent limitations on obtaining evidence (correct)
Future events affecting an entity

Which factor tends to diminish the relevance and value of information over time?

Fraud involving sophisticated schemes
Decrease in relevance over time (correct)
Future events affecting an entity
Balance between reliability and cost

In the context of auditing, what does 'engagement' refer to?

Arrangement between auditor and client (B) Signup and view all the answers

Why is it important for an auditor to strike a balance between the reliability of information and its cost?

Timeliness of financial reporting (B) Signup and view all the answers

What may seriously affect an entity's ability to continue its business according to the text?

Future events or conditions (D) Signup and view all the answers

What is one of the learning outcomes associated with studying this chapter?

Understanding the nature and scope of audit (D) Signup and view all the answers

Which of the following is NOT a part of the objectives of audit as mentioned in the text?

Providing investment advice (A) Signup and view all the answers

What is NOT mentioned as an inherent limitation of audit in the text?

Regulatory compliance (C) Signup and view all the answers

What is the main difference between reasonable assurance engagement and limited assurance engagement?

The level of assurance provided to stakeholders (B) Signup and view all the answers

In the context of auditing, what do engagement standards primarily focus on?

Establishing guidelines for conducting audits (D) Signup and view all the answers

What is the basic purpose of assurance engagements in auditing?

To enhance the credibility of information being reported (B) Signup and view all the answers

What is the primary difference between absolute assurance and reasonable assurance?

Absolute assurance is impractical in audits, while reasonable assurance can be achieved through proper audit procedures. (B) Signup and view all the answers

In an assurance engagement, what is the main purpose of the practitioner expressing a conclusion?

To enhance the confidence of intended users about the subject matter. (C) Signup and view all the answers

When comparing a limited assurance engagement to a reasonable assurance engagement, what is true about their levels of assurance?

Limited assurance engagement provides a lower level of assurance than reasonable assurance engagement. (B) Signup and view all the answers

What are the inherent limitations of an audit according to the text?

Nature of financial reporting and nature of audit procedures. (B) Signup and view all the answers

Which element is NOT part of an assurance engagement as mentioned in the text?

Confirmation from the responsible party. (C) Signup and view all the answers

How does an auditor's competence relate to the duties expected from them?

Auditors are only expected to perform duties within their scope of competence. (C) Signup and view all the answers