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Topics: Audit, Auditing, External auditor Pages: 5 (1581 words) Published: April 30, 2014
SOLUTIONS
Chapter 1: Assurance and auditing: an overview

Review questions

1.1(a) CAudit is one level of assurance that can be offered. Under the assurance framework, assurance can be at two levels: reasonable (sometimes referred to as audit) and limited (sometimes referred to as review).

(b) DFor the objectives of the assurance engagement, both A and B may be considered suitable criteria.

1.2(a) BSystematic process refers to audits being properly planned and structured, following a logical sequence.
(b) BRepresenting their client in matters identified by regulators is not a fundamental principle underlying an audit.

1.3(a) CTimeliness is not an attribute identified in the Framework for the Preparation and Presentation of Financial Statements.
(b) CManagement is responsible for the preparation of the financial report, including disclosures made in the accompanying notes.

1.4(a) AOne of the major incentives for audit is to correct potential biases in reporting by management.
(b) DThe aim of undertaking an assurance engagement is to increase the level of assurance for users of the engagement.

1.5(a) BAuditors currently use a business risk approach that requires the auditor to understand items that affect the business and may flow through into the financial report.
(b) DAuditors initially followed a statement of financial position approach then changed to transactions cycle approach then changed to a financial risk approach before finally adopting a business risk approach.

1.6(a) CAs following Australian auditing standards is mandatory for auditors, it is reasonable for users to believe that auditors have done so.
(b) AThe expectation gap has been attributed to a number of different causes, including misunderstanding of the audit function by non-auditors.

1.7(a) BThe auditor is expected to comply with the requirements contained in the ASAs in all but rare and exceptional circumstances, and GSs provide guidance only on procedural, entity or industry-specific issues.

(b) DUnder the Corporations Act 2001, directors are required to prepare the financial report and auditors are required to report an opinion as to whether the financial report is in accordance with the law, including compliance with accounting standards, and gives a true and fair view.

1.8(a) DThe activities of forensic auditors are most commonly associated with fraud.
(b) AInternal auditors often undertake performance or operational audits of the economy, efficiency and effectiveness of the entity.

SOLUTIONS
Chapter 2: The structure of the profession
Review questions
2.1(a) CHigh fees are not a requirement for a profession.
(b) DAttributes of a profession include systematic theory, professional authority, community sanction, regulative codes and culture. 2.2(a) BTo have sufficient auditing experience an auditor must have completed at least 3000 hours of work in auditing during the five years immediately prior to the date of their application, including at least 750 hours spent supervising audits of companies. (b) CResignation from an audit is not grounds for disciplinary action against an auditor. 2.3(a) AMembership of the International Federation of Accountants is open to accountancy bodies.

(b) DMembers of the Forum of Firms must conform to the Forum of Firms Quality Standards, subject themselves to global peer review, and perform audits of financial reports that may be used across national borders. 2.4(a) BCPA Australia is the largest accounting body in Australia. (b) DAudit firms may practise as sole traders, partnerships or authorised audit companies. 2.5(a) CA system of quality control should provide reasonable assurance that a firm’s personnel comply with all professional standards applicable to its audit and assurance services practice.

(b) AThe purpose of professional development is to ensure that auditors maintain and update their knowledge. 2.6(a) B...
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