Chapters 1-2 Flashcards Preview

Audit & Assurance > Chapters 1-2 > Flashcards

Flashcards in Chapters 1-2 Deck (33)
Loading flashcards...
1
Q

what does the management do in the agency theory

A

manage the company and prepares FS

2
Q

what do the shareholders do in the agency theory

A

own the company, measure performance and appoint independant auditors

3
Q

what do the auditors do

A

adds credibility to the FS

4
Q

What are the two different wordings for an audit opinion

A

“presented fairly” OR “give a true and fair view”

5
Q

definition of materiality

A

Materiality is an expression of the relative significance or importance of a particular matter in the FS. A matter is material if its omission or misstatement would reasonably be expected to influence the decisions of users of the FS.

6
Q

What is reasonable assurance

A

Reasonable assurance is not absolute assurance because there are inherant limitations of an audit which result in the auditor forming an opinion on evidence that is persuasive rather than conclusive.

7
Q

3 limitations of auditing

A

Auditing is not objective, judgements have to be made.
Audit evidence sometimes indicates what is possible and not certain.
Not all items in the FS are tested.

8
Q

5 elements of an audit engagement

A
practitioner
intended user
responsible party
subject matter
criteria
9
Q

what kind of audit leads to the highest level of assurance

A

statutory audit

10
Q

what kind of audit leads to limited assurance

A

all other audits other than statutory

11
Q

what kind of audit report is that of a reasonable assurance audit (statutory audit)

A

positive

12
Q

what kind of audit report is that of limited assurance

A

negative

13
Q

why is a limited assurance audit report negative?

A

the evidence gathered is limited

14
Q

what are auditors rights (5)

A
access to companys books and records
to receive info and explanations
receive notice of general meetings
speak at general meetings on matters that concern them
receive a copy of any written resolution
15
Q

who can appoint a companys auditors

A

directors
shareholder
secretary of state

16
Q

how are auditors usually appointed

A

annually by shareholder, but directors may appoint first auditor or to fill a ‘casual vacancy’

17
Q

4 ways to remove auditors

A

notice of removal
representations
statement of circumstances
auditors rights

18
Q

4 ways auditors may resign

A

notice of resignation
statements of circumstances
convene general meeting
statement prior to general meeting

19
Q

what is corporate governance

A

the internal systems or means by which companies are directed and controlled

20
Q

what are the 6 prinicipes of corporate governance

A

ensuring the basis of an effective CG framework
the rights of shareholders and key ownership functions
equitable treatment of shareholders
role of stakeholders in CG
disclosure and transparency
responsibility of the board

21
Q

5 roles of the audit committee

A

monitor FS
recommend appointment/removal or external auditors
to consider annually if there is a need for internal auditi
to approve remuneration for external auditors
to monitor and review internal audit department

22
Q

advantages of audit committees

A

increased confidence in FS
Allows ED’s to devote attention to management
increases independance on internal auditors

23
Q

disadvantages of audit committees

A

costs may be increased
difficult to select NED’s with necessary competence
can dissuade auditors of raising matters of judgement

24
Q

Who is a steward of of the shareholders investements

A

directors

25
Q

who is the agents of the shareholders

A

directors

26
Q

whats the objective of a review engagement

A

to enable an auditor to state whether anything has come to their attention to cause them believe that the FS are NOT prepared in accordance with the appropriate framework

27
Q

4 places auditing is subject to regulation from

A

national legislation
national regulation and standard setting
international standard setting
professional bodies

28
Q

5 auditors rights

A
access a companys books and records
receieve information and explanations
receieve notice of or attend GMs
speak at GMs 
recieve a copy of any written resolution
29
Q

when can the directors appoint auditors

A

before the first period of appointing auditors
following a period where the company didnt have an auditor
to fill a casual vacancy

30
Q

when can shareholders appoint auditors

A

during a period for appointing auditors
if a company failed to appoint an auditor
if directors fail to do so

31
Q

when can secretary of state appoint auditors

A

if no auditors are appointed as per directors/ shareholders

32
Q

who are the IAASB

A

International auditing and assurance standards board

33
Q

what is the objective of the IAASB

A

to serve the public interest by setting high quality auditing and assurance standards