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4. A bank using Milton Company’s financial statements to determine the credit worthiness of a
potential loan to Milton is a good example of the need for unbiased reporting.
ANS: T PTS: 1 DIF: Moderate TOP: The need for unbiased
reporting
7. Attestation services are a subset of assurance services and always involve a report that goes to a
third party.
ANS: T PTS: 1 DIF: Moderate TOP: What is assurance?
8. The Australian Financial Reporting Council (FRC) is responsible for providing broad oversight
of the process for setting accounting and auditing standards.
ANS: T PTS: 1 DIF: Moderate TOP: Financial Reporting Council
(FRC)
9. The audit function is unique because it exists to perform services on a ‘client’ on behalf of
shareholders, directors and other parties.
ANS: T PTS: 1 DIF: Easy TOP: Auditing defined
10. Auditing is the process of attesting to assertions about economic actions and events.
ANS: T PTS: 1 DIF: Easy TOP: Auditing defined
11. Auditing is the process of verifying the accuracy of the financial statements.
1-1
1-2 Chapter 1: Auditing: Integral to the Economy
13. Auditing primarily exists because users need unbiased information on which to assess
management performance and make economic decisions.
ANS: T PTS: 1 DIF: Moderate TOP: Auditing defined
14. The degree of confidence that users place on management’s financial statements is higher than
that placed on audited financial statements because few users have direct knowledge of the
company’s operations and management is the most knowledgeable about operations.
ANS: F PTS: 1 DIF: Moderate TOP: Auditing defined
15. Corporate governance is an oversight structure that ensures that management operates in the best
interests of management.
ANS: F PTS: 1 DIF: Easy TOP: Demand for improved
corporate governance
16. An assertion is a statement about an action, event, condition or performance over a specified
time period.
ANS: T PTS: 1 DIF: Easy TOP: Auditing defined
17. Management is required to comment on the fairness of the company’s financial presentation.
This reduces the auditor’s legal responsibility for the opinion rendered on the financial
statements.
ANS: F PTS: 1 DIF: Difficult TOP: Auditing defined
18. Audited financial statements should be free from all errors and fraud.
ANS: F PTS: 1 DIF: Moderate TOP: Auditing defined
19. Audited financial statements should be presented fairly according to the substance of generally
accepted accounting principles (GAAP).
ANS: T PTS: 1 DIF: Moderate TOP: Need for assurance
20. The Australian Auditing Standards Board (AUASB) is made up of members appointed by the
Financial Reporting Council (FRC) and a Treasury appointed Chairman.
ANS: T PTS: 1 DIF: Moderate TOP: Auditing and Assurance
Standards Board (AUASB)
21. The International Auditing and Assurance Standards Board (IAASB) is interested in harmonising
auditing standards around the world and is working closely with US standard setters on selected
standards.
ANS: T PTS: 1 DIF: Moderate TOP: International Auditing and
Assurance Standards Board
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Full file at https://testbanku.eu/
23. An auditor must have a good understanding of the risks associated with a client’s industry in
order to ensure that the financial statements reflect the underlying substance of accounting
transactions and the economic effects of such transactions.
ANS: T PTS: 1 DIF: Easy TOP: Requirements to enter the
public accounting profession
24. The Australian Auditing Standards Board provides the criteria against which the auditor
measures the fairness of financial statement presentation for both public and private companies.
ANS: F PTS: 1 DIF: Moderate TOP: Financial Reporting Council
(FRC)
25. Generally accepted accounting principles provide the criteria against which the auditor measures
the fairness of financial statement presentation.
ANS: T PTS: 1 DIF: Moderate TOP: Auditing defined
26. Businesses that use independent auditors do not need the use of internal auditors.
ANS: F PTS: 1 DIF: Moderate TOP: The providers of assurance
services
27. Registration for company auditors is the responsibility of the Australian Securities and
Investments Commission (ASIC).
ANS: T PTS: 1 DIF: Easy TOP: The Australian Securities and
Investments Commission (ASIC)
29. Operational audits are designed to determine if the company’s financial statements are prepared
in compliance with generally accepted accounting principles (GAAP).
ANS: F PTS: 1 DIF: Moderate TOP: The internal audit profession
31. The internal audit profession adheres exclusively to standards set by the Auditing and Assurance
Standards Board (AUASB).
ANS: F PTS: 1 DIF: Moderate TOP: The Institute of Internal
Auditors
32. The execution of solutions to issues brought to light by internal auditors is the responsibility of
management of the organisation.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-4 Chapter 1: Auditing: Integral to the Economy
33. Governmental audit standards are developed by the Auditing and Assurance Standards Board
(AUASB).
ANS: F PTS: 1 DIF: Moderate TOP: Auditing and Assurance
Standards Board (AUASB)
34. The Auditing and Assurance Standards Board (AUASB) sets auditing standards for non-publicly
traded companies.
ANS: T PTS: 1 DIF: Moderate TOP: Auditing and Assurance
Standards Board (AUASB)
35. The Australian Accounting Standards Board (AASB) has the authority to establish generally
accepted accounting principles for reporting entities.
36. The Auditing and Assurance Standards Board (AUASB) has authority to establish generally
accepted accounting principles (GAAP) for all business enterprises.
ANS: F PTS: 1 DIF: Easy TOP: Auditing and Assurance
Standards Board (AUASB)
37. The Auditing and Assurance Standards Board (AUASB) was established by the professional
bodies in response to the Corporations Act 2001.
ANS: F PTS: 1 DIF: Moderate TOP: Auditing and Assurance
Standards Board (AUASB)
38. Auditors of public companies need not adhere to the requirements of statutory or regulatory
organisations.
ANS: F PTS: 1 DIF: Easy TOP: The Australian Securities and
Investments Commission (ASIC)
39. When the auditor has no reservations about management’s financial statements, then the report
issued is called a qualified report.
ANS: F PTS: 1 DIF: Easy TOP: Auditing defined
40. Auditors need only understand the rules of accounting as the principles are outdated.
ANS: F PTS: 1 DIF: Easy TOP: Auditing defined
42. An audit and an assurance service both require a report to a third party.
ANS: F PTS: 1 DIF: Easy TOP: What is assurance?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Full file at https://testbanku.eu/
43. The purpose of assurance services is to improve the quality of the information provided.
ANS: T PTS: 1 DIF: Easy TOP: What is assurance?
MULTIPLE CHOICE
1. The need for assurance services arises for all of the following reasons except:
a. potential bias in providing information
b. closeness between a user and the organisation
c. complexity of the processing systems
d. remoteness between a user and the organisation
ANS: B PTS: 1 DIF: Easy TOP: Need for assurance
2. Independent professional services that are provided on financial or other information that
improve the quality of decision making are known as:
a. internal auditing
b. financial auditing
c. assurance services
d. attestation services
ANS: C PTS: 1 DIF: Moderate TOP: What is assurance?
4. Which one of the following is not a key attribute needed to perform assurance?
a. subject matter knowledge
b. independence
c. established criteria or standards
d. accounting skills
ANS: D PTS: 1 DIF: Moderate TOP: What is assurance?
5. A service that does not always require that a report is provided to a third party is:
a. assurance
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-6 Chapter 1: Auditing: Integral to the Economy
b. attestation
c. audit
d. all of these choices
ANS: A PTS: 1 DIF: Easy TOP: What is assurance?
9. Users of the audit report can reasonably expect the audited financial statements to be:
a. complete, contain all necessary information and contain all financial disclosures
b. a true and fair view of the organisation’s financial results
c. free from all errors
d. all of these choices
10. Which one of the following is not a management expectation for independent auditors?
a. an outside source of expertise on accounting matters
b. individuals who perform tests and draw conclusions on assertions
c. a participant in management decision making
d. a provider of a written communication
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Full file at https://testbanku.eu/
12. Internal auditors may perform all of the following types of audits except:
a. operational audits
b. compliance audits
c. computer system audits
d. all of these choices
ANS: D PTS: 1 DIF: Moderate TOP: The internal audit profession
14. Which of the following services is the broadest and most inclusive?
a. audit
b. attestation
c. assurance
d. compliance
ANS: C PTS: 1 DIF: Moderate TOP: What is assurance?
15. An expectation of the public is that the auditor will recognise that the primary users of audit
assurance are:
a. the clients
b. the Public Company Accounting Oversight Board (PCAOB)
c. members of management
d. third-party users
ANS: D PTS: 1 DIF: Difficult TOP: What is assurance?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-8 Chapter 1: Auditing: Integral to the Economy
17. Third-party users of the audit report expect the auditor to do all of the following except:
a. to evaluate measurements and disclosures made by management
b. to provide a biased evaluation of the financial statements
c. to determine whether financial statements are presented in accordance with
accounting standards
d. to gather sufficient evidence to support their opinion
ANS: B PTS: 1 DIF: Moderate TOP: Auditing defined
18. Public accounting firms performing financial report audits for companies must:
a. register with the Auditing and Assurance Standards Board (AUASB)
b. register with the Institute of Internal Auditors
c. register with the Australian Securities Exchange (ASX)
d. have a registered company auditor sign the audit report
ANS: D PTS: 1 DIF: Moderate TOP: Professional and regulatory
organisations
19. The auditor of financial statements must make very difficult interpretations regarding
authoritative literature. Additionally, the auditor must:
a. consider whether the application of a generally accepted accounting principle best
portrays the economic activity of the company
b. force management to make certain decisions regarding their financial statements
c. disregard independence in order to find the underlying truth of the evidence
d. establish new criteria by which financial statements may be compared
ANS: A PTS: 1 DIF: Moderate TOP: Auditing defined
20. Results of the financial statement audit are communicated to users through a(n):
a. financial statement
b. written management assertion
c. audit report
d. none of these choices
ANS: C PTS: 1 DIF: Moderate TOP: Auditing defined
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Full file at https://testbanku.eu/
22. The criteria against which the auditor measures the truth and fairness of financial report
presentation in Australia are known as:
a. generally accepted auditing standards
b. generally accepted accounting principles
c. generally accepted accounting standards
d. generally accepted public sector accounting principles
ANS: B PTS: 1 DIF: Moderate TOP: Auditing defined
24. Which one of the following is an example of management expectations for independent auditors?
a. an expert providing a written communication as the product of the engagement
b. individuals who perform day-to-day accounting functions on behalf of the
company
c. an active participant in management decision making
d. an internal source of expertise on financial and other matters
ANS: A PTS: 1 DIF: Easy TOP: Auditing defined
26. The internal audit profession has emerged and has become active for all of the following reasons
except:
a. management’s need for an objective appraisal of organisational or departmental
performance
b. increased internal and external emphasis on effective procedures to detect or
prevent fraud
c. companies’ compliance with the Australian Securities Exchange Corporate
Governance Guidelines
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-10 Chapter 1: Auditing: Integral to the Economy
27. Which one of the following statements is not true about internal auditing?
a. It is an objective evaluation function.
b. It is established within an organisation.
c. Its purpose is to provide assurance regarding the company’s compliance with
stated policies and procedures.
d. It is established as an independent service to regulatory bodies and creditors.
ANS: D PTS: 1 DIF: Moderate TOP: The internal audit profession
28. An audit which has as its purpose the evaluation of the economy and efficiency with which
resources are employed is known as a(n):
a. financial audit
b. compliance audit
c. operational audit
d. governmental audit
ANS: C PTS: 1 DIF: Moderate TOP: The internal audit profession
29. The audit committee of the board of directors of a company is responsible for:
a. hiring the auditor
b. preparing the financial statements
c. the audit work papers
d. independence and obtaining evidence
ANS: A PTS: 1 DIF: Easy TOP: Demand for improved
corporate governance
30. The Australian Auditing and Assurance Standards Board (AUASB) remains a valuable
organisation because of its continuing involvement in:
a. the audit standard setting process
b. regulation and enforcement of the audit profession
c. education and administration of the professional accounting body exam
d. promulgation of accounting standards
ANS: C PTS: 1 DIF: Easy TOP: Auditing and Assurance
Standards Board (AUASB)
32. The primary governing board that performs quality reviews on registered auditors is the:
a. The Australian Securities and Investments Commission (ASIC) on behalf of the
Financial Reporting Council (FRC)
b. Public Sector Services Board
c. Auditing and Assurance Standards Board (AUASB)
d. Australian Securities Exchange (ASX)
ANS: A PTS: 1 DIF: Moderate TOP: The Australian Securities and
Investments Commission (ASIC)
33. Which of the following organisations is authorised to establish generally accepted auditing
standards?
a. Auditing and Assurance Standards Board (AUASB)
b. Financial Reporting Council (FRC)
c. Australian Securities and Investments Commission (ASIC)
d. Accounting Professional and Ethical Standards Board (APESB)
ANS: A PTS: 1 DIF: Easy TOP: Auditing and Assurance
Standards Board (AUASB)
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-12 Chapter 1: Auditing: Integral to the Economy
37. The body that sets the strategic direction for the Auditing and Assurance Standards Board is:
a. Australian Prudential Regulation Authority (APRA)
b. Financial Reporting Council (FRC)
c. Accounting Professional and Ethical Standards Board (APESB)
d. Australian Securities Exchange (ASX)
ANS: B PTS: 1 DIF: Easy TOP: Financial Reporting Council
38. The organisation that issued the Internal Control, Integrated Framework which serves as the
primary criterion for evaluating the quality of a company’s internal control system is:
a. Accounting Professional and Ethical Standards Board (APESB)
b. Committee of Sponsoring Organizations (COSO)
c. Financial Reporting Council (FRC)
d. Australian Securities Exchange (ASX)
ANS: B PTS: 1 DIF: Moderate TOP: Committee of Sponsoring
Organizations
39. Auditing is a systematic process that includes all of the following except:
a. communicating results to users
b. procuring and evaluating evidence
c. providing important managerial decisions for a client
d. comparing evidence regarding assertions to certain established criteria
ANS: C PTS: 1 DIF: Moderate TOP: Auditing defined
41. Which type of auditor may not perform a financial statement audit?
a. external auditor
b. internal auditor
c. governmental auditor
d. none of these choices
e. all of these choices
ANS: B PTS: 1 DIF: Moderate TOP: The internal audit profession
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Full file at https://testbanku.eu/
44. Which of the following assurance services would be provided by the internal auditor?
a. the quality of an organisation’s governance processes
b. effectiveness and efficiency
c. company rules and regulations
d. all of these choices
ANS: D PTS: 1 DIF: Moderate TOP: What is assurance?
ESSAY
1. Attributes of assurance providers
Discuss the three or more attributes that an assurance professional must possess in order to
maintain credibility. Explain the importance of these attributes to the assurance process.
ANS:
1) Subject matter knowledge – the assurance provider must be an expert in the area
of service provided. Expertise in a complex body of knowledge sets the
assurance professional apart from others.
2) Independence – the assurance provider must be unbiased, free from conflict of
interest, objective and independent of the company receiving assurance services.
This allows the professional to remain neutral and free from influence by parties
with a vested interest in the outcome of assurance services.
3) Agreed upon criteria – clear criteria must be available for the assurance provider
to measure objectives and results against. In a financial statement assurance
engagement, the criteria are represented by generally accepted accounting
principles (GAAP).
4) Process expertise – evidence is obtained and evaluated during the course of an
assurance engagement. Professionals providing these services must be able to
draw accurate conclusions based upon the results of testing competent, sufficient
evidence obtained.
PTS: 1 DIF: Easy TOP: What is assurance?
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-14 Chapter 1: Auditing: Integral to the Economy
Identify at least three types of users of financial statements. Describe their primary use of the
financial statements and how the misstatement of those statements might injure the user.
ANS:
Users of audited financial statements may include:
Management may utilise the audit report to determine whether the financial
statements are presented in accordance with generally accepted accounting
principles (GAAP), whether the firm is availing itself of appropriate internal
controls, and as a means of evaluating employee performance. Misstatement of
the financial statements would cause the client to make erroneous decisions
about financial position, internal controls and employee rewards and
punishments.
A financial institution that is asked to make a loan uses the financial statement to
judge the credit worthiness of the borrower. Misstatements in the financial
statements lead to errors in lending that jeopardise the assets of the bank and
depositors.
A vendor who is asked to grant credit uses the statements and faces injury in a
manner similar to the financial institution.
A third-party stockholder uses the financial statements to determine if the
investment will provide the returns consistent with the needs of the investor.
Misstatements of the financial statements will lead to different results or possible
loss of the investment.
Others: potential stockholders, taxing authorities, regulatory agencies, labour and
unions, employees, bondholders, legal system, retirement plans or retired
employees
PTS: 1 DIF: Moderate TOP: The need for unbiased reporting
Define auditing and discuss how its components fit into an overview of a financial report audit.
ANS:
Financial report auditing has been defined as a ‘systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between those assertions and established criteria and communicating
the results to interested users’.
PTS: 1 DIF: Easy TOP: Auditing defined
Identify at least four professional or regulatory organisations. Explain how and why they assist
and/or monitor the audit and assurance profession.
ANS:
Financial Reporting Council (FRC) is responsible for providing broad oversight of the process
for setting accounting and auditing standards as well as monitoring the effectiveness of auditor
independence requirements in Australia and giving the relevant government minister reports and
advice on these matters.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Full file at https://testbanku.eu/
Auditing and Assurance Standards Board (AUASB): consistent with the FRC’s strategic
direction to it, standards issued by the AUASB are based on those of the International Auditing
and Assurance Standards Board (IAASB).
The Australian Securities and Investments Commission (ASIC) is responsible for the
administration of the Corporations Act and the registration of all company auditors, among other
things.
Australian Securities Exchange (ASX) operates as a listed company in its own right, yet is part
of the regulatory regime within which listed companies disclose their financial information. The
ASX prescribes the form and nature of corporate disclosures through its listing rules and
continuous disclosure regime, backed through the Corporations Act.
The Public Company Accounting Oversight Board (PCAOB) was established by the US
Congress as part of the Sarbanes-Oxley Act of 2002. The PCAOB has full authority to:
• set auditing standards for audits of listed companies
• require all firms that audit listed companies to register with it
• perform quality reviews of all firms that are registered with it.
The Securities and Exchange Commission (SEC) was established by the US Congress in 1934
to regulate the capital market system. The SEC has oversight responsibilities for the PCAOB and
for all listed companies that are required to register with it to gain access to the US capital
markets.
International Auditing and Assurance Standards Board (IAASB) defines its objective as ‘to
serve the public interest by setting high-quality auditing and assurance standards and by
facilitating the convergence of international and national standards, thereby enhancing the
quality and uniformity of practice throughout the world and strengthening public confidence in
the global auditing and assurance profession’.
Committee of Sponsoring Organizations (COSO): in 1992, COSO issued the Internal Control,
Integrated Framework, which serves as a framework for evaluating the quality of a company’s
internal control system.
Professional accounting bodies: CPA Australia (CPAA), the Institute of Chartered Accountants
in Australia (ICAA) and the Institute of Public Accountants (IPA) are the private professional
accounting bodies active in Australia. Membership of these bodies is voluntary; their status is
derived from regulatory and public acceptance that self-regulation by highly trained
professionals dedicated to the public interest can be effective in meeting third-party users’ needs
in relation to credible financial information.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-16 Chapter 1: Auditing: Integral to the Economy
In January 2006 the Accounting Professional and Ethical Standards Board (APESB) was formed
to issue professional pronouncements on ethics and other matters. APES 110 Code of Ethics for
Professional Accountants is perhaps the most important pronouncement.
The Institute of Internal Auditors (IIA) a voluntary organisation dedicated to enhancing the
professionalism and status of the internal auditing profession. The IIA is responsible for issuing
standards and interpretations of those standards.
PTS: 1 DIF: Easy TOP: Professional and regulatory organisations
Compare and contrast the work of an internal and an independent external auditor.
ANS:
The independent external auditor is engaged to perform an audit of the financial statements for
the purpose of expressing a professional opinion thereon. The internal auditor is an employee of
the company who provides an active appraisal function within an organisation to evaluate its
activities as a service to the audit committee or board of directors. The work of external and
internal auditors is often very similar in form, but the purpose and uses of the work are different.
Both groups conform to professional standards that are in many ways similar. Often, the internal
and external auditors work together in identifying potential solutions to problems identified.
PTS: 1 DIF: Easy TOP: Providers of assurance services
Compare and contrast the objectives of financial, compliance, operational and governmental
audits. Include in your answer who performs each type of audit.
ANS:
Financial audits performed by independent CPAs have as their aim the expression of a
professional opinion as to the overall fairness of the statements in all material respects and as to
the presentation of these statements in accordance with generally accepted accounting principles
(GAAP). External auditors and governmental auditors may perform them; because of lack of
independence, the internal auditor can only assist the external auditor in the performance of an
audit of their financial statements.
Compliance audits are a systematic process to determine whether or not an entity’s activities are
carried out in accordance with standards or policies promulgated by management or regulatory
agencies, e.g. rules, laws or regulations. All three types of auditors, external, internal and
governmental, perform compliance audits regularly.
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Full file at https://testbanku.eu/
Governmental audits are usually performed by employees of the government and they usually
encompass all three types of audits just mentioned. The major difference is the governmental
orientation. Operational audits for effectiveness and efficiency may be performed, as well as
financial audits for compliance with governmental GAAP, and compliance audits with laws,
rules and regulations.
PTS: 1 DIF: Moderate TOP: Providers of assurance services
Write the full name of the following regulatory and professional acronyms and describe the
function of each entity:
FRC
AUASB
ASIC
ASX
IIA
ANS:
Financial Reporting Council (FRC) is responsible for providing broad oversight of the process
for setting accounting and auditing standards as well as monitoring the effectiveness of auditor
independence requirements in Australia and giving the relevant government minister reports and
advice on these matters.
Auditing and Assurance Standards Board (AUASB). Consistent with the FRC’s strategic
direction to it, standards issued by the AUASB are based on those of the International Auditing
and Assurance Standards Board (IAASB).
The Australian Securities and Investments Commission (ASIC) is responsible for the
administration of the Corporations Act and the registration of all company auditors, among other
things.
The Australian Securities Exchange (ASX) operates as a listed company in its own right, yet is
part of the regulatory regime within which listed companies disclose their financial information.
The ASX prescribes the form and nature of corporate disclosures through its listing rules and
continuous disclosure regime, backed through the Corporations Act.
Institute of Internal Auditors: the IIA issues standards and interpretations of standards for
internal auditing. It also administers the Uniform CIA Examination and the certified internal
auditor program to establish the benchmark measure of competence for the internal auditing
profession.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1-18 Chapter 1: Auditing: Integral to the Economy
Recent landscape changes in accounting and auditing developed from corporate fraud and,
arguably, auditor failure. In order to continually lead and adapt to the dynamics of regulation,
principles based accounting practices and auditing standards, what types of skills and traits are
auditors required to possess?
ANS:
In addition to integrity, ethics and independence, auditors must possess an inherent ability to
understand the client. This pertains not only to the manner in which the company operates, but
the industry in which the client participates. The auditor must be able to use sound professional
judgement and scepticism to perceive issues and propose solutions. An auditor must understand
the environment in which a client does business. The surrounding economic, cultural and
political aspects of a company are all vital to the auditor’s understanding of risks.
An auditor must be able to interpret a complex body of knowledge, apply audit procedures and
measure assertions against the criteria of generally accepted accounting principles. Risks must be
adequately considered for the audit and the client so that the audit firm may reduce exposure in
the market place.
Information technology used by clients must also be understood by the auditor so that internal
control, prevention and detection of misstatements and the audit trail might be assessed.
Similarly, the auditor must use software to perform an audit efficiently and adequately.
PTS: 1 DIF: Moderate TOP: Requirements to enter the public accounting
profession
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Full file at https://testbanku.eu/
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.