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Summary Auditing Theory Chapter 1-15 book "Principles of


Auditing "
Auditing Theory (Erasmus Universiteit Rotterdam)

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AT Learning Objectives
Chapter 1: International Audit Overview

Relate Some of the early history of Auditing


Discuss some of the Audit expectations of the general public
Audit expectation gap: a gap that results from the fact that users of audit services have
expectations regarding the duties of auditors that exceed the current practice in professions.
Is the company a going-concern?; Is it free from fraud?; Is there integrity? Etc.
Identify organizations that affect international accounting and auditing
Name the standards set by the International Auditing and Assurance Standards Board (IAASB)
o International Standards on Assurance Engagements (ISAEs) in assurance engagements
dealing with subject matters other than historical financial information.
o ISAs
o International Standards on Quality Control (ISQCs) relating to the quality of audit
applied to all services.
o International Standards on Related Services (ISRSs) applied to compilation
engagements; apply agreed-upon procedures to information and other related service
engagements.
o International Standards on Reviw Engagements (ISREs) applied to the review of
historical financial information.
Give an overview of the IFAC International Standards on Auditing (ISA).
o Requirements ISA 200: Comply with ethical requirements; Professional skepticism that
materially misstated; Professional judgment; Sufficient appropriate audit evidence.
o Appropriate in the audit or review of historical financial information
Understand the basic definition of auditing in an international context
o The objective of an audit of FS to enable the auditor to express an opinion whether the
FS are prepared, in all material respects, in accordance with an identified financial
reporting framework. The phrases used to express the auditors opinion are give a true
and fair view or present fairly, in all material respects. It is systematic process,
obtaining and evaluating evidence in regard of the assertions + established criteria and
communicating the results to users.
Distinguish between the different types of audits
o Audit of FS
o Operational Audit
o Compliance Audit
Distinguish between the types of auditors and their training, licensing and authority
o Internal auditors
o External Auditor
o Public/Government auditors
o Accountant in Business.
Name and categorise the key management assertions.

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Representations by management that are embodied in the FS as used by the auditor to


consider the different types of potential misstatement that may occurred.
Existence BS exists
Rights and obligations has control/rights to BS.
Occurrence took place during the period.
Completeness What should have been recorded, is recorded.
Valuation appropriate amount and valuation properly recorded
Accuracy Amounts are recorded appropriately
Cut-off Recorded in the correct period
Classification Recorded in the proper accounts
Understandability appropriately classified and readable.
Measurement
Presentation and Disclosure item is disclosed/classified with framework.
Give the components of the Audit process model
o Phase 1: Client Acceptance
o Phase 2: Planning
o Phase 3: Testing and evidence
o Phase 4: Evaluation and judgment
Describe how international accounting firms are organized and the responsibilities of auditors at
the various level of the organization.

Chapter 2 The Audit Market

Distinguish between different theories of audit services including Agency theory.


o Agency theory: Viewed as contracts in which groups make contribution. Auditor is
principal for third parties and management.
o Inspired confidence theory: Demand service is consequence of participation of
stakeholders (3rd party) in company. For contribution, they demand accountability from
managements. Information management might be biased, because of interest, an audit
of this information is required.
o Policeman theory: Auditors job to focus on arithmetical accuracy and prevention and
detection of fraud.
o Lending Credibility Theory: Audited FS are used by management to enhance the
stakeholders faith in managements stewardship
Understand drivers for audit regulation
o Listed rules for listed companies; money companies; statutory audits.
Understand the role of public oversight
o Legal liability check auditor: Common law; Civil liability under statutory law; Criminal
liability under statutory law; Liability for members of professional accounting
organizations.
Distinguish between different audit firms

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o Providing audit services, a sole practitioner.


Identify some current developments in the audit market
o Expectations market: Fairness of FS; Ability going-concern; Companys internal control
system; Occurrence of Fraud; Occurrence of illegal acts.
Portray the series of industry codes of conduct and guidance

Chapter 3 Ethics for professional Accountants

Explain the three general subjects areas of ethics


o Set of moral principles, rules of conducts or values. Relating to human conduct.
Explain what ethics means to an accountant
o Set of moral principles, rules of conducts or values. Relating to human conduct
State the purpose for a professional conduct of ethics
o To meet publics interest.
Give the three parts of the IESBA Code and what each part covers
Part A- Fundamental principles for professional accountants; provides
conceptual framework
Part B applies to professional accountants in public practice
Part C applies to professional accountants in business.
Explain the purpose and content of the IESBA Code of Ethics for Professional Accountants
o Integrity; Objectivity; Professional Competence and Due Care; Confidentiality;
Professional Behavior.
Discuss what threats to the fundamental principles are.
o Self-interest; Self review; Advocacy; Familiarity; Intimidation
List and define the four categories of threats to the fundamental principles.
Define safeguards and give some examples
o Safeguards created by profession, legislation or regulation
o Safeguards in the work environment.
Recite the different areas of ethical concern listed as headings in the IESBA Code.
Explain the concept of independence and identify the principles based approach for resolving the
attendant issue.
o An auditor must be independent in mind and appearance. Not audit a client when there
is a relationship between them and a third party.
Differentiate between Independence in mind and in Independence in appearance.
o Independence of mind: State of mind that permits opinion without being affected by
influence that compromise professional judgment. Allowing individual to act with
integrity , and exercise objectivity and professional skepticism.
o Independence in appearance: Avoidance of facts and circumstances that are so
significant a reasonable and informed third party, having knowledge of all info, would
conclude the integrity, objectivity or professional skepticism had been compromised.
Describe non-audit services prohibited by the Code of Ethics.
o Threats to independence; no safeguards could reduce.

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Discuss the responsibilities of an accounting in public practice in dealing with ethical conflicts
that apply to his clients and colleagues.
o Provides professional services.
State the topics of guidance that are particularly relevant to professional accountants working in
industry, commerce, the public sector or education.
Summarise the possible disciplinary actions for violation of ethics codes.
o IESBA has no authority to require disciplinary action
o Penalties reprimand to expulsion or fine/prison.

Chapter 4 An Auditors services

Understand the general definition in assurance services


o At the request of the client, the auditor provides an assurance report on the controls of
the client.
Identify the assurance and non-assurance services normally performed by auditors.
Explain what an assurance engagements entails
o Engagements in which a practitioner expresses a conclusion that is designed to enhance
the degree of confidence intended users can have about the evaluation or measurement
of a subject matter, which is the responsibility of a party other than the inted users or
the practitioner, against criteria.
Describe the five elements exhibited by all assurance engagements
o Three party relations
Practitioner
Responsible party
Intended users
o Subject matter
o Suitable criteria
o Evidence
o Written report
Distinguish between the different suitable criteria applicable to an assurance service.
o Benchmarks (standards, objectives or set of rules) used to evaluate the subject matter of
an assurance engagement. (IFRS; US GAAP; National Standards etc).
o Required: Relevance; Completeness; Reliability; Neutrality; Understandability
Understand what distinguishes a review from a compilation
o Review The objective of a review of FS engagement is to enable an auditor to state
whether, on the basis of procedures which do not provide all the evidence that would be
required in an audit, anything has come to the auditors attention that causes the
auditor to believe that the FS are not prepared, in all material respects, in accordance
with an identified financial reporting framework.
o Compilation engagement the accountant is engaged to use accounting expertise as
opposed to auditing expertise to collect, classify and summarise financial information.
Understand the place of professional judgment in audits

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The application of relevant training, knowledge and experience within the context
provided by auditing, accounting and ethical standards, in making informed decisions
about the courses of action that are appropriate in the circumstances of the audit
engagement.
Describe professional skepticism
o Having a question mind an performing a critical assessment of audit evidence through
the audit process.
Give the inherent limitations of an audit
o Limitation of scope a limitation of the scope of the auditors work may sometimes be
imposed by the entity (term engagement specify that the auditor will not carry out the
procedure as he believes); by circumstances (timing of the auditors appointment makes
him unable to observe the counting of physical inventories); in the opinion of the
auditor, the entitys accounting records are inadequate or when the auditor is unable to
carry out an audit procedure believed desirable.
o Ability to detect material misstatement; Risk by poor control environment.
Discuss the requirements of International Standard on Quality Control #1
o Applies to all firms of professional accountants to audits and reviews, other assurance
and related services.
o Requirements designed; related guidance.
o ISA 220 deals with the quality control procedures for audits FS>

Chapter 5: Client Acceptance

Explain what is meant by client acceptance


o Examination of proposed client, to see if there is any reason to object. (Acceptance OF
client) and convincing the client to hire (Acceptance BY client)
o Decide on acquiring a new client or continuation with existing client
o Determine the type and amount of staff
Describe the seven primary procedures involved in the client acceptance process
o Evaluate the Background and reasons of the client
o Determine if auditor is able to meet ethical requirements
o Need for other professional
o Communicate with predecessor auditor
o Prepare client proposal
o Select staff to perform audit
o Obtain an engagement letter
Understand the main reasons for obtaining an understanding of clients business and industry.
o Evaluate the engagements risks
o Determining professional and ethical requirements
Know the sources of client information and the methods for gathering the information.
o Publicly available information; Audit firm experience; Information from client
Discuss the ethical and competency requirements of the audit team

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o Responsible for planning and executing an audit.


Know what is required in using the work of another auditor
o Consider professional qualification, independence, professional competence and
resources of the other auditor; Quality control processes of other auditors firm. + Write
instructions
Understand the auditors responsibility in using the work of an expert.
o 3rd party possessing expertise, other than accounting or auditing, whose work is used by
the auditor to assist the auditor in obtaining reasonable assurance. Auditor is always sole
responsible.
Describe the procedures for communicating with an existing (predecessor) auditor
Know the contents of a client audit engagement proposal
o Written proposal from the auditor to the proposed/existing client proposing that an
audit or assurance engagement can be undertaken.
o Circumstances: term of the engagement; the characteristics of subject matter; the
criteria to be used; the needs of the intended users; relevant characteristics of the
responsible party; and its environment on other matters that may have effect on the
subject matter of the engagement.
Express the differences between items covered in an audit engagement proposal to existing
clients and one for new clients.
Explain on what basis audit fees are negotiated
Understand what an audit engagement letter included and why its contents are important.
o In the letter is written: confirms the auditors acceptance, the objective and the scope of
the audit, the extent of the auditors responsibilities to the client and the form of any
reports.
Describe the differences between items covered in audit engagement proposal to existing clients
and one for new clients.

Chapter 6 Main Audit Concepts and planning the Audit (ISA 300; 315; 320)

State what the general objective is in planning an audit


o ISA 300 Plan an audit so that it will be performed in an affective matter. Establish an
overall audit strategy that sets scope, timing and direction of the audit and that guides
the development of the audit plan.
Give the standard planning procedures
o Understand the client and its environment
o Assess the risks of material misstatement of FS
o Determine materiality
o Prepare planning memorandum and audit programme.
Understand the knowledge of a clients business required to plan the audit
o Establish frame of reference within auditors plans. Relevant to understand for the risks.
Discuss the relevant aspects of understanding the entity and its environment

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Industry/Regulation/Financial reporting framework; Nature of the entity; Accounting


policies; Objectives and strategies; Measurement and review
Describe what is done during initial interviews, discussions and site visits with the client.
o Checked what objectives, expectations and reports are + Business activities
o Observe the core activity, read reports and manuals + view the facilities.
Know how legal obligations of the client are investigated.
Give examples of management objective, the related strategy and the resultant business risk.
Identify the steps in the strategy-oriented framework for understanding the entity.
o Understand the clients strategic advantages
o Understand the risks that threaten the clients objectives
o Understand the key processes and related competences to realize advantages
o Measure and benchmark process performance
o Document the understand of client to create value and generate CF, use a client business
model, key performance indicators.
o Use comprehensive business knowledge, develop assertions
o Compare reported financial results to expectations and design audit tests.
List the different types of risk that the auditors must assess in planning.
o Inherent Risk
o Control Risk
o Detection Risk
Define each type of risk.
o IR= knowing the industry
o CR = misstatements not prevented/detected/corrected by IC
o DR = an auditors substansive procedures that will not detect a misstatement that exist.
Understand what is meant by significant Risk.
o A type of business risk that generally relates to judgmental matters and significant nonroutine transactions requiring special audit considerations.
Know the auditors definition of materiality
o Information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the FS. Materiality depends on the size of the
item or error judged in the particular circumstances of its omission or misstatement.
Provides a threshold or cut-off point rather than being a primary qualitative
characteristics which information must have if it is to be useful.
Illustrate the conditions that determine materiality
o Size of item
o Nature of the item
o Circumstances
o Materiality level
Understand the difference between financial statement fraud and misappropriation of assets.
o Intentional act by one/more individuals in misrepresentation of FS.

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Misappropriation theft of assets. Especially susceptible accounts are inventory and


cash
Discuss the fraud triangle factors that may lead to fraud.
o Perceived pressure = someone believes to commit
o Perceived opportunity = favorable circumstances to commit
o Rationalisation = self-satisfying but incorrect reasons.
Identify responses to fraud assessments
o Test appropriateness of journal entries recorded
o Review accounting estimates for biases
o Review significant transactions outside the normal course
Grasp the role of the auditors expert in the audit.
o Duty to communicate to the management/with governance
o Report to third party
Be acquainted with the relationship between the external auditor and the auditees internal
auditor.
o Internal function is a service to the entity, perform the activities of the internal audit
functions.
Be aware of the audit procedures when the entity uses third-party service organization for
activities that impact the financial statements.
o Part of IS relevant to financial reporting. Must ask management for appropriate persons
Comprehend inherent risk and the procedures to assess it.
Be familiar with the planning memorandum and audit plan.
o Audit plan work plan that reflects the design and performance of all audit procedures,
consisting of a detailed approach for the nature, timing and extent of audit procedures
to be performed and the rationale for their selection. The audit plan begins by planning
risk assessment procedures and once these procedures have been performed it is
updated and changed to reflect the further procedures needed to responds to the
results of the risk assessment. Planning memorandum: overview of client company;
industry environment; significant audit concern; areas of interest in audit team; audit
approach; audit budget.

Chapter 7 Internal Control and Control Risk

Understand the basic definition of internal control


o A process, effected by an entitys board of directors, management and other personnel
designed to provide reasonable assurance regarding the achievement of objectives in
the following categories: effectiveness and efficiency of operations, reliability of financial
reporting, and compliance with applicable laws and regulations Committee of
Sponsoring Organisations of the Treadway Commission
Discuss why internal controls are important to the auditor
o To understand the entity and to evaluate the desing
o If it can detect and correct material misstatements in classes of transactions

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Characterise the differences between general and application IT controls and how to reduce IT
risk.
o Application IT controls Specific controls over the relevant accounting applications
maintained by the computer. The purpose of application controls is to establish specific
control procedures over the accounting applications in order to provide reasonable
assurance that all transactions are authorized and recorded, and are processed
completely accurate and on a timely basis
o General IT controls Policies and procedures that relate to many applications and
support the effective functioning of application controls by helping to ensure the
continued proper operation of IS. General IT controls commonly include controls over
data centre and network operations; system software acquisition, change and
maintenance; access security; and application system acquisition, development and
maintenance.
Distinguish between the different components of internal control
o Monitoring; information and communication; control activities; risk assessment; control
environment
Describe the elements of the control environment
o Governance
o Management functions
o Attitudes; awareness and actions of those charged with governance
o Management concerning the entitys IC and its importance in the entity
Component of IC
Evaluate how managements objectives are related to risk assessment
o To identify the and assess the risk of material misstatements, due to fraud or error at the
FS and assertions level. Basis of how management determines the risks to be managed
Explain the effects of information and communication on the internal control system
o Information must be identified by management and communicated to people who need
it in a form and time frame that allows them to do their jobs.
Distinguish between the major types of control activities
o Policies and procedures that help ensure that management directives are carried out.
Help ensure risk responses are properly executed. Occur throughout the organization, at
all levels and functions.
A policy establishing ; what should be done
Procedures to effect the policy
Give examples of major types of control procedures (activities)
o Performance reviews; Information processing; physical control; SoD; Authorisation.
Identify monitoring controls
o Assessing design of controls on a timely basis and making corrective actions.
Sources: exception; reporting on control activities; reports by government
regulator; feedback employees; complaints customer & internal audit reports.
Distinguish between hard and soft controls and understand their control objectives

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Hard controls: set of rules; constraints and activities. Tangible character (formal and
visible)
o Intangible factors influence behavior of managers and employees. (in culture or
climate)
Know what is meant by design of controls
Follow what an auditor does in preliminary planning assessments of internal control risk
o Inquiring; Observing and re-performing application; inspecting; tracing transactions.

Chapter 9 Auditors response to assessed risk (ISA 330, ISA 500)

List audit procedures responsive to assessed risk


o Design and perform audit procedures: nature; timing and extent to assessed risk.
Emphasising professional skepticism; assigning more experienced staff;
providing supervision; Incorporating unpredictability; General changes.
Know the definition of evidence in an audit and legal sense
o Higher the assessment of risk the more persuasive audit evidence needed. More
relevant or reliable . Everything that can make a person believe an assertion is true or
false.
o In civil law suit the evidence must be strong to incline. In criminal case: beyond
reasonable doubt. Audit evidence provides only reasonable doubt.
Differentiate between nature, extent and timing of audit procedures
o Nature: its purpose&its type
o Timing : when performed
o Extent: quantity to perform
Understand the difference between legal evidence and audit evidence
o Legal evidence must be strong enough to incline, audit evidence only provides
reasonable doubt.
Identify the common management assertions for classes of transactions, account balances and
disclosure
o Classes of transactions and events: Occurrence; Completeness; Accuracy; Cut-off;
Classification
o Account Balance: Existence; Rights and obligations; Completeness & Valuation
o Presentation and disclosure: Occurrence and rights and obligations; Completeness;
Classification and Understandability; Accuracy and valuation
Define the management standard assertions: completeness; occurrence; accuracy; rights &
obligations; valuation; existence; cut-off; classification; understanding; presentation and
disclosure; and measurement
Discuss the systematic process of gathering evidence
Recognise tests of controls for design and effectiveness
o Audit procedures designed to evaluate the operating effectiveness of controls in
preventing, or detecting and correcting, material misstatements considering the
circumstances

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Charaterise a substantive procedure


o An audit procedure designed to detect material misstatement at the assertion level.
o Alone it is not sufficient appropriate evidence
Explain what is meant by the nature, timing and extent of substantive procedures
o How controls are applied, inquire, consistency, by whom or what. Tested upon other
controls?
List and define the two types of substantive procedures
o Compromise: Test of details (classes of transactions, account balances and disclosures.)
and Substantive analytical procedures
Realise the process of search for unrecorded liabilities
o On accounts payable = completeness ; evaluation as to valuation. Auditor reviews
disbursements for period after BS date. Paid within reasonable time after BS -> potential
population.
Describe the components of and the meaning of sufficient appropriate audit evidence
o ISA 500 to draw reasonable conclusions
o ISA 200 reduce audit risk o an acceptable low level
o Sufficiency & Appropriateness
o Results; Source; Responses etc
Determine which evidence is relevant and which evidence is reliable
o Relevance is the appropriateness
o Reliable is the quality when free from material error and bias.

Chapter 10 Audit evidence

Define auditing evidence


o The information obtained by the auditor in arriving at the conclusions on which the audit
opinion is based. Audit evidence will compromise source documents and accounting
records underlying the FS and corroborating information from other sources
Discuss what constitutes accounting records
Characterise risk assessment procedures regarding evidence
Understand the seven evidence-gathering techniques: inquiry; observations; inspections; reperformance; recalculation; confirmation; and analytical; procedures
Discuss evidence-gathering procedures for physical inventory counting; confirmation of AR; and
search for unrecorded liabilities
o Inquiry; Observation; Inspection; Recalculation; Re-performance; Confirmation;
Analytical Procedures.
Explain the confirmation process
o Response to an inquiry of a third party to corroborate information contained in the
accounting records.
Process of obtaining and evaluating audit evidence through a direct
communication from a third party in response to a request for information
about a particular item affecting assertions made by management in the FS

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Illustrate the main uses of audit sampling


o Involves the application of audit procedures to less than 100% items within an account
balance or class of transactions such that all sampling units have a chance of selection.
This will enable the auditor to obtain and evaluate audit evidence about some
characteristics of the items selected in order to form or assist in forming a conclusion
concerning the population from which the sample is drawn. Audit sampling can use
either a statistical or a non statistical approach.
Typify the key issues in auditing management estimations
Portray how an auditor approaches correction of uncorrected misstatements
o Ask management to correct the misstatements
If correct: auditor must still perform additional audit procedures if they remain
Refuses: take into account management reasons.
Ask written representation from those in governance whether they believe it is
immaterial.
Depict related parties and related party transactions
o Parties are related when the ability to control the other party or have significant
influence.
o Transfer of resources or obligations, regardless of whether a price is charged. Disclose
the nature and volume.
Obtain evidence that management acknowledges its responsibility for the fair presentation of
the FS in a management representation letter
o Confirm certain matters or to support other audit evidence.
o ISA 560 auditor shall request. Written communication that management has done about
matters that are pertinent and material to FS.

Chapter 11 Completing the Audit

Reiterate the procedures for the audit completion stage


o Evaluate governance evidence; Perform procedures to identify subsequent events;
Review FS and other report material; Perform wrap-up procedures; Prepare Matters for
Attention of Partners; Report to the Board of Directors; Prepare audit report.
State the elements of a system of quality control of an audit firm
o Firm and personnel comply with standards and requirements
o Reports issued are appropriate
Give the implications of the SOX for quality control and audit review
o Addresses overall review procedures required of an auditor (partner review; rotation;
quality control) & PCAOB.
Understand why letters from client legal counsel are necessary and what they contain
o Rely for discovering litigation, claims and assessments that affect the client. (Existence;
period; likelihood; potential loss(
Conduct a review for contingent liabilities and commitments
o Contingent liability: potential future obligations to outside party

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Commitments: Agreements that entity holds to fixed set of conditions, regardless of


what happens.
Conduct a review after the BS date for subsequent events and understand what events cause FS
adjustments
o Subsequent events: between date of FS and auditors report. Facts after auditors report.
o After end before report: Adjustment to FS
o After report: No adjustment, but material than disclosures.
Know the auditors responsibilities when facts are discovered after the issuance of the audit
report
o Before issuance FS: when amended Carries out procedures; provide new report with
amended FS. When not amended: Release a qualified or adverse opinion. Notify
governance body to not issue FS and report.
Explain the procedures involved in the review of FS including disclosures and other information
presented with the audited FS
o Obtaining & Understanding procedures established
o Inquiring management
o Reading minutes of meetings
o Reading the entitys interims FS
o Reading latest budgets
o Consider if written representations covers up the event.
Design and perform the wrap-up procedures
o End of audit, when complete. Supervisory review; Final analytical procedures; Working
capital review Evaluating audit findings for material misstatements; Client approval of
adjusting entries; review of laws and regulation; evaluation of going concern.
Determine procedures to evaluate going concern issues
o Foreseeable future. In preparation of FS. Inquire management; evaluate proposed future
actions; Analyse management cash flows; Request written representation from
management.
Discuss the design and use of matters for attention of partners
o Report by audit managers, reviewed by partners detailing audit decisions and reasons.

Chapter 12 Audit reports and communication

Grasp who has responsibility for the FS and why


o Management is responsible for audit report / FS - SOX
Understand the basic elements of the auditors report: contents and form
o ISA 700: Title; Addressee; Introductory paragraph (management responsibility; Auditors
Responsibility; Opinion); Report on Other legal and regulatory requirements; Signature;
Date; Adressee
Explain the contents and importance of the unmodified (Unqualified) audit opinion
o FS are prepared, in all material respects, in accordance with framework. Clean opinion.
List the considerations of an auditor in giving an unmodified (unqualified) opinion

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Distinguish between the different types of opinions given in audit reports of FS


o FS adequately disclosed the policies; Estimates are reasonable; Information is relevant;
Disclosures intended users to understand the effect; Terminology used is appropriate;
Fair presentation of framework.
Describe the circumstances under which the auditor will modify an opinion
o When evidence is not material, but could be persuasive.
o Unable to obtain sufficient appropriate audit evidence. Possible effect could be
material/persuasive.
Understand how some uncertainties lead to qualification of opinions in the audit report on FS
o Not obtained enough sufficient evidence to give reasonable assurance.
Provide circumstances in which the unmodified opinion requires an emphasis of a matter
paragraph
o After the opinion paragraph: matter being emphasized and disclosures.
o Uncertainty upon future: Existence of related party transactions; Accounting matters;
Comparability issues; Losses; Regarding going-concern.
State the two circumstances that require an auditors report containing an opinion other than an
unmodified (unqualified) one
o Limitation in scope
o Auditors judgment about pervasiveness of the effects on matter
Discuss the audit matters of governance interest arising from the audit of FS that the auditor
must communicate to those charged with governance of an entity
o Material weakness in IC; non-compliance; fraud; integrity; general approach;
selection/changes in policies.
Give details contained in the long-form audit report
o Long-form report is to Audit Committee including: Overview Audit Engagement; Analysis
of FS; Risk Management and IC; Optional Topics; Auditor Independence and quality
control; Fees.
List the general content of a management letter
o Issues not required to be disclosed in Annual Financial report. Auditors concerns &
suggestions during audit, evaluation present system, problem areas, improvements,
discussions may require immediate action.
Reasons why an auditor may attend a meeting of the stockholders of a corporation

Chapter 14 Other Assurance and Non-Assurance engagements

Give the distinguishing characteristics of the special area reports


o Based on historical financial information; but not FS as a whole or IFRS.
Understand what distinguishes a review from a compilation
o Review: nothing has come to our attention - Negative assurance
o
Describe the key users of reports on prospective financial information
Explain the requirements of internal control reporting standards

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Managements responsibilities; Framework to evaluate the effectiveness of IC;


Managements assessment; review by an external auditor
o Describe material weaknesses
Give the distinguishing characteristics of sustainability reports
o Impacts on economic circumstances of stakeholders and on national/local level.
Define agreed-upon procedures and accounting compilation engagements
o Agreed upon procedures: carry out procedures of an audit nature to which auditor and
entity agreed upon. Not an assurance engagement. Assesses and users makes own
conclusion.
o Accounting compilation: Use accounting expertise to collect financial info. Entails
reducing detailed data to manageable and understandability form.

Chapter 15 Corporate governance and the role of the auditor

Understand the concept of corporate governance


o Process & Structure to direct and manage the business. Objective: enhancing
shareholder value ensuring financial viability. Define division of power and establish
mechanisms for achieving accountability.
Explain causes for corporate governance being in the spotlight
o Crisis?
Distinguish between different corporate governance codes
o Crises in market based governance; Crisis in regulation and self-regulations; Codes
emerge with quasi-legal status; governing the governors.
Identify major elements of corporate governance
o Managing including board responsibility; Supervision; Internal control; Transparancy
Evaluate the role of the auditor in corporate governance
o Audit FS and other; Attest IC system; Review or attest CG.

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