Untalan, Shaira Coleen DC.

October 29, 2020

BSA-3A

POST TEST
Lesson 1: Introduction to Auditing
1. Why do you think an auditor shall comply with the code of professional ethics in conducting
an audit engagement?
Since Code of Ethics states the principles and expectations governing the behavior of
individuals and organizations in the conduct of internal auditing, the auditor shall comply with
this to insure they possess the right behavior in the industry. It describes the minimum
requirements for conduct, and behavioral expectations rather than specific activities. Also, it
will helps an organization accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management, control, and
governance processes. A code of ethics is necessary and appropriate for the profession of
internal auditing, founded as it is on the trust placed in its objective assurance about
governance, risk management, and control.
2. Why do you think an auditor cannot issue an absolute 100% assurance on the fairness of the
financial statement?
An opinion is not a guarantee of an outcome, but rather a statement of professional
judgement. The auditor cannot obtain absolute assurance that financial statements are free
from material misstatement because of the inherent limitations of an audit. These are caused
by a number of factors. For example, many financial statement items involve subjective
decisions or a degree of uncertainty (e.g., accounting estimates). Consequently, such items are
subject to an inherent level of uncertainty which cannot be eliminated by the application of
auditing procedures. It should not be assumed that every single fact and detail in a set of
audited financial statements has been checked and verified by the auditors, and is therefore
guaranteed to be 100 percent accurate. The auditor obtains reasonable assurance by gathering
evidence through selective testing of financial records.
3. What are the differences of financial and operational audit?
As their name indicates, both financial audit and operational audit have some differences
between them.

 Financial audit is carried out with the intention of obtaining an independent opinion of
‘true and fair view’ on financial statements, while operational audit is carried out to
check whether the operations of the organization are being carried out effectively and
efficiently.
  In general, financial audit is carried out by external auditors, while operational audit is
carried out by internal auditors.
 Financial audit report has a standard format, while operational audit report does not
have a standard format
 Financial audit reports must be published publicly, but operational audit reports need
not to be made public.
 Professionals who are performing financial audit are external auditors that are not
controlled by the management while auditors performing operational audit are
employees of the entity and hence controlled by the management.
4. What are the reasons why independent auditor gathers evidences?
Independent auditor gathers evidences mainly to form an opinion on the financial
statements. Along with this, auditing evidence is the information collected by an auditor to
ascertain the accuracy and compliance of a company's financial statements. The auditing
evidence is meant to support the company's claims made in the financial statements and their
adherence to the accounting laws of their legal jurisdiction. Examples of auditing evidence
include bank accounts, management accounts, payrolls, bank statements, invoices, and
receipts. Good auditing evidence should be sufficient, reliable, provided from an appropriate
source, and relevant to the audit at hand.
5. What are the benefits of an effective internal control system to the audit process? How will it
affect the decision of the independent auditor?
Effective internal control reduces the risk of asset loss, and helps ensure that plan
information is complete and accurate, financial statements are reliable, and the plan’s
operations are conducted in accordance with the provisions of applicable laws and regulations.
When internal control is effective, you have reasonable assurance that your plan is achieving its
financial reporting objectives. When it is not effective, you have little or no such assurance.
An effective system of internal control protects your plan in two ways:
• By minimizing opportunities for unintentional errors or intentional fraud that may harm the
plan. Preventive controls, which are designed to discourage errors or fraud, help accomplish
this objective.
• By discovering small errors before they become big problems. Detective controls are designed
to identify an error or fraud after it has occurred.