1. Describe the standard-setting process.

A series of claims regarding financial performance and position begins the audit process.
These statements then serve as a foundation or assertation for defining the audit's goals.
The auditor then conducts procedures to achieve the specified objectives by obtaining
adequate, suitable information to form an opinion on the financial statements'
truthfulness.

An audit process typically includes the following:

- Pre-engagement, early audit operations, such as client acceptance and continuation,

and agreement on engagement conditions
- Audit Planning, creating an overarching audit approach and a comprehensive audit
plan.
- Study and Evaluation of Internal Controls, recording and assessing the auditor's
comprehension of the client's system of internal control
- Substance Testing, obtaining proof to support management's claims through
substance audit processes
- Completing the Audit, before issuing the audit report, wrap-up processes and an
evaluation of the audit conclusions is performed.
- Issuance of the Audit Report, the audit report's creation, and distribution.
- Post-Audit Responsibilities, client debriefing.

2. What are financial statement assertions?

Statement of Financial Position Assertions are the company's formal declaration that the
statistics it is presenting are correct. They give a framework for identifying the audit's
goals.

3. Define audit evidence. What are the different sources of evidence? 

The gathered data for an audit of a company's financial activities, internal control
processes, and other elements required for an auditor or Certified Public Accountant to
certify financial statements is known as audit evidence.

Sources of Audit Evidence are:

- Test of Control and/or Substantive Procedure, developed to assess the efficacy of controls in
avoiding or identifying significant inaccuracy and correcting it.

Substantive Procedure consist of:

- Test detail, designed to inspect specific transactions and balances.
- Substantive Analytical Procedure, used to evaluate financial data by examining probable
connections between financial and non-financial facts.
4. What is materiality?  How does materiality fit in the audit process?

Materiality refers to a significant item in the financial statements. In this situation, an

issue is significant if it has the potential to influence the economic decision-making of
users of financial statements.

Materiality is used in the following areas of auditing:

- Suitability of Design, auditors must assess if the design of controls is appropriate for
fulfilling the control's purpose or objectives. If there are no alternative controls in
place to fulfill the aim or criteria, improperly constructed controls can lead to a
significant inaccuracy.
- System Description, management must give a description of the system and services
that will be evaluated during the audit. The auditor will be required to note a
substantial inaccuracy if management presents data that is incorrect or misleading and
refuses to make changes to correct the information.
- Testing and Operating Effectiveness of Controls, while testing, auditors will examine
if the acceptable rate of deviation or the maximum number of exceptions permitted
have been met or exceeded. Alternatively, the auditor may find that controls were
only operational for a part of the audit period.
- Reporting, auditors often evaluate materiality, and particularly a material inaccuracy
depending on exceptions, as part of testing and operational effectiveness of controls.

5. What is audit risk? What are the audit implications of risk?

Audit Risk is the possibility of financial statements being materially inaccurate, even if
the audit opinion says that the financial reports are free of major misrepresentations.
Understanding the risk factors helps auditors to pay close attention to any mistakes that
might affect the annual financial statements, which is an essential element of the planning
process. It also allows for a more successful audit by focusing on the areas with the
highest risk of errors.

6. What are the components of audit risk? Explain each one briefly.

- Inherent Risk, the auditor's evaluation of a transaction class, account balance, or

connected disclosure's vulnerability to substantial inaccuracy, whether stated
individually or as a group.
- Control Rick, the auditor's evaluation of the likelihood of a substantial inaccuracy in a
claim regarding a transaction class, account balance, or associated disclosure that
cannot be recognized or avoided in a timely way by the client's pre-existing internal
control system.
- Detection Risk, the possibility that audit evidence for a certain audit assertion will
overlook substantial inaccurate statements. The auditor will most probably be able to
 discover any substantial flaws if the client has a high detection risk. As a result, the
auditor will reduce substantive testing.

7. Can risk be eliminated? Explain your answer.

Certain risks can be easily eliminated or decreased after they have been discovered. Most
risks, especially high-impact, low-probability ones, are far more difficult to prevent. As a
result, risk reduction and management must be long-term effort on the part of project
managers throughout the duration of the project.

8. What activities does the auditor perform during the initial phase of the audit engagement?

There are several important procedures to take before starting an audit. First and
foremost, the audit company must determine whether to accept or decline the client and
whether to perform on its behalf. The continuation of an annual contract is not guaranteed
if the client has engaged in unethical business practices or shifted its operations to a
riskier industry. If the auditor accepts the engagement, the permanent file and workpapers
from any prior period must be reviewed to update employees on specific recurrent
concerns pertaining to the client and reacquaint auditors with the client's company. The
audit company then consults with the client on the essentials of the engagement, such as
the fieldwork schedule, the extent and length of the audit, and the audit opinion's
projected delivery schedule. The engagement letter, documents, and other important
elements, such as the price structure.

9. What are is the importance of an engagement letter?

The commercial contract between an auditing firm and its clients is defined as

engagement letters. It specifies the price structure, as well as the firm's and client's
obligations and responsibilities. Engagement letters also assist in establishing a strong
basis for a firm's working connection with its clients. From the beginning, they assure
openness and professionalism. Many insurers require the use of engagement letters to
assist lower professional liability insurance costs. Engagement letters will decrease
liabilities and risks of conducting business.

10. What is the product of the audit process? Cite instances when it is appropriate to issue
each type of audit report.

The auditor's goal is to provide a suitable opinion on whether financial statements are free
of significant misrepresentation. Similarly, there are four different sorts of audit reports
that are based on this viewpoint. The audit report expresses auditors' judgment on
whether financial statements truthfully depict the company's financial condition, financial
performance, and cash flows in conformity with the appropriate financial reporting
structure or framework such as the IFRS or the GAAP.

There are four types of Audit Reports that maybe issued:

- Unqualified Report, used for fairly stated financial statements.
- Report with Qualified Opinion, used for statements with material exceptions, but not
material enough to warrant an adverse opinion ad in some instances a material scope
limitation exists.
- Report with Adverse Opinion, used for misleading financial statements.
- Disclaimer of Opinion, used when an opinion cannot be expressed due to very
material limitation on the scope of audit.