Week 1 Questions

1. What is the philosophy of an audit? How does this contribute to decision making
by users of information?
For me, the philosophy of an audit contains integrity and accountability. In auditing,
there will be the testing of financial statements, overseeing transactions, evaluating,
observing, and justifying what was happening, and most especially, by correcting certain
things or errors. I believe that integrity and accountability upheld by practitioners strongly
influence the decision making of users of information in a good way. In this situation, the
reflections shown are all correct, there are no bias, and the information is accurate which
contributes to the better decision of users.

2. Discuss the overview of the financial statement audit process and identify the
major phases in the audit process and the activities that comprise each.
Financial statement audit process refers to the process that helps the company
maintain the accuracy of the company’s financial statements/transactions. Audits are
performed to ensure the stakeholders provisions of accurate and credible information so
they can make more informed and relevant decisions about the company.
The major phases include
a. Planning Phase – Planning for data collection, gathering accurate information
about the business transactions, understand current financial position of the
company.
b. Internal Controls Phase – Auditors must scrutinize, not just look, at the financial
procedures you have put in place. Establishing internal controls is important as
collecting historical information about the business transactions
c. The testing phase – Having the necessary business data on record and internal
controls, test them if they are working. The auditor might request more
information about the company’s transactions, financial position, inspection, and
how internal controls are being performed.
d. The Reporting phase – the audit report provides an unbiased evaluation of
financial statements and internal accounting processes. This allows the users to
better understand the position of the company and can make informed
decisions.
2. Discuss the following concepts and how each is applied in a financial statement
audit:
 Reasonable assurance
- A remote possibility that substantial misstatements won't be prevented or
discovered in a timely manner is recognized as part of reasonable assurance.
 A sufficient amount of adequate audit evidence must be obtained by the
auditor in order to minimize audit risk to an acceptable low level in order to
attain reasonable certainty.

 Audit risk
- When financial statements are materially misstated, or when they are not
presented accurately and in accordance with the applicable financial reporting
framework, there is a risk that the auditor would issue an improper audit opinion
during the audit of the financial statements.
 Inherent risk

- This is a risk posed by an error or omission in a financial statement caused by

the ineffectiveness of internal controls. This occurs from complex
transactions or when in situations that require a high level of judgement in
regard to the financial statements.

 Control risk

- Control risk refers to the possibility that a material misstatement arising from
fraud or error, either alone or in connection with other material
misstatements, won't be immediately prevented or discovered by the
company's internal control. Control risk is a result of how well internal
controls are designed and implemented.

 Detection risk

- This means that there is a possibility that auditors will not be able to notice
misstatements that exists. This is affected by the effectiveness of substantive
procedures and application by the auditor.

Week 2 questions
1. Why is there a need for the auditor to obtain a preliminary understanding of the client
and its environment? How does this process impact the client engagement process of an
audit?
- Learning and assessing the client and its environment can be of help to
better understand the business’ state. This way can affect business risks and
risk of material misstatements in the financial statements. Auditors need
knowledge of these risks for them to determine their appropriate steps to do
in the audit process.
2. What information is the auditor seeking when obtaining a preliminary
understanding of the client?
- Important changes in the company from previous periods and changes in
internal control. These can affect risks or misstatements.

3. How do industry, regulatory and external factors affect the environment of the
audit client and the auditor’s understanding of the client?
- These create a better understanding and relationship for both the audit
client and the auditor. These factors teach and show the business’
competitive environment, supplier and customer relationships, technological
advancements, the right financial reporting framework, and the legal
environment. Industry help identify risks, the regulatory requirements help
to know the applicable framework to use, and more.

4. What is meant by nature of an entity?

- An entity's operations, ownership, and other characteristics are referred to
as its nature. The manner in which investments are made and are planned to
be made, the organization's organizational structure and funding methods.

5. Discuss the concept of business risk and its importance to an audit of financial
statements.
- Business risk may result from complexity or change, but it can also result
from a failure to see the need for change. As a result, auditors evaluate
business risks as part of their risk assessment processes and while developing
audit procedures to find potential financial statement errors.

6. How does an understanding of internal control help the auditor in understanding

the client?
- To see if the client or the business is being maintained well through its
internal control. Internal control gives significant and big contributions to the
company. In order to plan and implement audit solutions that are specific to
a client's evaluated risks, the auditor needs to have a solid grasp of internal
controls in order to assess the risks of material misstatement.