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Chapter 6
Audit Process
| Term | Definition |
|---|---|
| An essential requirement for achieving quality on the audit is that the engagement team apply the highest level of professional ethics. The fundamental principles of which include? | Integrity (self-honesty) Objectivity (independent thought, freedom from bias) Professional competence and due care Confidentiality, and Professional behaviour. |
| Assertions | Representations by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur. |
| Three words that define the audit strategy | Scope, timing and direction |
| Preliminary engagement activities involves | This stage provides the opportunity for the audit firm to assess whether a professional relationship with the prospective client should be accepted or whether the relationship with an existing client should be continued. |
| Responding to assessed risk stage | The auditor should obtain sufficient, appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks. |
| Preliminary stage activities | 1. Agreeing the terms of audit engagements 2. Quality control for an audit of financial statements |
| Planning stage activities | Planning an audit of financial statements Identifying and assessing the risks of material misstatement- through understanding the entity and its environment Materiality in planning and performing an audit |
| Three words that difine the audit plan | Nature, timing and extent |
| Responding to risk stage/activities include | The auditors responses to assessed risks Audit Evidence Audit Sampling |
| The preconditions for an audit are that | The financial reporting framework to be applied in the preparation of the F/S to be audited is acceptable. The auditor obtains the agreement of management, that management acknowledges and understands its responsibility: |
| Reasons that an audit firm may not wish to enter into a relationship with a prospective client | -Client’s management appear to lack integrity - Auditors may not want to be associated with the “industry”... - The client may have a reputation for poor relationships with its auditors - The audit firm may lack the competence and resources |
| Procedures to gather “preliminary engagement” information | Communication with the previous auditor Discussion with those charge with governance Inquiry of the firm’s bankers |
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