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#7 Question for the day (Inter Audit and Assurance)
Auditing
Write on paper and share photo by 8 pm. Present the answer as you would do in the exam. #LetsPractice Explain whether the following statements are correct or incorrect, with reasons/ explanations/ examples (Answer all) (i) The Auditor is expected to, reduce audit risk to zero and can therefore obtain absolute assurance that the financial statements are free from material misstatement due to fraud or error. (ii) Determining materiality involves the exercise of professional judgement. (iii) The objectives and scope of internal audit functions are restricted to activities relating to evaluation of internal control only. (iv) If the purpose of an audit procedure is to test for understatement in the existence or valuation of accounts payable then testing the recorded accounts payable may be relevant audit procedure. (v) Sufficiency is the measure of the quantity of audit evidence. (vi) Communicating Key Audit Matters is a substitute for the auditor expressing a modified audit opinion when required by the circumstances of a specific audit engagement in accordance with SA 705.
Answers (7)
1 - false Auditor can not reduce audit risk to zero and can not give absolute assurance because of inherent limitations of audit 2-true Auditor applies benchmarking for materiality 3-false As per SA 610 Scope of internal auditor not only evaluation of internal controls but also for examination of financial information and review of operating activities 4-true For audit procedure testing the record is Relevant 5-true As per SA 500 audit evidence must be sufficient and appropriate Sufficient stend for - quantity Appropriate stend for - quality 6 -false Communicating Key Audit Matters is not a substitute for the auditor expressing a modified audit opinion when required by the circumstances of a specific audit engagement in accordance with SA 705.
(Updated)
(i) Incorrect: As per SA 200 - Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing, The auditor is not expected to, and cannot, reduce audit risk to zero and cannot therefore obtain absolute assurance that the financial statements are free from material misstatement due to fraud or error. This is because there are inherent limitations of an audit. (ii) Correct: Determining materiality involves the exercise of professional judgment. A percentage is often applied to a chosen benchmark as a starting point in determining materiality for the financial statements as a whole. (iii) Incorrect: As per SA-610, Using the Work of an Internal Auditor, the objectives of internal audit functions vary widely and depend on the size and structure of the entity and the requirements of management and, where applicable, those charged with governance. The objectives and scope of internal audit functions typically include assurance and consulting activities designed to evaluate and improve the effectiveness of the entity's governance processes, risk management and internal control. From the above, it can be concluded that the objective and scope of internal audit function are not restricted to activities relating to evaluation of control only. (iv) Incorrect: If the purpose of an audit procedure is to test for overstatement in the existence or valuation of accounts payable, testing the recorded accounts payable may be a relevant audit procedure. On the other hand, when testing for understatement in the existence or valuation of accounts payable, testing the recorded accounts payable would not be relevant, but testing such information as subsequent disbursements, unpaid invoices, suppliers' statements, and unmatched receiving reports may be relevant. (v) Correct: Sufficiency is the measure of the quantity of audit evidence. The quantity of audit evidence needed is affected by the auditor's assessment of the risks of misstatement (the higher the assessed risks, the more audit evidence is likely to be required). (vi) Incorrect: Communicating key audit matters in the auditor's report is not a substitute for the auditor expressing a modified opinion when required by the circumstances of a specific audit engagement in accordance with SA 705 (Revised)
Divy Degda
1 - false Auditor can not reduce audit risk to zero and can not give absolute assurance because of inherent limitations of audit 2-true Auditor applies benchmarking for materiality 3-false As per SA 610 Scope of internal auditor not only evaluation of internal controls but also for examination of financial information and review of operating activities 4-true For audit procedure testing the record is Relevant 5-true As per SA 500 audit evidence must be sufficient and appropriate Sufficient stend for - quantity Appropriate stend for - quality 6 -false Communicating Key Audit Matters is not a substitute for the auditor expressing a modified audit opinion when required by the circumstances of a specific audit engagement in accordance with SA 705.
Question asks for correct / incorrect - please answer in the same format as the question.
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