CCA Audit & Assurance Flashcards

What is the primary objective of an external financial statement audit?

Answer: To provide reasonable assurance that financial statements are free of material misstatement

An external audit provides reasonable (not absolute) assurance that financial statements present fairly in all material respects in conformity with applicable accounting standards.

What is audit risk, and how is it decomposed?

Answer: The risk that an auditor issues an incorrect opinion; decomposed into inherent risk, control risk, and detection risk

Audit risk = Inherent Risk × Control Risk × Detection Risk; auditors manage detection risk because inherent and control risk exist independently of the audit.

Which type of audit opinion is issued when financial statements present fairly in all material respects?

Answer: Unmodified (clean) opinion

An unmodified (clean) opinion is issued when the auditor concludes that the financial statements are fairly presented in conformity with the applicable financial reporting framework.

What is materiality in the context of an audit?

Answer: The threshold above which misstatements could influence the economic decisions of users

Materiality is a judgment threshold; misstatements (individually or in aggregate) are material if they could reasonably be expected to influence users' economic decisions.

Which audit procedure involves examining documents, records, and assets?

Answer: Inspection

Inspection involves examining physical documents, records, or tangible assets to obtain audit evidence about their existence, condition, or ownership.

What does 'audit independence' require of an auditor?

Answer: The auditor must have no financial or personal relationships that could impair objectivity

Auditor independence — both in fact and in appearance — means the auditor has no financial, personal, or business relationship that could compromise objective judgment.