Audit and Assurance Flashcards

Under the independence requirements of Canadian auditing standards and the CPA Code of Professional Conduct, which of the following would impair auditor independence?

Answer: An audit partner holding direct financial interest in the audit client

Direct financial interests (owning shares) in an audit client by the audit partner or members of the engagement team create a self-interest threat that cannot be reduced to an acceptable level. This is a clear prohibition under independence rules.

What is the purpose of audit documentation (working papers)?

Answer: To provide a record of the audit procedures performed, evidence obtained, and conclusions reached as the basis for the auditor's report

Audit documentation serves as the principal record of procedures performed, evidence obtained, and conclusions reached. It supports the auditor's report, assists in planning and supervising the engagement, enables quality control reviews, and provides a record if the work is challenged.

When assessing the risk of material misstatement, the auditor should consider which of the following?

Answer: Both inherent risk and control risk at the assertion level for classes of transactions, account balances, and disclosures

CAS 315 requires the auditor to assess the risk of material misstatement at both the financial statement level and the assertion level. This combined assessment of inherent risk and control risk drives the nature, timing, and extent of further audit procedures.

What is the auditor's responsibility regarding going concern under CAS 570?

Answer: To evaluate management's assessment of the entity's ability to continue as a going concern and conclude whether a material uncertainty exists

CAS 570 requires the auditor to evaluate management's going concern assessment, determine if events or conditions cast significant doubt, evaluate the adequacy of disclosures, and consider the impact on the audit report. The auditor assesses but does not predict future outcomes.

In sampling, what is the difference between statistical and non-statistical sampling?

Answer: Statistical sampling uses random selection and probability theory to evaluate results; non-statistical sampling relies on the auditor's professional judgment for selection and evaluation

Statistical sampling uses random selection methods and probability theory to evaluate sample results, allowing the auditor to quantify sampling risk. Non-statistical sampling uses auditor judgment for sample selection and evaluation. Both are acceptable under CAS when properly applied.

What is an emphasis of matter paragraph in an audit report?

Answer: A paragraph that draws attention to a matter appropriately presented in the financial statements that is of such importance that it is fundamental to users' understanding, without modifying the opinion

An emphasis of matter paragraph (CAS 706) is included after the opinion paragraph to highlight a matter that, while appropriately presented and disclosed in the financial statements, is so important that users need it drawn to their attention. It does not modify the opinion.