Core 1 -Audit-Final Exam with Quality
Answers 2026 Updated.
Assurance Engagement - Answer Auditor aims to obtain sufficient appropriate evidence in
order to express a conclusion designed to enhance the degree of confidence of intended users
Types of assurance engagements - Answer 1. audit - auditor expresses an opinion
2. review - negative assurance, nothing has come the auditor's attention to indicate there's an
issue
3. compilation
Levels of Assurance - Answer 1. Reasonable assurance: audits
2. Limited assurance: review
3. No assurance: compilation
Agency Risk - Answer Risk that management does not represent the interests of the
shareholders
Expectations Gap - Answer Gap between the outcomes delivered by the assurance
engagement and the expectation of the users
Ways to reduce the expectation gap - Answer 1. engagement letter: clarifies auditor
responsibilities with management and scope of engagement. Indicates that there is a risk that
material misstatements may not be detected
2. auditor's report: report communicating nature of work performed and opinion of the auditor,
assists in clarifying to the shareholders the role of the auditor
3. Maintaining high standards for competence, independence, integrity, and ethics to increase
credibility
Statutory Audit - Answer Audit required by law, i.e. publicly traded companies required to
have financial statements audited
Voluntary Audit - Answer When a company chooses to have an audit when not required to do
so by law
Economic purpose of an audit - Answer 1. Agency risk: reduce agency risk by reviewing
information in the FS to ensure that management is not acting in their own self-interest, but the
interest of the shareholder
, 2. Agency costs: cost of audit is viewed as a necessary cost to reduce information risk to an
acceptable level at which stakeholders can make economic deicions using the financial info
3. Information risks and costs: the risk that the financial information presented to shareholders,
creditors, or other stakeholders is not reliable & decisions made based on the info may not yield
results as expected
Auditing and Assurance Standards Board (AASB) - Answer Responsible to set generally
accepted auditing standards for financial statement audits and other services performed by
public accountants
Auditing and Assurance Standards Oversight Council (AASOC) - Answer Reports to the public
and consists of leaders from business and regulators
Responsibilities of the AASOC - Answer -appoint members to the AASB
-provide input/oversee the activities of the AASB
AASB Standard setting process - Answer -obtain stakeholder input to identify possible projects
-identify projects for which proposals should be prepared and prepare project proposal
-approve statement of principles
-approve exposure of draft, circulated to interested parties
-analysis of comments received on exposure draft
-approve standard - requires 2/3 favourable vote of all AASB members
Note: basis for conclusion - document issued which summarizes how AASB responded to
comments received on exposure draft
Monitoring the Audit Profession - Answer 1. Canadian Public Accountability Board (CPAB):
created to regulate the accounting firms that perform public company audits in Canada. Fulfill
mandate by performing inspections of firms and contribute to public confidence - NPO created
by the CSA
2. Canadian Securities Administrators (CSA): umbrella organization of Canada's provincial and
territorial securities regulators whose objective is to improve, coordinate and harmonize
regulation of Canadian capital markets
Note: Issues National instruments and Policies on a variety of topics, for example Auditor
Oversight: require all accounting firms that audit public companies to register with the CPAB
and adhere to all their rules and regulations
Rules of professional conduct - Answer Objectives:
1. protect the public
2. ensure orderly and courteous conduct within the profession
Answers 2026 Updated.
Assurance Engagement - Answer Auditor aims to obtain sufficient appropriate evidence in
order to express a conclusion designed to enhance the degree of confidence of intended users
Types of assurance engagements - Answer 1. audit - auditor expresses an opinion
2. review - negative assurance, nothing has come the auditor's attention to indicate there's an
issue
3. compilation
Levels of Assurance - Answer 1. Reasonable assurance: audits
2. Limited assurance: review
3. No assurance: compilation
Agency Risk - Answer Risk that management does not represent the interests of the
shareholders
Expectations Gap - Answer Gap between the outcomes delivered by the assurance
engagement and the expectation of the users
Ways to reduce the expectation gap - Answer 1. engagement letter: clarifies auditor
responsibilities with management and scope of engagement. Indicates that there is a risk that
material misstatements may not be detected
2. auditor's report: report communicating nature of work performed and opinion of the auditor,
assists in clarifying to the shareholders the role of the auditor
3. Maintaining high standards for competence, independence, integrity, and ethics to increase
credibility
Statutory Audit - Answer Audit required by law, i.e. publicly traded companies required to
have financial statements audited
Voluntary Audit - Answer When a company chooses to have an audit when not required to do
so by law
Economic purpose of an audit - Answer 1. Agency risk: reduce agency risk by reviewing
information in the FS to ensure that management is not acting in their own self-interest, but the
interest of the shareholder
, 2. Agency costs: cost of audit is viewed as a necessary cost to reduce information risk to an
acceptable level at which stakeholders can make economic deicions using the financial info
3. Information risks and costs: the risk that the financial information presented to shareholders,
creditors, or other stakeholders is not reliable & decisions made based on the info may not yield
results as expected
Auditing and Assurance Standards Board (AASB) - Answer Responsible to set generally
accepted auditing standards for financial statement audits and other services performed by
public accountants
Auditing and Assurance Standards Oversight Council (AASOC) - Answer Reports to the public
and consists of leaders from business and regulators
Responsibilities of the AASOC - Answer -appoint members to the AASB
-provide input/oversee the activities of the AASB
AASB Standard setting process - Answer -obtain stakeholder input to identify possible projects
-identify projects for which proposals should be prepared and prepare project proposal
-approve statement of principles
-approve exposure of draft, circulated to interested parties
-analysis of comments received on exposure draft
-approve standard - requires 2/3 favourable vote of all AASB members
Note: basis for conclusion - document issued which summarizes how AASB responded to
comments received on exposure draft
Monitoring the Audit Profession - Answer 1. Canadian Public Accountability Board (CPAB):
created to regulate the accounting firms that perform public company audits in Canada. Fulfill
mandate by performing inspections of firms and contribute to public confidence - NPO created
by the CSA
2. Canadian Securities Administrators (CSA): umbrella organization of Canada's provincial and
territorial securities regulators whose objective is to improve, coordinate and harmonize
regulation of Canadian capital markets
Note: Issues National instruments and Policies on a variety of topics, for example Auditor
Oversight: require all accounting firms that audit public companies to register with the CPAB
and adhere to all their rules and regulations
Rules of professional conduct - Answer Objectives:
1. protect the public
2. ensure orderly and courteous conduct within the profession
