Chapter 1
The Demand for Audit and Other Assurance
Services
Concept Checks
C1-1 What is meant by determining the degree of correspondence between information and
established criteria? What are the criteria for the audit of a company’s financial statements?
To do an audit, there must be information in a verifiable form and some standards (criteria) by
which the auditor can evaluate the information. Determining the degree of correspondence
between information and established criteria is determining whether a given set of information
is in accordance with the established criteria. For an audit of a company’s financial statements
the criteria are International Financial Reporting Standards, Accounting Standards for Private
Enterprises, Accounting Standards for Not-for-Profits.
C1-2 What are the major causes of information risk. How can information risk be reduced?
Information risk reflects the possibility that the information upon which the business risk decision
was made was inaccurate. The major causes of information risk are: remoteness of information,
biases and motives of the provider, voluminous data, and complex exchange transactions. Users
can reduce information risk by examining the information directly, sharing the risk with the
information preparer, or requesting some assurance over the information (either an audit or a
review engagement).
C1-3 Explain how and why the auditor makes information trustworthy and credible.
External users value the auditor’s assurance because of the auditor’s integrity, independence,
expertise, and knowledge of the subject matter. This makes the information credible and
trustworthy.
C1-4 Describe and explain the differences and similarities between financial statement,
compliance, and operational audits.
Differences—are based upon the information and criteria being audited: a financial statement
audit (e.g., historical financial statements) assesses evidence with respect to potential material
misstatements; a compliance audit (e.g., compliance with environmental legislation) assesses the
organization’s ability to comply with legislation; and an operational audit (e.g., effective factory
production) helps to provide good quality control and manage costs.
Similarities—The auditor is acting with due care, meaning that he/she is following some type of
systematic process governed by auditing standards (financial statements: CPA Canada Handbook
(GAAS); compliance: CPA Canada Handbook or IIA standards, depending upon whether a public
accountant is conducting the audit; and operational: most likely IIA standards). The auditor is also
independent and competent (although the degree of independence will vary according to who is
conducting the audit).
The Demand for Audit and Other Assurance
Services
Concept Checks
C1-1 What is meant by determining the degree of correspondence between information and
established criteria? What are the criteria for the audit of a company’s financial statements?
To do an audit, there must be information in a verifiable form and some standards (criteria) by
which the auditor can evaluate the information. Determining the degree of correspondence
between information and established criteria is determining whether a given set of information
is in accordance with the established criteria. For an audit of a company’s financial statements
the criteria are International Financial Reporting Standards, Accounting Standards for Private
Enterprises, Accounting Standards for Not-for-Profits.
C1-2 What are the major causes of information risk. How can information risk be reduced?
Information risk reflects the possibility that the information upon which the business risk decision
was made was inaccurate. The major causes of information risk are: remoteness of information,
biases and motives of the provider, voluminous data, and complex exchange transactions. Users
can reduce information risk by examining the information directly, sharing the risk with the
information preparer, or requesting some assurance over the information (either an audit or a
review engagement).
C1-3 Explain how and why the auditor makes information trustworthy and credible.
External users value the auditor’s assurance because of the auditor’s integrity, independence,
expertise, and knowledge of the subject matter. This makes the information credible and
trustworthy.
C1-4 Describe and explain the differences and similarities between financial statement,
compliance, and operational audits.
Differences—are based upon the information and criteria being audited: a financial statement
audit (e.g., historical financial statements) assesses evidence with respect to potential material
misstatements; a compliance audit (e.g., compliance with environmental legislation) assesses the
organization’s ability to comply with legislation; and an operational audit (e.g., effective factory
production) helps to provide good quality control and manage costs.
Similarities—The auditor is acting with due care, meaning that he/she is following some type of
systematic process governed by auditing standards (financial statements: CPA Canada Handbook
(GAAS); compliance: CPA Canada Handbook or IIA standards, depending upon whether a public
accountant is conducting the audit; and operational: most likely IIA standards). The auditor is also
independent and competent (although the degree of independence will vary according to who is
conducting the audit).
