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, TEST BANK for Auditing A Practical Approach, 4th Canadian Edition Moroney, Campbell, Warren
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CHAPTER 1 y v




INTRODUCTION AND OVERVIEW OF AUDIT AND ASSURANCE yv yv yv yv yv yv




CHAPTER LEARNING OBJECTIVES yv yv




1. Define an assurance engagement. yv yv yv




An assurance engagement involves an assurance provider arriving atan opinion about some
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information being provided by their client toa third party. A financial statement audit is one t
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ype of assuranceengagement. This engagement involves an auditor arriving at an opiniona
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bout the fair presentation of the financial statements. The auditreport is addressed to the sh
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areholders of the company being audited,but other users may read the financial statements.
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yv Learning aboutauditing and assurance requires an understanding of auditing andassurance
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yv terminology, including terms such as audit risk, materiality,internal controls, listed entity, an
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d assertions.
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2. Explain why there is a demand for audit and assurance services.
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Financial statement users include investors (shareholders), suppliers,customers, lenders, e
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mployees, governments, and the general public.These groups of users demand audited fina
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ncial statements because oftheir remoteness from the entity, accounting complexity, theirin
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centivescompeting with those of the entity‘s managers, and their needfor reliable informatio yv yv yv yv yv yv yv yv yv yv yv




n on which to base decisions. The theories usedto describe the demand for audit and assura
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nce services are agencytheory, the information hypothesis, and the insurance hypothesis.
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3. Differentiate between types of assurance services. yv yv yv yv yv




Assurance services include financial statement audits, complianceaudits, performance audits
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, comprehensive audits, internal audits,and assurance on corporate social responsibility (C
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SR) disclosures. yv




4. Explain the different levels of assurance. yv yv yv yv yv




The different levels of assurance include reasonable assurance, whichis the highest level of a
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ssurance, limited assurance, and no assurance.Reasonable assurance is provided on an a
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udit of a company‘sfinancial statements. Limited assurance is provided in a review of
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acompany‘s financial Dsotwante
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5. Outline different audit opinions yv yv yv




An auditor can issue an unmodified opinion, also known as a cleanreport, or an unmodified o
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pinion with an emphasis of matter paragraph.Alternatively, a modified opinion may be issue
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d as a qualified, anadverse, or a disclaimer of opinion.
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6. Differentiate between the roles of the preparer and the auditor, and discuss the
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different firms that provide assurance services.
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It is the responsibility of a company‘s governing body to ensure thatits financial statements
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are relevant, reliable, comparable, understandable,and true and fair. It is the responsibility of t
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he auditor to form anopinion on the fair presentation of the financial statements. In doing,so
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1- 2 Auditing: A Practical Approach, Fourth Canadian Edition
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the auditor must maintain professional scepticism and utilize professionaljudgement and due
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care.


The firms that provide assurance services include the Big-
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4international firms, the national firms (with international links),local and regional firms, and
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consulting firms that tend to specializein assurance of CSR and environmental disclosures.
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7. Identify the different regulators, legislation, and regulations surrounding the
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assurance process. yv


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Introduction and Overview of Audit and Assurance yv yv yv yv yv yv 1-3 yv yv




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TRUE-FALSE STATEMENTS yv




1. Only current investors (not potential investors) are considered to be users of the financial
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statements.


Answer: False yv




Bloomcode: Knowledge Diffic yv yv




ulty: Easy yv




Learning Objective: Explain why there is a demand for audit and assurance services. Sectio
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n Reference: 1.2 Demand for audit and assurance services
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CPA Competency: Audit and Assurance AACSB
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: Analytic
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2. Insurance hypothesis is a means whereby the investor can guarantee the success of their
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investment.


Answer: False yv




Bloomcode: Comprehension yv yv




Difficulty: Medium yv




Learning Objective: Explain why there is a demand for audit and assurance services. Sectio
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n Reference: 1.2 Demand for audit and assurance services
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CPA Competency: Audit and Assurance AACSB
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: Analytic
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3. A compliance audit involves gathering evidence to ascertain whether the person or entity
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under review has followed the rules, policies, procedures, laws and regulations with which
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they must conform yv yv




Answer: True yv




Bloomcode: Comprehension yv yv




Difficulty: Medium yv




Learning Objective: Differentiate between types of assurance services. Secti
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on Reference: 1.3 Different assurance services
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CPA Competency: Audit and Assurance AACSB
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: Analytic
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