TESTBANK FOR AUDITING A PRACTICAL APPROACH,
4TH CANADIAN EDITION 4TH EDITION, KINDLE EDITION
BY ROBYN MORONEY , FIONA CAMPBELL , JANE
HAMILTON , VALERIE WARREN
, CHAPTER 1
INTRODUCTION AND OVERVIEW OF AUDIT AND
ASSURANCE
CHAPTER LEARNING OBJECTIVES
1. Define an assurance engagement.
An assurance engagement involves an assurance provider arriving atan opinion about some
information being provided by their client toa third party. A financial statement audit is one
type of assuranceengagement. This engagement involves an auditor arriving at an
opinionabout the fair presentation of the financial statements. The auditreport is addressed
to the shareholders of the company being audited,but other users may read the financial
statements. Learning aboutauditing and assurance requires an understanding of auditing
andassurance terminology, including terms such as audit risk, materiality,internal controls,
listed entity, and assertions.
2. Explain why there is a demand for audit and assurance services.
Financial statement users include investors (shareholders), suppliers,customers, lenders,
employees, governments, and the general public.These groups of users demand audited
financial statements because oftheir remoteness from the entity, accounting complexity,
theirincentivescompeting with those of the entity‘s managers, and their needfor reliable
information on which to base decisions. The theories usedto describe the demand for audit
and assurance services are agencytheory, the information hypothesis, and the insurance
hypothesis.
3. Differentiate between types of assurance services.
Assurance services include financial statement audits, complianceaudits, performance
audits, comprehensive audits, internal audits,and assurance on corporate social
responsibility (CSR) disclosures.
4. Explain the different levels of assurance.
The different levels of assurance include reasonable assurance, whichis the highest level of
assurance, limited assurance, and no assurance.Reasonable assurance is provided on an
audit of a company‘sfinancial statements. Limited assurance is provided in a review of
,5. Outline different audit opinions
An auditor can issue an unmodified opinion, also known as a cleanreport, or an unmodified
opinion with an emphasis of matter paragraph.Alternatively, a modified opinion may be
issued as a qualified, anadverse, or a disclaimer of opinion.
6. Differentiate between the roles of the preparer and the auditor, and discuss the
different firms that provide assurance services.
It is the responsibility of a company‘s governing body to ensure thatits financial statements
are relevant, reliable, comparable, understandable,and true and fair. It is the responsibility of
the auditor to form anopinion on the fair presentation of the financial statements. In doing,so
1- 2 Auditing: A Practical Approach, Fourth Canadian Edition
the auditor must maintain professional scepticism and utilize professionaljudgement and due
care.
The firms that provide assurance services include the Big-4international firms, the national
firms (with international links),local and regional firms, and consulting firms that tend to
specializein assurance of CSR and environmental disclosures.
7. Identify the different regulators, legislation, and regulations surrounding the
assurance process.
lO M o A R c P S D | 3 0 87 8 49 5
Introduction and Overview of Audit and Assurance 1-3
, TRUE-FALSE STATEMENTS
1. Only current investors (not potential investors) are considered to be users of the financial
statements.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
2. Insurance hypothesis is a means whereby the investor can guarantee the success of their
investment.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
3. A compliance audit involves gathering evidence to ascertain whether the person or entity
under review has followed the rules, policies, procedures, laws and regulations with which
they must conform
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
4TH CANADIAN EDITION 4TH EDITION, KINDLE EDITION
BY ROBYN MORONEY , FIONA CAMPBELL , JANE
HAMILTON , VALERIE WARREN
, CHAPTER 1
INTRODUCTION AND OVERVIEW OF AUDIT AND
ASSURANCE
CHAPTER LEARNING OBJECTIVES
1. Define an assurance engagement.
An assurance engagement involves an assurance provider arriving atan opinion about some
information being provided by their client toa third party. A financial statement audit is one
type of assuranceengagement. This engagement involves an auditor arriving at an
opinionabout the fair presentation of the financial statements. The auditreport is addressed
to the shareholders of the company being audited,but other users may read the financial
statements. Learning aboutauditing and assurance requires an understanding of auditing
andassurance terminology, including terms such as audit risk, materiality,internal controls,
listed entity, and assertions.
2. Explain why there is a demand for audit and assurance services.
Financial statement users include investors (shareholders), suppliers,customers, lenders,
employees, governments, and the general public.These groups of users demand audited
financial statements because oftheir remoteness from the entity, accounting complexity,
theirincentivescompeting with those of the entity‘s managers, and their needfor reliable
information on which to base decisions. The theories usedto describe the demand for audit
and assurance services are agencytheory, the information hypothesis, and the insurance
hypothesis.
3. Differentiate between types of assurance services.
Assurance services include financial statement audits, complianceaudits, performance
audits, comprehensive audits, internal audits,and assurance on corporate social
responsibility (CSR) disclosures.
4. Explain the different levels of assurance.
The different levels of assurance include reasonable assurance, whichis the highest level of
assurance, limited assurance, and no assurance.Reasonable assurance is provided on an
audit of a company‘sfinancial statements. Limited assurance is provided in a review of
,5. Outline different audit opinions
An auditor can issue an unmodified opinion, also known as a cleanreport, or an unmodified
opinion with an emphasis of matter paragraph.Alternatively, a modified opinion may be
issued as a qualified, anadverse, or a disclaimer of opinion.
6. Differentiate between the roles of the preparer and the auditor, and discuss the
different firms that provide assurance services.
It is the responsibility of a company‘s governing body to ensure thatits financial statements
are relevant, reliable, comparable, understandable,and true and fair. It is the responsibility of
the auditor to form anopinion on the fair presentation of the financial statements. In doing,so
1- 2 Auditing: A Practical Approach, Fourth Canadian Edition
the auditor must maintain professional scepticism and utilize professionaljudgement and due
care.
The firms that provide assurance services include the Big-4international firms, the national
firms (with international links),local and regional firms, and consulting firms that tend to
specializein assurance of CSR and environmental disclosures.
7. Identify the different regulators, legislation, and regulations surrounding the
assurance process.
lO M o A R c P S D | 3 0 87 8 49 5
Introduction and Overview of Audit and Assurance 1-3
, TRUE-FALSE STATEMENTS
1. Only current investors (not potential investors) are considered to be users of the financial
statements.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
2. Insurance hypothesis is a means whereby the investor can guarantee the success of their
investment.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Explain why there is a demand for audit and assurance services.
Section Reference: 1.2 Demand for audit and assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
3. A compliance audit involves gathering evidence to ascertain whether the person or entity
under review has followed the rules, policies, procedures, laws and regulations with which
they must conform
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Section Reference: 1.3 Different assurance services
CPA Competency: Audit and Assurance
AACSB: Analytic
