Accounting & auditingLesson 2 of 2 in the course Auditing

Financial Auditing: Assurance, Evidence, Standards, and Digital Practice

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

A financial audit provides an independent examination of an organization's financial statements. This lesson explains why audits matter, what assurance they provide, and how auditors communicate their conclusions.

Management prepares financial statements that describe an organization's financial position and performance. An audit gathers evidence to assess whether those statements contain material misstatements and conform to an applicable financial reporting framework, such as international accounting standards or US GAAP.

All flashcards

What is a financial audit?
An independent examination of financial statements in which the auditor gathers evidence and reports whether they are fairly presented under an applicable framework.
What does reasonable assurance mean?
A high but not absolute level of assurance; sampling, judgment, and evidence limitations mean some material misstatements may remain undetected.
How is materiality defined in an audit?
A misstatement is material if it could affect the decisions of users of the financial statements.
How do a disclaimer and an adverse opinion differ?
A disclaimer means the auditor cannot express an opinion; an adverse opinion means material, pervasive departures make the statements unfairly presented.
What is a test of controls?
A procedure used to assess whether an organization's internal controls operated effectively.

Quiz questions

  1. What level of assurance does an audit ordinarily provide?Answer: Reasonable assurance, but not absolute assurance.
  2. When is a misstatement generally considered material?Answer: When it could affect a user's decision based on the financial statements.
  3. A material departure from the reporting framework pervasively affects the financial statements. Which opinion is appropriate?Answer: An adverse opinion.
  4. An auditor cannot obtain sufficient appropriate evidence to form an opinion. Which outcome may be appropriate?Answer: A disclaimer explaining why no opinion is expressed.
  5. What does a test of controls evaluate?Answer: Whether an internal control operated effectively.

Based on the Wikipedia article Financial audit, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.

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