Auditing Basics

What is audit evidence?

• Audit evidence is the information used by auditors to reach conclusions on the financial statements being audited.

• Audit evidence is the historical data of the company.

• Audit evidence is the financial statements themselves.

• Audit evidence is the auditor's personal opinion on the company.

Define audit risk.

• Audit risk is the risk of employee turnover in a company

• Audit risk is the risk of losing financial data

• Audit risk is the risk that an auditor may issue an incorrect opinion on financial statements, either due to material misstatement or failure to detect errors. It consists of inherent risk, control risk, and detection risk.

• Audit risk is the risk of natural disasters affecting financial statements

Explain the importance of internal controls in auditing.

• Internal controls are primarily used to manipulate financial data rather than ensure accuracy.

• Internal controls are only relevant for small businesses, not large corporations.

• Internal controls are essential in auditing to enhance the quality and integrity of financial information, prevent misstatements, and provide assurance to stakeholders.

• Internal controls are unnecessary in auditing as they slow down the process.

What are audit procedures?

• Audit procedures are only used by internal auditors

• Audit procedures are the specific tests and methods used by auditors to gather evidence and evaluate the financial statements of a company.

• Audit procedures are not necessary for evaluating a company's financial health

• Audit procedures are the financial statements themselves

What is included in an audit report?

• Financial statements, audit procedures, audit evidence

• Auditor's opinion, key audit matters, management's responsibilities, auditor's responsibilities, basis for opinion, required disclosures

• Audit planning, audit fieldwork, audit completion

• Auditor's name, audit fees, audit location

How is materiality determined in auditing?

• Materiality is based on the number of employees in the company.

• Materiality is calculated by the color of the financial statements.

• Materiality is determined by the auditor's personal opinion.

• Materiality in auditing is determined by considering the financial significance of an item or error in relation to the overall financial statements.

Why is audit evidence important in the audit process?

• Audit evidence is unnecessary in the audit process

• Audit evidence is used to manipulate financial statements

• Audit evidence is only required for internal audits

• Audit evidence is important in the audit process to support the auditor's findings, conclusions, and opinions, verify the accuracy and reliability of financial statements, and ensure compliance with auditing standards.

Discuss the concept of inherent risk in auditing.

• Inherent risk in auditing is the risk of material misstatement in financial statements before considering the effectiveness of internal controls.

• Inherent risk is the risk of errors in internal controls

• Inherent risk is the risk of fraud in financial statements

• Inherent risk is the risk of external factors impacting financial statements

What are the different types of internal controls?

• Financial controls, marketing controls, operational controls, and human resource controls

• Preventive controls, detective controls, directive controls, and deterrent controls

• Physical controls, emotional controls, mental controls, and spiritual controls

• Proactive controls, reactive controls, passive controls, and aggressive controls

• Preventive controls, detective controls, corrective controls, directive controls, and deterrent controls

Describe the steps involved in conducting audit procedures.

• Conduct surveys, test internal controls, gather evidence

• Analyze market trends, perform risk assessment, evaluate findings

• Review financial statements, interview employees, issue audit report

• Plan the audit, perform risk assessment, test internal controls, gather evidence, evaluate findings, issue audit report