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Interteaching
Learning Objectives:
After studying this chapter you should be able to:
2. Complete the set reading for this topic from Moroney, Campbell and Hamilton with
reference to the listed learning objectives of the topic. Make sure you achieve ALL the
listed learning objectives after reading the chapter.
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Interteaching Questions - To be completed before class
1) Define an audit. Explain why an audit is required (e.g on companys
financial statements)?
Audit is an assurance service where an independent party collects
evidence to give opinion on the quality of information given by a
responsible party (e.g the financial statements provided by the companys
management). Such information is used by users (third parties) for making
decisions. Therefore, an audit normally involves three parties and a
subject matter.
Requirements for an audit originated from the demand for high quality
information.
(students should list out and explain the reasons generating a demand for
the audit and assurance services).
An audit is the most efficient way that helps improve to quality of
information.
4) Explain the reasons why an auditor gives assurance but does not
guarantee about the quality (truths and fairness) of the financial
statements?
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The highest level of assurance given by the auditors is reasonable
assurance which is a high level of assurance but not a guarantee that the
financial statements are true and fair. This is due to the nature of the
audits, where the auditors:
- An unquailed opinion indicates that the auditor believes that there are
no material (significant) misstatements in the financial report.
However, it is not an indicator of a complete accuracy.
- Does not guarantee the future viability of the entity
- Auditor will assess risk of fraud and conduct tests to try to uncover any
fraud, but there is no guarantee that the auditor will find a fraud,
should one have occurred.
- The auditors test on a sampling basis
Directors responsibilities:
Auditors responsibilities:
To do so, the audit should be conducted in accordance with the relevant (e.g
Australian) auditing standards. The auditors are also required to comply with
relevant ethical requirements and plan and perform the audit to obtain
reasonable assurance ether the financial report is free from material
misstatement. The auditor is required to apply appropriate professional
judgement, professional scepticism and due care in doing the audit.
6) Use the figure 1.1 & 1.2 of the textbook to answer the following questions:
5.1. Compare the two reports presented in figure 1.1 & 1.2 of the
textbook. Outline the similarities and differences between the two
reports in terms of, for examples
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Name of Audit report Review report
report
Issuer E& Y (public accounting E&Y
firm)
Addressee Members (shareholders) of Members (shareholders) of
the company being audited the company
Report - Introduction - Introduction
structure - - Directors - Directors
similarities responsibilities responsibilities
- Auditors - Auditors
responsibilities responsibilities
- Independence - Independence
statement statement
5.2. Why type of audit opinion is that in figure 1.1 (i.e unqualified, qualified
etc?).
Unqualified
- Audit report
- Directors report
What type of audit opinion was issued for the company that you
found?
The answer varies according to the search result produced by each student.
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How important these roles are in making sure the quality of the audits
and auditors?
8) Case study Cloud 9 Read the information and answer the following
questions:
Chips need the financial statements to make a very critical decision which is to
purchase the business. Therefore he wants to make sure the financial statements
are reliable. As mentioned earlier, the auditor would do much more extensive
work (of verifying the financial statements) and the audit gives a higher
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assurance on the truth and fairness of the financial statements. Therefore, Chips
would like to have the financial statements audited rather than reviewed.