Auditing and Financial Report

Better Essays
Solutions Manual

to accompany

Auditing: a practical approach


Jane Hamilton


Introduction and overview of auditing


John Wiley & Sons Australia, Ltd 2010
Chapter 1 – Introduction and overview of auditing

1. What does ‘assurance’ mean in the financial reporting context? Who are the three parties relevant to an assurance engagement?

An assurance engagement (or service) is defined as ‘an engagement in which an assurance practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria’ (Framework for
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Finally, the auditors will benefit from additional revenue which can be used to subsidise the audit firm’s investments in knowledge and systems, and streamline the audit.

The main disadvantages of audit firms providing services to their audit clients relate to potential adverse effects on the auditor’s independence. The auditor could be unwilling to provide services which would reduce their audit fees or cause the client to seek another auditor. The auditor could be unwilling to criticise something to the client which was provided by their consulting division. The auditor could be ‘blind’ to potential adverse impacts on the client’s accounting systems from products and services provided by their consulting division. Even if the consulting provided unquestionable benefits to the client, the relationship between the audit firm and the client could become ‘too cosy’, and discourage the client from considering other auditors. Finally, the auditor could be reluctant to qualify the audit report for fear of losing lucrative fees from consulting services. If this occurs, the audit is less valuable because the auditor is less independent.

4. An assurance engagement involves evaluation or measurement of subject matter against criteria. What criteria are used in a financial report audit?

An auditor evaluates the contents of a financial report against the standards and laws that apply to
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