Auditing and Financial Report

7096 Words Jun 5th, 2013 29 Pages
Solutions Manual

to accompany

Auditing: a practical approach

by

Jane Hamilton

CHAPTER 1

Introduction and overview of auditing

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

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

An assurance engagement (or service) is defined as ÔÇÿan 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 criteriaÔÇÖ (Framework for
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Shareholders of the client and other interested parties will benefit from improvements to the clientÔÇÖs business. Finally, the auditors will benefit from additional revenue which can be used to subsidise the audit firmÔÇÖs 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 auditorÔÇÖs 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 ÔÇÿblindÔÇÖ to potential adverse impacts on the clientÔÇÖs 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 ÔÇÿtoo cosyÔÇÖ, 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…