Audit: Auditing and Financial Report
CHAPTER 1
REVIEW QUESTIONS
1.2What qualities must an ‘assurer’ have in order for you to feel that their statement has high credibility?
An assurer must have the knowledge and expertise to assess the truth and fairness of the information being presented by the preparers. Auditors of financial reports need to be trained accountants with detailed knowledge about the complex technical accounting and disclosure issues required to assess the choices made by the financial report preparers. When undertaking an audit, the auditor should use professional scepticism, professional judgement and due care.
Auditors should be independent of the client. Independent auditors have no incentives to aid the entity in presenting their results in the best possible light. They are concerned with ensuring that the information contained in the financial report is reliable and free from any significant (material) misstatements (error or fraud). A user needs to believe that the auditor is acting independently. This means that not only should auditors be independent (i.e. not have any undue personal or financial incentive to protect the client), auditors should avoid doing anything that would cause a reasonable person to doubt their independence.
1.6Are internal auditors independent? Which internal auditor would be more independent: an internal auditor that reports to the chief financial officer (CFO) of the company, or an internal auditor that reports to the audit committee?
Internal auditors are employees of the company, and therefore cannot be completely independent of the company. However, it is possible to increase the independence of the internal audit department through means such as funding, terms of reference, and reporting lines.
A well-funded internal audit department can investigate more issues and spend more time on each investigation, potentially increasing the chance of discovering fraud and other problems. An internal audit department with a
REVIEW QUESTIONS
1.2What qualities must an ‘assurer’ have in order for you to feel that their statement has high credibility?
An assurer must have the knowledge and expertise to assess the truth and fairness of the information being presented by the preparers. Auditors of financial reports need to be trained accountants with detailed knowledge about the complex technical accounting and disclosure issues required to assess the choices made by the financial report preparers. When undertaking an audit, the auditor should use professional scepticism, professional judgement and due care.
Auditors should be independent of the client. Independent auditors have no incentives to aid the entity in presenting their results in the best possible light. They are concerned with ensuring that the information contained in the financial report is reliable and free from any significant (material) misstatements (error or fraud). A user needs to believe that the auditor is acting independently. This means that not only should auditors be independent (i.e. not have any undue personal or financial incentive to protect the client), auditors should avoid doing anything that would cause a reasonable person to doubt their independence.
1.6Are internal auditors independent? Which internal auditor would be more independent: an internal auditor that reports to the chief financial officer (CFO) of the company, or an internal auditor that reports to the audit committee?
Internal auditors are employees of the company, and therefore cannot be completely independent of the company. However, it is possible to increase the independence of the internal audit department through means such as funding, terms of reference, and reporting lines.
A well-funded internal audit department can investigate more issues and spend more time on each investigation, potentially increasing the chance of discovering fraud and other problems. An internal audit department with a