6.4 Comprehension

6.4.1 Answer the questions using the active vocabulary and Unit 6 Glossary.

1. What is a financial audit?

2. What firms typically perform Financial audits?

3. What are the principal stakeholders of a company?

4. What is material misstatement?

5. What does the auditor’s written assurance ‘fairly presented in conformity with generally accepted accounting principles (GAAP)’ mean?

6. What types of auditors do you know?

7. What is the difference between governmental auditors and independent auditors in the USA?

8. What are the objectives of GAO auditing?

9. What types of audit do you know?

10. What does the attest audit examine?

11. What is the difference between operational audit and compliance audit?

12. What type of audit is performed to comply with the requirements of a governing body?

13. What does the independent auditor's opinion regarding the financial statements indicate?

14. What kinds of audit opinions do you know?

15. Which of them contains the most favorable auditor’s opinion?

16. Which of them contains the least favorable or most unfavorable auditor’s opinion?

17. Can we relate the meaning of the term ‘(un)qualified opinion’ to the qualifications of the auditor? Why or why not?

18. What is the structure of a typical auditor's unqualified report?

19. What the auditor’s reasons for issuing a qualified opinion?

20. What the auditor’s reasons for issuing an adverse opinion?

21. What the auditor’s reasons for issuing a disclaimer of opinion?

22. What are the legal responsibilities of the auditor?

6.4.2 Mark these statements t(true) or f(false) according to the information in the Text and Unit 6 Glossary. If they are false say why.

1. In financial accounting the terms ‘to ascertain’, ‘to assert’ and ‘to assess’ are synonyms.

2. An audit committee is a committee of the board of directors responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results.

3. The objective of audit is to obtain evidence in support of financial statement assertions.

4. Assertions about completeness deal with whether all transactions and accounts that should be in the financial statements are included.

5. A qualified opinion can be issued in spite of significant scope limitations.

6. A disclaimer of opinion report is issued when there is a substantial doubt about the auditee’s ability to continue as a going concern.

7. A document is written or printed paper that bears information that can be used to furnish decisive evidence.

8. Fraud is unintentional misstatements or omissions in financial statements.

9. An error is a deliberate deception to secure unfair or unlawful gain.

10. An operational audit examines an organization's activities to assure that they comply with the requirements of a governing body, such as a federal, state, or city government or agency.

11. Certified public accountants are governmental auditors.

12. The role of the auditor is to provide the shareholders with a balanced and understandable assessment of their company’s position.

13. Going concern principle assumes that a company will continue to exist long enough to carry out its objectives and commitments.

14. Financial audit is designed to reduce the possibility of a material misstatement.

15. The subject of audit is financial statements and internal control systems.

16. The object of financial auditing can be validity and reliability of information.

17. GAAP is exceedingly useful because over the years the generally accepted accounting principles have become more complex.

18. Without a formal audit, the accounting information in a company’s financial statements lacks credibility to be used confidently by external users.

19. The knowledge that actions and their effects will be reported causes management to act differently than would otherwise be the case.

20. “True and Fair View” means a correct and reasonable picture.