Auditing: A Practical Approach 4th Canadian Edition by Robyn Moroney Test bank
relevant and reliable. What do these two terms mean in the context of this case?
c) What three characteristics should Val D’Or Vineyards’ auditors possess when conducting an audit? Explain them briefly.
d) What are non-audit services? Can you describe possible non-audit services that Val D’Or Vineyards might employ?
Answer:
a) A financial statement audit reasonable assurance about whether the financial statements are prepared in all material respects in accordance with the financial reporting framework.
The Val D’Or Vineyards auditors will use the rules of Canadian GAAP (either IFRS or ASPE) to ensure that the main current users (shareholders, bank, tax authorities) and potential users (suppliers, future investors) are provided with audited statements that will provide them with assurance. The auditors will lend credibility to the information because they are independent.
b) Information is relevant if it has an impact on the decisions made by users regarding the performance of the entity. For example, the bank would be interested in evaluating past decisions made by Val D’Or Vineyards management and predicting whether the entity will remain viable (that is, a going concern) into the future. This will give them confidence that the $1,200,000 loan will be repaid. Users like the bank or key suppliers of Val D’Or Vineyards can use current information to estimate the future ability of the entity to meet its obligations.
Information is reliable when it is free from material misstatements (errors or fraud). The information must be unbiased; it must not be presented in such a way as to influence the decision-making process of the user.The best way Val D’Or Vineyards can ensure others will perceive that its financial statements are without bias, is through an independent audit of the statements.
c) When undertaking an audit, the auditor should use professional scepticism, professional judgement, and due care.
Professional scepticism
Professional scepticism is an attitude adopted by the auditor when conducting the audit. It means that the auditor remains independent of the entity, its management, and its staff when completing the audit work. In a practical sense, it means that the auditor maintains a questioning mind and thoroughly investigates all evidence presented by the client. The auditor must seek independent evidence to corroborate information provided by the client and must be suspicious when evidence contradicts documents held by the client or enquiries made of client personnel (including management and those charged with governance).
Professional judgement
Professional judgement relates to the level of expertise, knowledge, and training that an auditor uses while conducting an audit. An auditor must utilize their judgement throughout the audit. For example, an auditor must determine the reliability of an information source and decide on the sufficiency and appropriateness of evidence gathered, the procedures to be used in testing, and an appropriate sample size.
Due care
Due care refers to being diligent while conducting an audit, applying technical and statute-backed standards, and documenting each stage in the audit process.
d) Non-assurance services include management consulting, mergers and acquisitions, insolvency, tax, and accounting services.
Accounting firms are not the only providers of non-assurance services. Val D’Or Vineyards could hire someone to review its plan to expand its vineyard operations, as an example. Other types of services: corporate social responsibility, employee safety, tax planning, insurance arrangements for key officers of the company, etc.
Bloomcode: Analysis
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Learning Objective: Differentiate between the roles of the preparer and the auditor, and discuss the different firms that provide assurance services.
Section Reference: 1.3 Differentiate assurance services
Section Reference: 1.6 Preparers and auditors
CPA Competency: Audit and Assurance
AACSB: Analytic
The data contained in these files are protected by copyright. This manual is furnished under license and may be used only in accordance with the terms of such license.
The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd.
c) What three characteristics should Val D’Or Vineyards’ auditors possess when conducting an audit? Explain them briefly.
d) What are non-audit services? Can you describe possible non-audit services that Val D’Or Vineyards might employ?
Answer:
a) A financial statement audit reasonable assurance about whether the financial statements are prepared in all material respects in accordance with the financial reporting framework.
The Val D’Or Vineyards auditors will use the rules of Canadian GAAP (either IFRS or ASPE) to ensure that the main current users (shareholders, bank, tax authorities) and potential users (suppliers, future investors) are provided with audited statements that will provide them with assurance. The auditors will lend credibility to the information because they are independent.
b) Information is relevant if it has an impact on the decisions made by users regarding the performance of the entity. For example, the bank would be interested in evaluating past decisions made by Val D’Or Vineyards management and predicting whether the entity will remain viable (that is, a going concern) into the future. This will give them confidence that the $1,200,000 loan will be repaid. Users like the bank or key suppliers of Val D’Or Vineyards can use current information to estimate the future ability of the entity to meet its obligations.
Information is reliable when it is free from material misstatements (errors or fraud). The information must be unbiased; it must not be presented in such a way as to influence the decision-making process of the user.The best way Val D’Or Vineyards can ensure others will perceive that its financial statements are without bias, is through an independent audit of the statements.
c) When undertaking an audit, the auditor should use professional scepticism, professional judgement, and due care.
Professional scepticism
Professional scepticism is an attitude adopted by the auditor when conducting the audit. It means that the auditor remains independent of the entity, its management, and its staff when completing the audit work. In a practical sense, it means that the auditor maintains a questioning mind and thoroughly investigates all evidence presented by the client. The auditor must seek independent evidence to corroborate information provided by the client and must be suspicious when evidence contradicts documents held by the client or enquiries made of client personnel (including management and those charged with governance).
Professional judgement
Professional judgement relates to the level of expertise, knowledge, and training that an auditor uses while conducting an audit. An auditor must utilize their judgement throughout the audit. For example, an auditor must determine the reliability of an information source and decide on the sufficiency and appropriateness of evidence gathered, the procedures to be used in testing, and an appropriate sample size.
Due care
Due care refers to being diligent while conducting an audit, applying technical and statute-backed standards, and documenting each stage in the audit process.
d) Non-assurance services include management consulting, mergers and acquisitions, insolvency, tax, and accounting services.
Accounting firms are not the only providers of non-assurance services. Val D’Or Vineyards could hire someone to review its plan to expand its vineyard operations, as an example. Other types of services: corporate social responsibility, employee safety, tax planning, insurance arrangements for key officers of the company, etc.
Bloomcode: Analysis
Difficulty: Medium
Learning Objective: Differentiate between types of assurance services.
Learning Objective: Differentiate between the roles of the preparer and the auditor, and discuss the different firms that provide assurance services.
Section Reference: 1.3 Differentiate assurance services
Section Reference: 1.6 Preparers and auditors
CPA Competency: Audit and Assurance
AACSB: Analytic
The data contained in these files are protected by copyright. This manual is furnished under license and may be used only in accordance with the terms of such license.
The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd.