Question 1

(a) Define the meaning of auditor’s report.

An audit report is a written opinion of an auditor regarding an entity’s financial

statements. The report is written in a standard format, as mandated by generally
accepted auditing standards (GAAS).

(b) List the 4 types of audits reports which are given by external auditors

Unqualified Opinion
An unqualified opinion indicates that the information presented in a company’s
financial report is clean. As in a medical patient’s clean bill of health, an
unqualified opinion shows that the audited financial statements can be presumed to
be free from misstatements.

Qualified Opinion
An opinion rendered in a qualified audit report is similar to an unqualified opinion;
however, the auditing body cannot express an unqualified opinion for several
reasons. One reason could be that the company did not present its financial records
in accordance with generally acceptable accounting principles (GAAP).

Disclaimer Opinion
Auditors give a disclaimer when they are unable to express a definite opinion. This
can be due to the lack of properly maintained financial records or the absence or
insufficient support from the management. For instance, an auditor may not have
had the opportunity to fulfill tasks that they deem to be crucial to the audit, such as
observing operational procedures or reviewing particular procedures.

Adverse Opinion
When auditors issue an adverse opinion, it indicates that there has been a gross
misstatement and, possibly, fraud, in the preparation of the company’s financial
records. An adverse opinion shows that the company’s records have not been
prepared in accordance with GAAP. Public entities that receive this kind of
opinion are obligated to Financial statements with adverse audit opinions are
typically rejected by financial institutions or investors.
 (c) Describe the basic process of auditing

During the statutory audit, the auditor has to review the processes and procedures
by which the financial information was prepared. That is, the auditor has to check
whether the preparation of the company’s financial reports is aligned with GAAP
or other applicable reporting frameworks.

Statutory audits underscore the importance of financial reporting in corporate

transparency. By ensuring financial transparency, entities can help establish a
good relationship with their investors and the public

Basically auditors need to check the client’s financial statements which comprises
of statements of income, financial position, cash flow, and notes to the statements
providing details for various line items.

(d) Describes the content of annual reports.

An annual report is a comprehensive report on a company's activities throughout

the preceding year. Annual reports are intended to give shareholders and other
interested people information about the company's activities and financial
performance.

At its most basic, an annual report includes: General description of the industry
or industries in which the company is involved, audited statements of income,
financial position, cash flow, and notes to the statements providing details for
various line items.

Question 2

Describes the need for or economic demand for auditing

The need for or economic demand for auditing is due to business risk and information
risk.

Business Risk.

Business risk is the possibilities a company will have lower than anticipated
profits or experience a loss rather than taking a profit. Business risk is influenced
 by numerous factors, including sales volume, per-unit price, input costs,
competition, the overall economic climate and government regulations. Examples
of business risk are:-

 Strategic Risk.
 Compliance Risk.
 Operational Risk.
 Financial Risk.
 Reputational Risk

Information Risk

Information risk is the probability that the information circulated by a company will
be false or misleading. Client management has an incentive to make the business appear
better than it actually may be. This can create a conflict of interest between client
management and investors.

Basically information risk appears due to:-

 Remoteness of information

Risk that involves information that is provided by others must be relied upon.
When information is obtained from others, the likelihood of it being intentionally
or unintentionally misstated increases

 Biases and motives

Information bias refers to bias arising from measurement error. Information

bias is also referred to as observational bias and misclassification.

 Voluminous of data

This is where the amount of data is too huge or too little for the stakeholders to
come out with a judgments or conclusion.

 Complex transactions

Inclusive of complex accounting and financial reporting challenges. As you face

changes related to deals, consolidations, debt or equity offerings or even
bankruptcy.
Question 3

Briefly describe the meaning of assurance engagement and how it relates to

auditing.

Assurance engagement” means an engagement in which a 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.

In auditing, assurance services are audit activities that provide an independent,

objective assessment of financial statements or compliance efforts. These compliance,
regulatory, and financial statement audits are all considered assurance service

Auditing is an assurance engagement because:

 Yearly requirement

 F/S are normally audited

 Involves extensive checking procedures

 Involves the issuance of audit opinion

 E.g ; “f/s shows true and fair view”

 Because of bullet point no.3 & no.4, audit is known as assurance engagement

 Type of assurance is reasonable assurance which means high but not absolute
which means up to 99% confident about something but not 100% guarantee.

 It is also known as positive assurance

Question 4

(a) List down the types of audit

There are a number of types of audits that can be conducted, including the
following:
  Compliance audit. ...
 Construction audit. ...
 Financial audit. ...
 Information systems audit. ...
 Investigative audit. ...
 Operational audit. ...
 Tax audit.

(b) List down the types of auditor

 External Auditor

 Internal Auditor

 Forensic Auditor

 Public Sector Auditor

 Information System Auditor

 Environmental & Social Auditor

Question 5

(a) Describe the purpose of having quality control (QC) in auditing

Audit firms need to implement proper QC policy and procedures within the firm and
individual audit engagement to ensure that audit opinion issue by the firm is correct.
The QC policy and procedures can affect the audit opinion directly or indirectly.

(b) List down the elements of quality control in auditing

 ACCA fundamental principles consist of :

 Integrity – honest and truthful

Confidentiality – don’t released info obtained during work to 3rd party w/o consent
of client

Competence and due care – don’t accept work where not competent and should be
diligent as well

Objectivity – not bias and no conflict of interest

Ethical behavior – behave with courtesy and consideration

 Client acceptance procedures which consist of :-

(matters to consider before accept client)

The firm itself – whether the firm has sufficient resources in terms of staff and
time – whether it has sufficient experience in terms of client industry

The client itself – BOD background and qualification – future prospects for
clients business – performance of the client industry – SHH background – going
concern status of the company

Previous auditors – communicate with previous auditor to find out if there are
professional reasons why firm should not accept the client – e.g. fees not paid,
management integrity

Precondition – where management must acknowledge responsibility to prepare the

financial statements, the design and implementation of internal control systems –
management prepare F/S using an appropriate accounting framework –
management willing to give access to all the records and evidence – no such things
call P&C

 Appointment and Engagement Letter (EL)

The auditor will be appointed by the SHH (shareholders), during the AGM, a copy
of Ordinary resolutions will be signed by SHH and a copy kept by the auditors.
 The auditor will now sign a contract (EL) with the client. An EL is agreed
between the BOD and the auditors to agree between the BOD and the auditors to
agree terms of audit and to prevent misunderstanding in the future.

 Professionally qualified - All juniors, seniors, manager and partners must be

professionally qualified

 Reviewing process where partner is responsible to review and resolve all key
audit issues identified by the team during audit – manager is responsible to review
all the audit working paper done by junior and senior and all review process must
be done thoroughly

 Training - junior and senior must undergo frequent training to update their skill
and knowledge

 External confirmation letter – all request must be send much earlier so that the
reply can be collected very earlier before audit report is issued.

Question 6

Describes the top issues that are effecting the Public Accounting Profession

 Staying on top of tax changes

Constant changes to the tax regime mean the need for public practice accountants
to stay up to date is greater than ever. Whether those changes are intended to
stimulate parts of the economy, benefit certain taxpayers, close loopholes or
directly raise greater revenue, they can affect many taxpayers when only targeting
the behavior of a few people.

 Delivering to deadline without killing yourself

Public practice accounting businesses are all about client service delivery. A
practice without a client service focus is not going to be in business for long.
Where there used to be downtime between client deadlines, time to regroup and
plan for the next project, today’s practitioners leap from one extreme deadline to
the next.
 Getting clients on board with new technology
There are constant regulatory changes that public practitioners need to stay on top
of and guide their clients through. Technology continues to evolve and that can
create great opportunities for practices, but it also throws up the challenges of
making the right investment, successfully deploying the new technology solutions
and getting their clients on board.

 Keeping an eye on the future

Accounting firms have to be proactive if they are to attract top talent. The sector
faces an ongoing skills shortage, so small- to medium-sized practices need to shift
gears to ensure they attract and retain the next generation of practitioners.
This can be challenging for smaller firms competing against larger organizations
with more resources, but there are some key tactics that smaller firms can use to
attract top talent, including highlighting the benefits of working for a small or
medium practice and developing prominent brand awareness so the company is
known as an attractive place to work.