Short Answers Questions

1. What does an audit do?

2. Explain how agency theory results in a demand for auditing?

3. What are the benefits of a financial statement audit?

4. What are the major ways in which audit quality can be assured?

5. Is regulation good for the audit profession? Discuss

6. Why is independence crucial for an external auditor?

7. What are the benefits of a financial statement audit?

8. What are the main limitations of a financial statement audit?

9. Explain the auditors responsibility for identifying and acting on events after the end of the reporting period. Is there an end point to the auditors responsibilities?

10.Discuss procedures that would be useful in ensuring that all disposals of property, plant and equipment have been recorded.

11. Audit risk is said to be a function of inherent risk, control risk and detection risk. Explainaudit risk. Define and differentiate between each of its components.

12. Identify and briefly describethe components of the internal control system.

13. Name five steps involved in assessing control risk.

14. What is the difference between a walk through review test and a test of control?

15. What factors would the auditor consider in deciding to adopt a predominantly substantive approach for an audit?

16. What steps may the auditor perform in evaluating the reasonableness of accounting estimates?

17. Discuss some of the potential problems associated with using informal non-statistical sampling methods.

18. Describe inherent risks specific to sales and receivables that the auditor needs to consider.

19. Outline the procedures involved in performing a receivables confirmation.

20. Consider the problems confronting the auditor in verifying both the rate and method of depreciation.