Question 1: Kevin Black, the sole owner of a small bakery, has been told that the business must have financial statements reported on by the independent auditor. Kevin Black, having some bookkeeping experience, consists of personally prepared the company’s financial statements and doesn’t understand why such statements must be examined by an independent auditor.
Required:
a) Explain the objectives of an independent audit.
b) Identify five manners in which an independent audit might be advantageous to Kevin Black.
Question 2: List and define four assertions regarding classes of transactions and events for the period under audit.
Question 3: The auditor must consider materiality and audit risk when planning and performing an examination of the financial statements in accordance with auditing standards.
Materiality and audit risk must as well be considered in finding out the nature, timing and extent of auditing procedures and assessing the results of such procedures.
Required:
a) Define the term audit risk.
b) Define its components of inherent risk, control risk and the detection risk.
Question 4:
a) Define the term materiality.
b) List the three main steps in applying materiality to an audit.