Question 2 (25 marks) The following statements relate to general principles or terms used inthe audit...

Question 2

The following statements relate to general principles or terms used inthe audit of financial statements. Identify at least two errors from eachof the following statements (a) to (e), and then explain why these are errors and suggest corrections.

a )The objective of an audit of financial statements is to enable auditorsto give a true and correct view in all respects in accordance with an identified financial reporting framework.

b )Fraud refers to an unintentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. The primary responsibility for the prevention and detection of fraud rests with the auditors.

c )Terms of engagement

Auditors and their clients should agree on the terms of the engagement, which can be recorded either in the management representation letter or other suitable form of verbal contract.

d) Internal control weakness

Auditors should communicate material weaknesses in internal controls to shareholders by means of a report or letter. Directors or the management of the company have no rights to access the report or letter.

e) Audit working papers are the property of the audit client and theyare substitutes for the company’s accounting records.

Solutions

Expert Solution

The following statements relate to general principles or terms used in the audit of financial statements.

) Audit objective (4 marks)

The objective of an audit of financial statements is for auditors to make sure the financial statements give a true and correct view in all respects in accordance with an identified financial reporting framework and to ensure that they detect all fraud that may have taken place.

Terms of engagement (4 marks)

Auditors and their clients should agree on the terms of the engagement, which can be recorded either in the management representation letter or other suitable form of verbal contract. This letter is required to be reissued before the start of every audit, regardless of whether there are any changes to the terms.

Audit documentation (4 marks)

Since the client paid for the audit, the audit working papers are the property of the audit client and they can be used as substitutes for the company's accounting records in case the company’s accounting records are destroyed in a fire.

ekkarill92 answered 1 year ago

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