An Interesting Quiz On Audit Theory

The given correct answer is "Accounting system". An accounting system refers to the series of tasks and records that an entity uses to process transactions and maintain financial records. It involves the collection, recording, and reporting of financial data to provide accurate and reliable information for decision-making and financial management. An accounting system includes various components such as journals, ledgers, financial statements, and controls to ensure the accuracy and integrity of the financial information.

An audit program serves as a set of instructions to assistants involved in the audit and as a means to control the proper execution of the work. It outlines the specific procedures and steps that need to be followed during the audit process. This helps ensure that all necessary areas are covered and that the audit is conducted in a systematic and organized manner. The audit program helps to streamline the audit process, improve efficiency, and maintain consistency in the work performed by the audit team.

The principal auditor is the auditor who is responsible for reporting on the financial statements of an entity when those financial statements include financial information of one or more components that have been audited by another auditor. This means that the principal auditor is overseeing the overall audit process and ensuring that the financial statements of the entity are accurately and fairly presented, even if some components have been audited by a different auditor.

Tolerable error refers to the maximum amount of error that an auditor is willing to accept in a population. This means that the auditor sets a threshold for acceptable error and if the error in the population is below this threshold, the auditor deems it tolerable. It is important for auditors to determine the tolerable error as it helps them assess the reliability and accuracy of the financial statements. By setting a limit on acceptable error, auditors can make informed decisions about the sufficiency of their audit procedures and the overall reliability of the financial information.

Detection risk refers to the risk that an auditor's substantive procedures, such as testing and sampling, will not identify a material misstatement in an account balance or class of transactions. This means that even though there may be a misstatement present, the auditor's procedures fail to detect it. This can occur due to various factors such as inadequate sample size, ineffective testing methods, or human error. The higher the detection risk, the greater the likelihood that the auditor may give an inappropriate audit opinion, leading to unreliable financial statements.

The term "appropriateness" refers to the suitability or relevance of audit evidence to a specific assertion and its reliability. In other words, it assesses whether the evidence obtained is appropriate in supporting the conclusions drawn during the audit process. The appropriateness of audit evidence is crucial as it ensures that the evidence obtained is reliable and sufficient to form a basis for the auditor's opinion on the financial statements.

The term "incoming auditor" refers to the current period's auditor who did not audit the prior period's financial statements. This means that they are newly appointed or have taken over the auditing responsibilities from a different auditor. The incoming auditor is responsible for reviewing and auditing the current period's financial statements, ensuring accuracy and compliance with accounting standards.

Computer assisted audit techniques (CAATs) refer to the use of computer programs and software to perform various audit procedures and tasks. This includes using specialized software to extract and analyze data, identify anomalies or patterns, automate testing procedures, and generate audit reports. CAATs help auditors to improve the efficiency and effectiveness of their work, as well as enhance the accuracy and reliability of audit findings. By leveraging technology, auditors can perform tasks more quickly, analyze larger volumes of data, and identify potential risks or issues more easily. Therefore, the correct answer for this question is "Computer assisted audit techniques".

Corresponding figures are not presented as complete financial statements capable of standing alone, but are an integral part of the current period. This means that corresponding figures are used to provide context and comparison for the current period's financial statements. They help users of the financial statements understand how the current period's performance compares to previous periods. Therefore, corresponding figures are not standalone financial statements but rather serve as a supplementary tool to enhance understanding and analysis of the current period's financial performance.