Overview of Audit Function
Terms
undefined, object
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- Two steps in an independent audit
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(1) Examination of a set of Financial Statements
(2) Report of the findings to outside parties - 5 Assertions
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(1) Valuation
(2) Existence and Occurence
(3) Presentation and Disclosure
(4) Completeness
(5) Obligations and Rights - Define Material
- Anything of a size or type that would influence the judgement of a reasonable person relying on the information
- Define Misstatement
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Error
Fraud
Direct Illegal Act - Define Error
- Unintentional Mistake
- Define Fraud
- Intentional act that results in a material misstatement in FS
- Define Direct Illegal Act
- One that has an immediate effect on the FS figures
- Generally Accepted Auditing Standards (GAAS) are established by. . .
- Statements of Auditing Standards
- Statements of Auditing Standards are produced by. . .
- Auditing Standards Board
- This provides rules for work done for a nonpublic company that is less than an engagement
- Statements on Standards for Accountign and Review Services
- This provides rules when a conclusion is expressed about an assertion
- Statements on Standards for Attestation Engagements
- What are the three sections to the ten basic generall accepted auditing standards?
- General, Fieldwork, and Reporting
- Of the ten basic generally accepted auditing standards what are included in the GENERAL STANDARDS section?
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(1) The audit is performed by a person or persons having adequate technical training and proficiency as an auditor
(2) In all matters relating to the assignment, independence in mental attitude is to be maintained by the auditor
(3) Due professional care is to be exercised in the performance of the audit and preparation of the report - Of the ten basic generally accepted auditing standards what are included in the STANDARDS OF FIELD WORK section?
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(1) The work is to be adequately planned, and assistants, if any, are to be properly supervised
(2) A sufficient understanding of internal control is to be obtained to help determine the nature, extent, and timing of the substantive testing to be performed
(3) Sufficient, competent evidential matter is to be obtained through inspections, observation, inquiries, confirmations, and the like to afford a reasonable basis for an opinion regarding the FS under audit - Of the ten basic generally accepted auditing standards what are included in the STANDARDS OF REPORTING section?
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(1) The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles
(2) The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
(3) Informative disclosures in the FSs are to be regarded as reasonably adequate unless otherwise stated in report
(4) The report shall either contain an expression of opinion regarding the FS, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. - As a result of SOX, this has been created to enforce auditing, quality control, and independence standards and rles within the accounting profession
- PCAOB - Public Company Accounting Oversight Board
- T/f PCAOB is not a government agency?
- True, but it does come under the oversight and enforcement authority of the SEC
- Registered firms with PCAOB are inspected how often?
- Every three years
- This opinion is given when an auditor's examination provides sufficient evidence that statements are presented fairly in accordance with GAAP
- An Unqualified Opinion
- This opinion is given if there is a problem that is material but some credibility can be given to the statements as a whole
- A Qualified Opinion
- This opinion is given in sever cases, when a departure from GAAP can have such an impact that the entire statements cannot be viewed as fairly presented in any capacity
- An Adverse Opinion
- What are the three paragraphs included in a standard unqualified opinion?
- Introductory, Scope, and Opinion
- A standard unqualified opinion is normally dated. . .
- prior to the final day of field work
- What are the four purposes of the introductory paragraph in a standard unqualified opinion?
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(1)Indicates that an audit has been carried out of the FS
(2)Identifies the FS by name, company name, and date
(3)Specifies that the statements are the responsibility of managment
(4)State that the auditor's responsibilty is to express an opinion on the FS based on audit - What are the five purposes of the scope paragraph in the standard unqualified opinion?
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(1)Specifices that the audit was conducted according to the auditing standards generally accepted in the US
(2)Indicates that audit was planned and performed to obtain reasonable assurance that the statements were free from material misstatements
(3)Explains that evidece supporting amts and disclosures has been examined but only on a test basis
(4)Indicates that an assessment was made of accouting principles, significant estimations, and statement presentation
(5)States the belief that audit provides a reasonable basis for the opinion - What are the three purposes of the opinion paragraph in the standard unqualified opinion?
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(1)Starts with the phrase "in out opinion" to show that this is not a guarantee but only an expert judgement
(2)Says that statements present fairly in all material respects the financial position, operations, and cash flows
(3)States that FS conform to accounting principles generally accepted in the US - What are the four reasons to include a fourth paragraph in a standard unqualified opinion?
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(1)Emphsis of a matter (to draw attention to)
(2)Lack of consistency (draws attention to a footnote)
(3)Going concern problem (doubt of a company's potential to stay in business)
(4)Other information attached to audited financial statements