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16 Cards in this Set
- Front
- Back
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purpose of an audit |
provide F/S users w/ opinion on whether F/S presented fairly. opinion about whether internal controls effective or not. enhances degree of confidence users place in F/S |
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Management's responsibility |
F/S and internal control SOX imposes statutory responsibility on mgmt CEO & CFO must certify quart/annual F/S & internal controls criminal penalties if falsely certify |
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auditor's responsibility |
reasonable assurance material misstatements professional skepticism errors vs. fraud fraudulent reporting of thefts and assets compliance w/ laws and regs |
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reasonable assurance and why? |
high but not absolute can never find all the info - not financially feasible - take too long - use samples, can miss something - accounting involves complex estimations which involve uncertainty and affected by future events - fraudulently prepared F/S can be very difficult to detect |
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auditor must plan audit to detect material misstatements caused by error and fraud |
error- unintentional fraud- intentional 2 types fraud -misappropriation of assets- stealing -fraudulent financial reporting- intentional misstatements |
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direct effect violations |
violations of certain laws/regs can have direct effect ex: tax, pension laws/regs dir. eff. on amts and disclosure in F/S |
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indirect effect violations |
compliance w/ certain laws fundamental to operations ex: comply w/ terms operating license, safety requirements, env. regs in absence of suspected noncompliance, auditor not required to perform audit procedures beyond inquire mgmt laws and inspect correspondence |
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GAAS and ISAs Management assertions classified into 3 categories |
1. classes of transactions and events for period. 2. account balances at end period. 3. presentation & disclosure. |
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PCAOB F/S assertions |
1. existence or occurrence- did they happen? 2. completeness- all transactions that should be included in F/S included? 3. valuation or allocation 4. rights and obligations 5. presentation and disclosure- approp. classified & presented |
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occurrence vs. completeness |
opposites occurence: were transactions included that shouldn't be? violation = account overstate
complete: were transactions omitted that shouldn't be? violation = account understate |
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Management assertions about classes of transactions |
occurrence completeness accuracy classification cutoff- recorded in correct period |
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Management assertions about account balances |
existence completeness valuation and allocation rights and obligations |
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Management assertions about presentation and disclosure |
occurrence and rights & obligations completeness accuracy and valuation classification and understandability |
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May use either set of assertions under PCAOB or GAAS, both sets are complete |
true |
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6 transaction related audit objectives |
1. occurrence- recorded transactions exist 2. completeness- existing transactions recorded 3. accuracy- rec. trans. stated at correct amts 4. posting & summarization- trans. included in master files and correct. summarized 5. classifications- 6. timing- recorded on correct dates |
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relevant assertion |
a F/S assertion w/ a reasonable possibility of containing a misstatement based on inherent risk |
