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29 Cards in this Set
- Front
- Back
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What is the objective of the ordinary audit of financial statements?
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The expression of an opinion pf the fairness with which they present fairly, in all respects, financial position, result of operations, and its cash flows in conformity with GAAP
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What are the 5 steps to develop audit objectives?
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Understand objectives and responsibilities for the audit
Divide financial statements into cycles Know management assertions about accounts Know GENERAL audit objectives for classes of transactions and accounts Know SPECIFIC audit objectives for class of transactions and accounts |
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What act increases management's responsibility for the financial statements? How?
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Sarbanes-Oxley act 2002
It increases responsibility by requiring the CEO and CFO of public companies to certify 10K and 10Q reports submitted to the SEC. |
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Management is responsible for what (in an audit)?
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The financial statements and for internal control
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What does SAS 1 (AU 110) do?
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Requires the auditor to plan and perform the audit to obtain reasonable assurance that MATERIAL errors and fraud will be found. Not all instances, only material ones must be identified
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What is reasonable assurance?
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Is a high but not absolute level of assurance
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What is an error and what is fraud?
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Error is an unintentional misstatement
Fraud is intentional |
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How does fraudulent financial reporting harm users?
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Harms users by providing them incorrect financial statement information for their decision making
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What is asset misappropriation?
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It is when the assets are stolen from the organization and are no longer available to their rightful owners
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What is the most common fraud category?
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Asset misappropriation
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What fraud category holds the biggest average monetary losses?
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Fraudulent Statements. The biggest source for discovering these are tips and discussions with management
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What are direct-effect illegal acts?
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They are violations of laws and regulations that have a direct-effect on specific account balances in the financial statements. Ex. illegal manipulation of income tax
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What are indirect-effect illegal acts?
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Illegal acts that affect the financial statements but indirectly. Ex.Potential material fines and sanctions indirectly affect the financial statements, by creating the need to disclose this contingent liability
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What actions should the auditor take if there is suspicion of illegal acts?
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Inquiries of management
Consultation with client's legal counsel Additional evidence accumulation |
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What are the benefits of dividing financial statements into segments?
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The smaller segments make the audit more manageable.
It aids in the assignement of tasks to different members of the audit team |
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What does the cycle apporach represent?
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A common way to divide an audit that keeps closely related types (or classes) of transactions and account balances in the same segment
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What is the logic of using the cycle apporach?
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That it ties to the way transactions are recorded in journals and summarized in the general ledger and financial statements
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What balance is the primary focus of every audit?
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The trial balance, because the trial balance is used to prepare financial statements
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Generally, what is the mostefficient and effective way to conduct an audit?
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To obtain some combination of assurance for each class of transactions and for the ending balance in the related accounts
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In almost all audits, overall assurance can be increased how?
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By auditing the ending balance of accounts recieveable.
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What are transaction-related audit objectives?
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Audit objectives for any given class of transactions
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What are balance-related aufit objectives?
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Audit objectives that must be met for each account balance
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What are presentation and disclosure related audit obujectives
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They are audit objectives related to presentation and disclosure of information in the financial statements
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What are management assertions
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Implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements
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What are management assertions directly related to?
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GAAP, as they are part of the criteria that management uses to record and disclose accounting information in financial statements
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What are the management assertions per SAS 106?
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Assertions about classes of transactions and events for the period under the audit
Assertions about account balances at period end Assertions about presentation and disclosure |
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When using the balance-related audit objectives to audit account balances, what does the auditor do?
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The auditor accumulates eveidence to verify detail that supports the account balances, rather than verifying the account balance itself
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What are the four phases of a financial statement audit?
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1) Plan and design an audit approach
2) Perform tests of controls and substantive tests of transactions 3) Perform analytical procedures and tests of details of balances 4) Complete the audit and issue an audit report |
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How are audit objectives met?
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The auditor must obtain sufficient appropriate audit evidence to support all management assertions in the financial statements
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