Auditing - Ch 6 Audit Responsibilities And Objectives

Front 1

SAS 1 (AU 110) Understand objectives oand responsibilities of Audits

Back 1

Objective fo the ordinary audit of FS by indi auditor is the expression of an opinion on the fairness with which they present, fairly, in all material respects, financial position, results of operations and cash flows in conformity with GAAP

Front 2

Steps to Develop Audit Objectives (5)

Back 2

1. understand objectives and responsibilities of audit
2. divide FS into cycles
3. know mgmt assertions about FS
4. know general audit objectives for classes of transactions, accounts and disclosures
5. know specific audit objectives for classes of transactions, accounts and disclosures

Front 3

Management's Responsibilities

Back 3

responsible for adopting sound acctg principles, maintaining adequate internal controls and making fair representation in the FS.

Front 4

SAS 1 (AU 110) Auditor's Resonsibility

Back 4

auditor has responsibility to plan and perform the audit to obtain reasonable assurance about whether the FS are free of MMS caused by error or fraud.

Front 5

Reasonable Assurance

Back 5

-High, not absolute level.
-auditor is not a guarantor of FS
-auditor uses sampling
-acctg has complex estimates
-fraud is hard to detect

Front 6

Error vs Fraud

Back 6

Error = unintentional
Fraud = intentional

Front 7

FS Cycles - Cycle Approach

Back 7

Divide audit into closely related types of transactions and acct balances.
-sales, sales returns, cash receipts and charge-offs to uncollectible [ sales and collection cycle.

Front 8

Major cycles (5)

Back 8

1. Sales and collection
2. Aquisition and payment
3. Payroll and personnel
4. Inventory and warehousing
5. Capital aquistion and repayment

Front 9

Transaction related audit objectives

Back 9

six audit objectives that must be met before auditor can conclude that the total for any given class of transactions is fairly stated.
-the general transaction related audit objectives are:
1. occurrence
2. completeness
3. accuracy
4. classification
5. timing
6. posting and summarization

Front 10

Balance related audit objectives

Back 10

eight audit objectives that must be met before auditor can conclude that any given acct balance is fairly stated;
the general balance related audit objectives are:
1. existence
2. completeness
3. accuracy
4. classification
5. cutoff
6. detail
7. tie-in
8. realizable value
9. rights and obligations

Front 11

Management assertions

Back 11

implied or expressed reps by mgmt about classes of transctions and related accts and disclosures in the FS

Front 12

Occurence

Back 12

Mgmt assertion that trnasactions have been recorded

Front 13

Completeness

Back 13

mgmt assertion all trnsx and events have been recorded

Front 14

accuracy

Back 14

mgmt assertion amts and other data relating to recorded transx have been recorded properly

Front 15

classification

Back 15

mgmt assertion that transx and events are in proper accts

Front 16

Cutoff

Back 16

mgmt assertion transx and events have been recorded in correct period

Front 17

Existence

Back 17

mgmt assertion that assets, liabs, and equity interest exist

Front 18

Completeness

Back 18

mgmt assertion that all assets, liabs and equity that should be recorded have been

Front 19

Valuation and allocation

Back 19

mgmt assertion that all assets, liabs, equity are included in fs at right amounts and have been adjusted correctly

Front 20

Occurence and rights obligations disclosures

Back 20

mgmt assertion that disclosed events and transx have occured and pertain to entity

Front 21

Completeness disclosures

Back 21

mgmt assertion that all disclosures that should have been included in the fs have been

Front 22

Classification and understandability disclosure

Back 22

FS and other info is approp presented and described clearly

Front 23

Rights and obligations

Back 23

mgmt assertion that entity hold or controls the rights to assets, liabs are obligation of entity

Front 24

Four phases of a FS audit

Back 24

1. plan and design audit approach
2. perform tests of controls and substantive test of transactions
3. perform analytical procedures and tests of details of balances
4. complete the audit and issue audit report

Front 25

Phase 1 of FS audit

Back 25

1. obtain understanding of entity and environment
2. understand IC and assess control risk
3. assess risk of MMS

Front 26

Phase 2 of FS audit

Back 26

1. perform tests of controls and substantive tests of transactions -

Front 27

Substantive tests of transactions

Back 27

verify monetary amoutns of transactions

Front 28

Phase 3 of FS audit

Back 28

perform analytical procedures and tests of details of balances

Front 29

Analytical procedures

Back 29

use comparisons and relationships to assess whether acct balances or other data appear reasonable

Front 30

Tests of details of balances

Back 30

specific procedures intended to test for monteary misstatements in the balances in the FS

Front 31

Phase 4 of FS audit

Back 31

Complete audit and issue audit report