AUDIT MIDTERM INFO

Information from the first day of class until the Midterm in October.

What are the 4 principles of auditing?

1. Purpose of an Audit

2. Responsibilities

3. Performance

4. Reporting

What is the purpose of an audit?

To enhance the degree of confidence that users can place in the financial statement.

How is the purpose of an audit achieved?

When an auditor expresses an opinion on the financial statements (a degree of confidence)

What is an audit based on?

The premise that management has responsibility to

• prepare the financial statements

• maintain internal control over financial reporting

• provide the auditor with relevant info/access

What are auditors responsible for?

• appropriate competence/capabilities to perform (having a CPA)

• comply with ethical requirements (GAAS)

• maintain professional skepticism (questioning mindset)

What does the auditor need to obtain during the audit?

Reasonable assurance — as to whether the financial statements are free from material misstatement

What does obtaining reasonable assurance require?

The auditor must…

• plan/supervise work

• determine materiality levels

• identity risks of material misstatement

• design/implement responses to assessed risks

What is the inherent limitation of an audit?

The auditor is not able to obtain absolute assurance about whether the financial statements are free from misstatement

Material Misstatement

What is the likelihood of this when looking at evidence?

High Risk =

High search value

What is “Disclaimer of Opinion”?

The auditor expresses an opinion as to whether the financial statements are free from material misstatement or states that an opinion cannot be expressed.

What is the difference between fraud and an error?

Fraud has intent behind it

How should you handle immaterial instances?

Report it and let someone else handle it

Errors & Material =

Responsible for detection & does communicate findings to audit committee

Errors & Immaterial =

NOT responsible for detection & DOES NOT communicate findings

Fraud & Material =

Responsible for detection & does communicate findings to audit committee

Fraud & Immaterial =

NOT responsible for detection & does communicate findings one level above

Illegal Acts & Material =

Responsible for detection (direct effect) & does communicate findings to audit committee

Illegal Acts & Immaterial =

NOT responsible for detection & does communicate findings one level above