Audit - Acct413 - Exam 1

Define Auditing

•The accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria

•Auditing should be done by a competent, independent person

Discuss what distinguishes auditors from accountants

Auditors must understand accounting (i.e., the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making), but must also possess expertise in the accumulation and interpretation of audit evidence

•This expertise distinguishes auditors from accountants

Define information risk

the risk that information upon which a business decision is made is inaccurate

Audit of the financial statements do what?

minimize information risk

What are the two key components of professional skepticism?

•Questioning mind

•Critical assessment of audit evidence

Public audit standards

PCAOB

Nonpublic audit standards

AICPA - GAAS

Report title must include

the word independent

Audit report address

must be addressed to shareholders and board of directors

Opinion paragraph

•must indicate that an audit was performed

•“in our opinion” and “present fairly” (not presented “perfectly”)

Management’s responsibility

“These financial statements are the responsibility of the company’s management”

Auditor’s responsibility

•Audit conducted in accordance with PCAOB AS (public client) or GAAS (nonpublic client)

•Reasonable assurance about whether financial statements are free of material misstatement

•Scope of the audit and the evidence accumulated

•Auditor believes that the audits provide a reasonable basis for the opinion

Signature and address of the CPA firm

firm’s name must be signed, city and state of the audit firm

Audit report date

date the firm completed the auditing procedures

Discuss the concept of materiality in a financial reporting context

A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of a reasonable user of the statements

Who are audits primarily for?

For the public and for company’s users / shareholders