Audit Ch 2 Professional Standards

Generally Accepted Auditing Standards (GAAS)

Identify necessary qualifications and characteristics of auditors and guide the conduct of the audit

Responsibilities Principle

1. Competence and capabilities

– Experience and expertise

2. Independence

– Independence in fact vs. independence in appearance

– Financial and managerial relationships

3. Due care

– Level of performance by reasonable auditor in similar circumstances

4. Professional skepticism and judgment

Judgement

Application of training, knowledge, and experience in making informed decisions during audit

Performance Principle

Goal is to provide reasonable assurance that financial statements do not contain material misstatements

1. Planning and supervision

– Preparation of audit plan

2. Materiality

– Influences decisions of financial statement users

– Considered throughout the audit

3. Risk assessment

– Understand entity and environment (including internal control)

– Determine necessary effectiveness of substantive tests

4. Audit evidence

– Sufficient = quantity (How many transactions or components?)

– Appropriate = quality (What level of reliability needed? Source?)

Sufficient evidence

Related to quantity (number of transactions or components

examined)

• Influenced by effectiveness of entity’s internal control

Appropriate Evidence

Relates to the quality of evidence

Relevance

Does evidence address assertion(s) of interest?

Reliability

Source of evidence

– Auditors’ direct personal knowledge

– External documentary evidence

– Internal documentary evidence

Reporting Principle

• Express an opinion (or indicate that an opinion cannot be expressed) on entity’s financial statements

• Assess financial statements against financial reporting framework

– Set of criteria used to determine the measurement, recognition, presentation, and disclosure of material items in the financial

statements

– Examples include GAAP, IFRS, or special purpose framework

Unmodified (unqualified) opinion

F/S are in conformity with GAAP

Qualified opinion

Except for limited items, F/S are in conformity with GAAP

Adverse opinion

F/S are not in conformity with GAAP

Disclaimer

Auditors do not express an opinion