Audit Chapter 1

Accounting

Use financial info to make useful decisions for companies

Who provides the FS?

Management of a company (the client)

Auditor

Assess risk: Gives an opinion and includes exceptions (issues found)

Immaterial

The max amount in which an auditor believes the FS could be misstated and still NOT affect the decisions of users

Material

If an amount exceeds a certain threshold set by the engagement team to be deemed risk potential

Misstatements

errors, fraud, noncompliance with laws found in FS

Audit Risk

A risk the auditor expresses on an inappropriate audit opinion when FS are materially misstated

• - management assertion

Reasonable Assurance

Provide this instead of saying 100% certain FS are correct. Always a risk of material misstatement in FS

Audit Evidence

All info is used to arrive at the final opinion by the auditor… all procedures have been run

Management’s Assertions

Audit Risk, Reasonable Assurance, Audit Evidence

Auditor’s Look for what in the FS?

High-risk areas, material items, large population samples

Auditing

obtaining and evaluating assertions about economic actions and events

• - gather evidence that is Sufficient & Appropriate

3 sections of Audit

1. 1. Audit ... is a subsection of

2. 2. Attest… which is a subset of

3. 3. Assurance

Major Phases of an Audit

1. 1. Client Acceptance/continuance

2. 2. Preliminary engagement activities

3. 3. Plan the audit

4. 4. Consider & Audit Internal Control

5. 5. Audit business processes and related accounts

6. 6. Complete the audit

7. 7. Evaluate + issue the report

8. 
   

Attest

agreeing to a statement, reports on IC

Assurance

Broadest of 3, anything that improves the quality of the FS

• - Performance Assessments/projections

Appropriate audit evidence is

Relevant and Reliable

Relevant evidence

relates to specific assertion tested

Reliable evidence

shows true state of an account/assertion