audit objectives and responsibilities Flashcards
Steps to develop audit objectives
- Understand audit objectives and responsibilities
- Divide financial statements into cycle
- Know management assertions
- Know general audit objectives
- Know specific audit objectives
Responsible for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the FS
Management
Because they operate the business daily, a company’s management knows more about the company’s transactions and related assets, liabilities, and equity than the auditor
True
Management’s representations are also called
Assertions
What will the auditor do if management insists on FS disclosures that the auditor finds unacceptable
Either issue an adverse or qualified opinion/withdraw
Requires the CEO and CFO of public companies to certify the quarterly and annual FS submitted to SEC
Sarbanes-Oxley Act
SOX provides for criminal policies including significant monetary fines or imprisonment for up to 15 yrs
False. 20 yrs
Overall objectives of the auditor in conducting an audit of FS are (2)
- obtain reasonable assurance
- report on the FS
It would be extremely costly and probably impossible for auditors to have responsibility for finding all immaterial errors and fraud
True
Measure of the level of certainty that the auditor has obtained at the completion of the audit
Assurance
Auditor is not an insurer or guarantor of the correctness of the FS
True
Audit that is conducted in accordance with auditing standards may fail to detect material misstatements
True
The auditor’s best defense when material misstatements are not uncovered is to have conducted the audit in accordance with auditing standards
True
Intentional misstatement
Fraud
Unintentional misstatement
Error
Often called defalcation or employee fraud
Misappropriation of assets
Often called management fraud
Fraudulent financial reporting
Fraud is often more difficult to detect because management or the employees perpetrating the fraud attempt to conceal the fraud
True
Harms users by providing them incorrect FS information for their decision making
Fraudulent financial reporting
Stockholders, creditors, and others are harmed because assets are no longer available to their rightful owners
Asset misappropriation
Referred to as illegal acts
Noncompliance with laws and regulations
The provisions of laws and regulations are unlikely to have a direct effect on the FS
True
If the noncompliance has a material effect and has not been adequately reflected in FS
Auditor should express a qualified and adverse opinion
If the auditor is precluded by management or TCWG from obtaining a sufficient appropriate evidence to evaluate regarding noncompliance
Auditor should express a qualified/disclaim opinion
Consists of two primary components (1) questioning mind (2) critical assessment of the audit evidence
Professional skepticism