Audited Financial Statements

Question 1

Auditor’s Responsibility

Answer 1

Attest Function

Question 2

Management’s Responsibility

Answer 2

Financial Statements & Internal Control

Question 3

Auditor must give reasonable assurance

Answer 3

High but not absolute level of assurance.

1. plan the work & properly supervise assistants
2. determine & apply appropriate materiality levels
3. identify & assess risk of material misstatements, due to fraud or error
4. obtain sufficient appropriate audit evidence

Question 4

Inherent limitations of an audit

Answer 4

Some financial statement items involve judgement:

1. intangibles-properly valued and if they are impaired
2. impairment
3. asset life/salvage
4. bad debts-what % of AR will not be collectible
5. warranties-what % of your products will be defective
6. law suits-what is the likelihood of losing and how much

Question 5

Nature of audit procedures

Answer 5

Fraud = Intentional while Errors = Unintentional

Question 6

Timeliness of Financial Reporting

if you look at every transaction the cost would be prohibitive

Answer 6

Expect the auditor will form an opinion on the FS within a reasonable period of time. Can’t address all information that exists. Necessary to:

1. plan the audit so that it is performed effectively
2. direct efforts to areas most expected to contain risks of material misstatements
3. use testing and other means of examining populations for misstatements.