C6: Audit Rps and Obj Flashcards
- State objectives of the audit of FS?
2. How do auditors meet that objective?
- Provide FS users with an OPINION whether FS are presented fairly, in all material aspects, in accordance with the applicable Fin Acc Frw. An auditor’s opinion enhances the degree of confidence that intended users can place in the FS.
- They accumulate evidence to reach conclusions abt whether FS are presented fairly
Distinguish between errors and fraud. What is the auditor’s responsibility for finding each?
Error: unintentional misstatement
Fraud: intentional
The auditor is responsible for obtaining
reasonable assurance that MM in FS are detected, whether due to errors or fraud.
- Distinguish between fraudulent financial reporting and misappropriation of assets.
- Discuss the likely difference between these two types of fraud on the fair presentation of FS
1. MOA - by employees FFR - by MGM 2. On the fair presentation of FS - MOA: almost immaterial - FFR: material
List 2 characteristics that are useful in predicting the likelihood of FFR in an audit.
For each of the characteristics, state two things that the auditor can do to evaluate its significance in the engagement.
- MGM’s characteristics and influence over the control environment.
-> Investigate the past history of the firm and MGM.
-> Discuss the possibility of FFR with previous auditor and company legal counsel after obtaining permission to do so from MGM. - Industry conditions.
-> Research current status of industry and compare industry financial ratios to the company’s ratios. Investigate any unusual differences.
-> Read AICPA’s Industry Audit Risk Alert for the company’s industry, if available. Consider the impact of
specific risks that are identified on the conduct of the audit. - Operating characteristics and financial stability.
-> Perform analytical procedures to evaluate the possibility of business failure.
-> Investigate whether material transactions occur close to year-end.
Identify the cycle of sales, AP, RE, AR, inventory, and repairs and maintenance.
Sales & Collection Acquisition & Payment Capital Acquisition & Repayment Sales & Collection Inventory & Warehousing Acquisition & Payment
Why are sales, sales returns and allowances, bad debts, cash discounts, accounts receivable, and allowance for uncollectible accounts all included in the
same cycle?
Because all of them are related to AR, it help .see the relationship
Identify the three broad categories of management assertions.
- Assertions about classes of transactions and events for the period under audit
- Assertions about account balances at period end
- Assertions about presentation and disclosure
1 Distinguish between the general audit objectives and management assertions.
2 Why are the general audit objectives more useful to auditors?
- because more detailed and more closely related to helping the auditor accumulate sufficient appropriate evidence.
Distinguish between the existence and completeness balance-related
audit objectives. State the effect on the financial statements (overstatement or under -
statement) of a violation of each in the audit of accounts receivable.
xxx
What are specific audit objectives? Explain their relationship
to the general audit objectives.
xxx
Identify the management assertion and general balance-related
audit objective for the specific balance-related audit objective: All recorded fixed assets exist
at the balance sheet date.
xxx
Identify the management assertion and presentation and disclosure-related audit objective for the specific presentation and disclosure-related audit
objective: Read the fixed asset footnote disclosure to determine that the types of fixed
assets, depreciation methods and useful lives are clearly disclosed.
xxx
Identify the four phases of the audit. What is the relationship of the
four phases to the objective of the audit of financial statements?
xxx
