Chapter 6 Flashcards
purpose of audit
is to provide f/s users with an opinion by the auditor on whether the f/s are presented fairly in all material respects in accordance with the applicable financial accounting framework
auditors
verify that the f/s are free of material misstatement
reasonable assurance
measure of the level of certainty that the auditor has obtained at the completion of the audit
error
an unintentional misstatement of the financial statements,
fraud
intentional misstatement
misappropriation of assets
defalcation or employee fraud
ex: employee steals customer money meant for purchase
fraudulent financial reporting
management fraud
professional skepticism
attitude auditors take in audits
noncompliance with laws and regulations
illegal acts
financial statement cycles
sales and collection cycle acquisition and payment cycle payroll and personnel cycle inventory and warehousing cycle capital acquisition and repayment cycle
transaction related audit objectives
these are objectives that tell if a transaction is properly recorded
balance related audit objectives
objectives that verify if account balances are correct
presentation and disclosure related audit objectives
objectives that verify that all items are disclosed correctly and fully
management assertions
implied or expresses representations by management about classes of transactions and the related accounts and disclosures in the financial statements
occurence
did it really happen?
completeness
is everything included?
accuracy
are things recorded at the correct amount
classification
is everything recorded in the right account
cutoff
are transactions recorded in the proper period
existence
do the items really exist?
valuation and allocation
are things valued right?
rights and obligations
do they own the assets?
occurrence and rights and obligation
did the transactions that occurred belong to the company?
assertions about classes of transactions and events
occurrence completeness accuracy classification cutoff
assertions about account balances
existence
completeness
valuation and allocation
assertions about presentation and disclosure
occurrence and rights and obligations
completeness
accuracy and valuation
classification and understandability
relevant assertions
using the correct assertions for the correct accounts
phases of the audit process
- plan and design an audit approach
- perform tests of controls and substantive tests of transactions
- perform analytical procedures and tests of detail of balances
- complete the audit and issue an audit report
tests of controls
testing of controls
substantive tests of transactions
testing substantial transactions
analytical procedures
consists of analyzing financial and non-financial data
tests of details of balances
designed to test for monetary misstatements in the balances in the financial statements
