GAAS and Principles

Question 1

AICPA replaced the 10 GAAS with 7 principles

Answer 1

1) Purpose/Premise
2) Responsibilities
3) Performance
4) Reporting

Question 2

Purpose of an Audit

Answer 2

The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. An auditor’s opinion enhances the degree of confidence that intended users can place in the financial statements.

Question 3

Premise

Answer 3

An audit in accordance with generally accepted auditing standards is conducted on the premise that management and, where appropriate, those charged with governance, have responsibility for

1) The preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error
2) Providing the auditor with all information, such as records, documentation, and other matters that are relevant to the preparation and fair presentation of the financial statements; any additional information that the auditor may request from management and, where appropriate, those charged with governance; and unrestricted access to those within the entity from whom the auditor determines it necessary to obtain audit evidence

Question 4

Responsibilities

Answer 4

Auditors are responsible for having appropriate competence and capabilities to perform the audit; complying with relevant ethical requirements; and maintaining professional skepticism and exercising professional judgment, throughout the planning and performance of the audit.

Question 5

Performance

Answer 5

1) To express an opinion, the auditor obtains reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

2) To obtain reasonable assurance, which is a high, but not absolute, level of assurance, the auditor
a. Plans the work and properly supervises any assistants
b. Determines and applies appropriate materiality level or levels throughout the audit
c. Identifies and assesses risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity’s internal control
d. Obtains sufficient appropriate audit evidence about whether material misstatements exist, through designing and implementing appropriate responses to the assessed risks

3) The auditor is unable to obtain absolute assurance that the financial statements are free from material misstatement because of inherent limitations, which arise from
a. The nature of financial reporting
b. The nature of audit procedures
c. The need for the audit to be conducted within a reasonable period of time and so as to achieve a balance between benefit and cost

Question 6

Reporting

Answer 6

Based on an evaluation of the audit evidence obtained, the auditor expresses, in the form of a written report, an opinion in accordance with the auditor’s findings, or states that an opinion cannot be expressed. The opinion states whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Question 7

The exercise of due professional care requires that an auditor

Answer 7

The exercise of due professional care requires that a critical review of the work completed and the judgments made be performed at every level of supervision.

Question 8

In AICPA professional standards, the word should indicates an

Answer 8

The word should indicates a presumptively mandatory requirement.