what is an audit

Question 1

What does an audit produce?

Answer 1

• audit report
• an opinion on the financial statements compliance with a comprehensive set of accounting standards (GAAP, IFRS, Statutory accounting like ins companies, public schools, cities, etc)

Question 2

How does an auditor produce the audit report?

Answer 2

• report expresses an opinion
• gives: reasonable assurance, free of material misstatement, examining evidence that supports account balances and disclosures on a test basis, and a similar process for internal controls

Question 3

Why look at a cycle rather than just individual accounts?

Answer 3

Everything is related and there are no isolated accounts.

Question 4

What is the cycle approach?

Answer 4

Acknowledges that each account is related and does not exist in isolation. (ex: increase in sales is directly related to increase in A/R)

Question 5

What is the revenue cycle?

Answer 5

Order acceptance, shipping, billing, cash collections. Exclude production and product cost from the revenue cycle.

Question 6

Why use the cycle approach?

Answer 6

The cycle approach enables the auditor to gather audit evidence on a number of accounts at the same time.

Question 7

5 Management Assertions

Answer 7

VERPC (evaluates veracity)

• Valuation
• Existence
• Rights & obligations
• Presentation/disclosure
• Completeness

Question 8

What do “assertions” tell us?

Answer 8

• Account balances are not facts

- auditor must break accounts and transactions into smaller pieces to consider all effects