What Is Auditing? (intro chapter) Flashcards
why do audits exist?
most companies benefit
how do companies benefit from audits?
attracts investors, receives lower interest rates from creditors
fraud negatively impacts who?
investors, employees, public trust, and creditors (aka banks)
how are those negatively impacted by fraud protected?
by federal securities laws
what item do we audit?
10 k item 8
what do we assume about financial statements?
they are “CORRECT”
what are the PCAOB financial statement assertions acronym?
PERCV
P in PERCV
presentation and discloser
E in PERCV
existence and occurrence
R in PERCV
rights and obligations
C in PERCV
completeness
V in PERCV
valuation and allocation
existence and occurrence B/S questions
existence? are they real? do the assets and liabilities exist?
existence and occurrence I/S questions
occurrence? are they real? did the revenues and expenses occur?
completeness for B/S and I/S
all transactions and accounts are included. is everything included? is something improperly excluded?
valuation and accuracy for B/S and I/S
all components have been included at the appropriate amounts. are amounts accurately valued? are amounts allocated properly? (ex non-current vs current)
rights and obligation for B/S
rights = assets
obligations = liabilities
for rights and obligations, rights = __?
assets
for rights and obligations, obligation = __?
liabilities
presentation and discloser for B/S and I/S
all components are properly disclosed the financial statements and/or the notes
who is management at a public company?
CEO and CFO
what is an independent audits goal?
to provide “reasonable assurance” that the F/S are free from material misstates
audits lend ___ to financial statements by…
credibility, lowering information risk
what is information risk?
risk that information is materially misstated (due to fraud or error)
how can information be materially misstated?
fraud and error
what lowers information risk?
credibility
CAQ says an auditor is a…
professional who helps determine if organizations and businesses
1. follow the rules (GAAP)
2. operate with integrity
3. accurately present financial information
an auditor makes sure businesses follows what rules?
GAAP
an auditor makes sure a client operates with…
integrity
the textbook definition of auditing is…
“auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between assertions and establishing criteria and communicating the results to interested users”
auditing is a ___ process
systematic
audits obtain and evaluate evidence regarding ____
assertions
assertions refer to…
F/S, including footnotes
what provides the established criteria?
GAAP
what does it mean to “communicate the results”?
provide auditor / other reports
who are interested users?
persons who rely on the financial reports (investors and creditors)
Professors definition of financial statement audit
“auditor come in and look at evidence to make sure that the F/S are correct (follow assertions) and follow GAAP”
what does is mean for F/S to be “correct”?
follows assertions
