Audit Midterm Conspect

Topics: Auditing, Auditor's report, Internal control Pages: 27 (4627 words) Published: February 7, 2013
Ethical (General) Standards

Competence – adequate technical training and proficiency. Competence is knowing what to do.

1. Recognize the assertion being made by management in each element (account) of a financial statement.

2. Decide which evidence is relevant for supporting or refusing the assertion

3. Select and perform procedures of obtaining the evidence

4. Evaluate the evidence and decide whether management assertions correspond to reality and GAAP

- Objectivity – an objective state of mind – intellectual honesty and impartiality. Having a lack of bias in designing and performing the audit work.

- Due professional care – observance of the rules of professional ethics and CAS. Doing the work to the best of your ability

Examination standards

- Planning and supervising

- Understanding the system on internal control of the business

- Design procedures to detect fraud

- Gather sufficient and appropriate (reliable and relevant) evidence/matter

1. Appropriate evidence are quantitative and qualitative

2. Objective and subjective

3. Absolutely compelling and mildly persuasive

- Express opinion

Reporting standards

- 6 paragraphs

- To shareholders

- Introductory, BS, IS, CF, RE, disclosures

- Management’s responsibilities

- Auditor’s responsibilities

- Scope paragraph

- Signature

- Date

- Address

Implicit messages

1. Consistency (the same accounting policy)

2. Adequate disclosure – if FSs disclosure contain all the important accounting information the user needs

Professional scepticism – auditor tends not to believe management without other evidence.

Before accepting the audit and signing the engagement letter

- Decide what type of assurance engagement to perform

- Obtain and review financial information about auditee

- Evaluate the auditor’s ability to comply with ethical requirements

- Assess a limitation of evidences gathering

- Consider whether there is a need for special skills

- Ask auditee’s management about the business and its risks

- Consider whether the engagement involves unusual risks

- Search for information about the organization

- Communicate with the previous auditor, if any

- Consider time constrains

Planning audit

- Assess auditability of company.

- Assess materiality

- Inherent and control risk

1. Auditor’s approach for gathering evidences

- Prepare time budget as a plan for the timing of the work and the number of hours each segment of the audit is expected to take. Most audit work is performed just before and just after the year end. Some work (testing of internal control) is scheduled several months before year end.

- Perform the audit test and evaluate the results

1. Statement of Internal control – indirect testing

2. Substantive control- direct testing

3. Analytical procedures as part of substantive testing

- Form the opinion, issue the appropriate report

1. Decide whether or not you can issue an opinion and what kind of opinion

2. The auditor will meet with the client’s audit committee to deliver the audit report and discuss any matters that arose during the audit.

Nature, timing and extent – audit plan details

Nature – which type of the evidence will be used OR evidence technique will be used

Timing – when the procedure will be performed (before (interim date) at or after the auditee’s year. It also may be surprise procedure, periodic procedure

Extent – size of sample to be used (number of customers, etc.)

Audit risk is related to information risk and auditing is fundamentally risk management process. Audit risk is the probability that the audit fails to detect a material misstatement.this occurs when

- There is a material misstatement to start with (IR),

- the internal control fail to detect...
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