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Audit Responsibilities and Objectives

Management's Responsibilities. Management is responsible for the financial statements and for internal control.The Sarbanes

Sophia
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Audit Responsibilities and Objectives

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    1. Audit Responsibilities and Objectives Chapter 6

    2. Management’s Responsibilities Management is responsible for the financial statements and for internal control. The Sarbanes–Oxley Act requires the CEO and the CFO of public companies to certify the quarterly and annual financial statements. Criminal penalties for knowingly certifying false statements

    3. Auditor Responsibilities Gather sufficient competent evidential matter Materiality Reasonable assurance Professional skepticism

    4. Errors versus fraud Auditors usually find many errors Postings Incorrect application of GAAP Fraud Misappropriation of assets Financial reporting fraud Misappropriation at any level Reporting fraud perpetrated by management Fraud harder to find than errors because of attempt to conceal

    5. Discovering Illegal Acts Other than Fraud Illegal Acts defined in SAS 54 as being other than fraud Direct-effect illegal acts Auditor responsible for detection, just as in errors and fraud Indirect-effect illegal acts Auditor provides no assurance of detection

    6. Evidence Accumulation Evidence accumulation when there is no reason to believe indirect-effect illegal act exists Not expected to search When there is reason to believe direct- or indirect-effect illegal acts may exist Inquire of management Consult with client’s legal counsel Additional evidence

    7. When Illegal Act is Known Consider effects on f.s. and disclosures Modify report if inadequate Consider believability of management Consult audit committee Consider resignation If public, must report to SEC

    8. Transaction Cycles Useful for auditor to break it down into cycles Cycles include related accounts Example: Sales cycle includes sales, cash receipts, accounts receivable, write-offs Other cycles Acquisition and payment Payroll Inventory Capital acquisition (funding, not assets) and repayment

    9. Management Assertions P resentation and Disclosure E xistence or occurrence R ights and obligations C ompleteness V aluation or allocation

    10. Steps to Develop Audit Objectives

    11. Steps to Develop Audit Objectives

    12. Transaction-Related Audit Objectives

    13. Balance-Related Audit Objectives

    14. How Audit Objectives Are Met The auditor must obtain sufficient competent audit evidence to support all management assertions in the financial statements. An audit process is a methodology for organizing an audit.

    15. 4 Phases of a Financial Statement Audit Phase 1: Plan and design an audit approach. Phase 2: Perform tests of controls and substantive tests of transactions. Phase 3: Perform analytical procedures and tests of details of balances. Phase 4: Complete the audit and issue an audit report.

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