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Understanding Audit Responsibilities & Objectives

Learn about the purpose of audits, roles of auditors and management, detecting fraud, assessing risk factors, and meeting audit objectives through proper planning and execution.

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Understanding Audit Responsibilities & Objectives

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  1. CHAPTER 5 AUDIT RESPONSIBILITIES AND OBJECTIVES

  2. OBJECTIVE OF CONDUCTING AN AUDIT • THE OBJECTIVE OF AN ORDINARY AUDIT OF FINANCIAL STATEMENTS IS THE EXPRESSION OF AN OPINION REGARDING THE FAIRNESS OF THE PRESENTATION IN COMPARISON TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

  3. MANAGEMENT RESPONSIBILITIES • ADOPTION OF SOUND ACCOUNTING PRINCIPLES • MAINTAINENCE OF ADEQUATE INTERNAL CONTROLS • PREPARATION OF FAILY PRESENTED FINANCIAL STATEMENTS

  4. AUDITOR’S RESPONSIBILITIES • PLAN AND PERFORM AUDIT • OBTAIN REASONABLE ASSURANCE THAT FINANCIAL STATEMENTS ARE NOT MATERIALLY MISSTATED • EXERCISE PROFESSIONAL SKEPTICISM DURING AUDIT

  5. RESPONSIBILITY TO DETECT FRAUD • SAS 82 - CONSIDERATION OF FRAUD • DEFINES FRAUD • FRAUDULENT FINANCIAL REPORTING • MISAPPROPRIATION OF ASSETS • AUDITOR RESPONSIBLE TO ASSESS RISK OF FRAUD • FRAUD RISK FACTORS FOR FINANCIAL REPORTING • MANAGEMENT CHARACTERISTICS • INDUSTRY CONDITIONS • OPERATING CHARACTERISTICS

  6. FRAUD RISK FACTORS - MISAPPROPRIATION OF ASSETS • SUSCEPTIBILITY OF ASSETS TO MISAPPROPRIATION • INTERNAL CONTROLS • AUDITOR RESPONSIBLE TO EVALUATE RISK FACTORS • PRESENCE OF RISK FACTORS INCREASES RISK THAT FRAUD COULD OCCUR, NOT INDICATE THAT IT DID OCCUR • AUDITOR RESPONSIBLE TO MODIFY EVIDENCE GIVEN RISK FACTORS

  7. RESPONSIBILITY TO DISCOVER ILLEGAL ACTS • DIRECT EFFECT ILLEGAL ACTS • FINANCIAL STATEMENTS ARE MATERIALLY AFFECTED BY ACT • UNDERSTATING TAX LIABILITY • INDIRECT EFFECT ILLEGAL ACTS • FINANCIAL STATEMENTS MAY BE AFFECTED IF DETECTED AND FINES ASSESSED • EMPLOYEE SAFETY LAWS

  8. EVIDENCE ACCUMULATION IF AUDITOR SUSPECTS ILLEGAL ACTS • INQUIRE OF MANAGEMENT • CONSULT LEGAL COUNSEL • ADDITIONAL EVIDENCE • IDENTIFY ILLEGAL ACT • CONSIDER EFFECT ON FINANCIAL STATEMENTS • HONESTY OF MANAGEMENT • COMMUNICATE WITH AUDIT COMMITTEE • CONSIDER WITHDRAWAL

  9. FINANCIAL STATEMENT CYCLES • CYCLES OF TRANSACTIONS • SALES AND COLLECTIONS CYCLE • ACQUISITION AND PAYMENT CYCLE • PAYROLL AND PERSONNEL CYCLE • INVENTORY AND WAREHOUSING CYCLE • CAPITAL ACQUISITION AND REPAYMENT CYCLE

  10. CYCLE APPROACH TO SEGMENTING AUDIT • ACCOUNTS ARE AFFECTED BY ONE OR MORE CYCLES • INTERNAL CONTROLS CAN BE ANALYZED BY CYCLE • RISK OF MISSTATEMENT CAN BE ASSESSED BY CYCLE

  11. AUDIT OBJECTIVES • MANAGEMENT ASSERTIONS • EXISTENCE OR OCCURRENCE • COMPLETENESS • VALUATION AND ALLOCATION • RIGHTS AND OBLIGATIONS • PRESENTATION AND DISCLOSURE

  12. TRANSACTION-RELATED AUDIT OBJECTIVES • EXISTENCE • RECORDED TRANSACTIONS EXIST • COMPLETENESS • EXISTING TRANSACTIONS ARE RECORDED • VALUATION • RECORDED TRANSACTIONS ARE STATED AT CORRECT AMOUNTS • TRANSACTIONS ARE PROPERLY CLASSIFIED • TRANSACTIONS ARE IN CORRECT PERIOD

  13. BALANCE-RELATED AUDIT OBJECTIVES • EXISTENCE • BALANCES EXIST • COMPLETENESS • ALL EXISTING BALANCES ARE INCLUDED • VALUATION • BALANCES ARE AT CORRECT AMOUNTS • PROPER CLASSIFICATION • CUTOFF • AGREEMENT OF RECORDS • REALIZABLE VALUE

  14. RIGHTS AND OBLIGATIONS • ENTITY HAS RIGHTS TO ASSETS • ENTITY HAS OBLIGATIONS REGARDING LIABILITIES • PRESENTATION AND DISCLOSURE • FINANCIAL STATEMENTS ARE PROPERLY PRESENTED • DISCLOSURES ARE ADEQUATE

  15. MEETING AUDIT OBJECTIVES • PLAN AND DESIGN THE AUDIT • PERFORM TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS • PERFORM ANALYTICAL PROCEDURES AND TESTS OF BALANCES • COMPLETE AUDIT

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