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Auditing 81.3550

Auditing 81.3550. Responsibilities & Objectives Chapter 5. Highlights. Audit Objectives – the specifics Management & Auditor Responsibilities Audit Approach Assertions, Objectives Transactions, & Ending Balances The Audit Process. Audit Objectives.

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Auditing 81.3550

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  1. Auditing 81.3550 Responsibilities & Objectives Chapter 5

  2. Highlights • Audit Objectives – the specifics • Management & Auditor Responsibilities • Audit Approach • Assertions, Objectives Transactions, & Ending Balances • The Audit Process

  3. Audit Objectives • To express an opinion on the F/S that they present fairly in all material respects in accordance with GAAP • Accumulate evidence to enable auditor to express an opinion • Need to ensure complete and verifiable evidence incase called upon to the defend quality of audit and/or opinion

  4. Management’s Responsibility • What exactly are management responsibilities when it comes to the F/S? • Maintaining adequate Internal Controls • Fair representations • Setting/adopting sound accounting policies • F/S preparation including notes • Management has the most intimate knowledge of the business, transactions, as well as the ultimate level of control

  5. Auditor’s Responsibilities • Performs audit meeting GAAS and GAAP requirements • Including: • Maintaining “professional skepticism” • Using professional judgment • Adequate planning and gathering of evidence • Not responsible to uncover fraud but must act on fraud if it is discovered during the audit • May include expanding testing to determine if an unintentional error vs. fraudulent behaviour

  6. General Fraud & The Audit • Fraud – is criminal deception intended to benefit the deceiver most often financially • Estimated 75% of Fraud goes undetected • when performing the audit need to think about the likelihood of fraud and the type in a particular area • GONE Theory – essential ingredients for fraud to occur • G – Greed • O – Opportunity • N – Need (motivation) • E - Exposure

  7. Fraud & The Audit • Employee Fraud • Chances fraud is committed by an employee (in Canada) 4 out of 5 times (Report on Business Magazine) • Most common theft of assets • Management Fraud – often more difficulty to uncover due to increased level of opportunity, and increased level of sophistication in covering up the fraud • Typical frauds involve share price manipulation, related party transactions, expense related and kickbacks

  8. Fraud & The Audit • Computer Fraud - basically fraud with assistance from a(n) computer(s) often involves using software • Examples include: obtaining customer information, theft of credit card numbers, identity theft, redirecting/manipulation of automatic payroll/payments

  9. Illegal Acts • Defn: a violation of a domestic of foreign statutory law or government regulation attributable to the entity under audit, or to management or employees acting on the entity's behalf. (Section 5136)

  10. Regarding illegal acts, auditors should, in all audits, - read minutes of board meetings - enquire of client’s lawyers - enquire of client management regarding the occurrence of illegal acts AND client policies regarding illegal acts

  11. Auditor’s Responsibility • Other than the min required procedures - not expected to specifically search for illegal acts unless lead to believe that they exist

  12. Auditor’s Responsibility • If illegal act believed to have occurred need to • determine those involved(normally enquire at a level or so above those suspected) • Consult client’s lawyer • Consider if additional evidence is required to confirm existence • If determined illegal act has occurred consider effect and required disclosure on F/S • Inform audit committee • May need opinion of Firm lawyers as well • In client refused to disclose or remedy situation may need to withdraw from audit

  13. Basic Management Assertions • existence or occurrence -financial components exist at a given date, transactions have occurred during a given period • completeness - all transactions and accounts are presented, nothing has been left out

  14. Basic Management Assertions 3. valuation or allocation - com- ponents of financial statements are included at appropriate amounts 4. rights and obligations - assets are rights of the entity and liabilities are obligations

  15. Basic Management Assertions 5. rights and obligations - assets are rights of the entity and liabilities are obligations 6. statement presentation and disclosure - components of financial statements are properly combined, separated, described and disclosed

  16. Transaction Related Objectives • Help provide audit framework • Assists in planning and collecting evidence for groups of transactions • Two types of transaction objectives • General – applies to all groups of transactions • Specific – tailored to a specific group/class in particular

  17. Balance Related Objectives • Instead of examining groups/classes (i.e. sales transactions etc.) of transactions now looking at balances (i.e. ending balances on the balance sheet and income statement)

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