PRELIMS

• Professional Skepticism - an attitudes in ludes a questioning and a critical assessment of audit evidence.
• In designing which audit procedures are to be performed, an auditor should establish specific audit objectives that are primarily based on management assertions expressed in financial statements.
• Auditor's responsibility to detect fraud: an auditor should design an audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.
• Elements of assurance engagements:

  • Subject Matter
  • Evidence
  • Suitable criteria
• An auditor strives to achieve independence in appearance to appear unbiased and objective.
• Before accepting an audit engagement a successor auditor should make specific inquiries of the existing auditor regarding the existin auditor's understanding as to the reasons for the change of auditors and the management's integrity.
• Reasons for a public company to receive and audit:

  • Potential bias in providing information
  • Complexity of the processing systems
  • Remoteness between user and the organization
• The purpose of an audit is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
• To conduct an audit the auditor must comply with relevant ethical standards.
• Unqualified report - an audit report referred to when the auditor has no reservations about management's financial statements
• Management of a company is responsible for other information included in the financial statements.
• Management - responsible for internal controls within an organization.
• Components of Assurance Engagements:

  • Information or process on which the assurance service is provided.
  • Criteria for evaluation (compliance with regulations)
  • Sufficient appropriate evidence
• Two levels of assurance in assurance engagements:

  • Reasonable assurance
  • Limited Assurance
• Review - an accounting service that involves in performing inquiry and analytical procedures as a reasonable basis for expressing limited assurance that no material modifications need to be made to the financial statements in order for the financial statements to conform to applicable reporting framework.
• The assertion based services requires that a report be made by a responsible party and attested to by another.
• Unqualified report


  An audit report referred to when the auditor has no reservations about management's financial statements.
• Triple bottom line reporting


  it is a reporting on financial, environmental, and social performance.
• An audit is always utilizies the sampling techniques to detect material mistatements while forensic accounting examines the entire population of fraudulent transactions.
• The financial statements are presented fairly according to the substance of the applicable reporting framework.
• An auditor must comply with relevant ethical standards.
• In direct reporting engagement, intended user is responsible for the subject matter.
• Criteria - benchmark used to evaluate or measure the subject matter.
• Suitable criteria for assurance engagement

  • Relevance
  • Understandability
  • Neutrality
• FALSE


  The objective of an assurance engagement is for professional accountant to evaluate or measure a subject matter that is responsibility of another party against identified suitable criteria, but not to express a conclusion that provides the intended user witha level of assurance about that subject matter.
• TRUE


  Assurance engagements performed by professional accountants ard intended to enhance the credibility of information about a subject matter.
• Engagement process


  A systematic methodology requiring a specialized knowlledge and skill base, and techniques for evidence gathering and evaluation and measurement to support a conclusion, irrespective of the nature of the assurance engagement subject matter.
• Standards of reporting


  these standards cover the essential elements of communication. These consist of criteria against which the assertions were tested and an explanation of the basis for the auditor's opinion.
• Generally Accepted Auditing Standards


  Measures of the quality of auditors performance.
• For an auditor to be independent, he or she must be independent in fact and appearance.
• Due professional care - an auditor shiuld critically review the judgment exercised by those assisting in audit.
• Standard Fieldwork #1


  In the following situation, which among Ten GAAS is most violated: "A CPA firm sends an assistant to a client's office to begin an audit without providing the assistant with any instructions or background information."
• Standards of reporting #4

  In the following situation, which among Ten GAAS is most violated: "Because of an incomplete scope of work, the CPA firm declined to issue an audit report but, at the client's request, provided financial statements on letterhead stationery of the CPA firm. The CPAs expressed no opinion"
• General Standard #3


  In the following situation, which among Ten GAAS is most violated: " The CPA firm had informed the client that the audit would begin on November 17, but found it had no staff members available at that time. To avoid criticism from the client, the CPA instructed a newly employed secretary to go to the client's office, ask to see the general ledger, and to give the impression of being busy until an auditor could be assigned to the engagement."
• In planning an audit of certain accounts, an auditor may conclude that specific procedures used to obtain an understanding of an entity's internal control structure need not to be included because of the auditor's judgments about materiality and assessment of audit risk.
• PAuditor's judgment

  Ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion.
• For audif purposes, subsequent events are defined as events that occur after the balance sheet date but prior to the date of audit report.