Audit Responsibilities and Objectives Chapter 6

Transcript:Audit Responsibilities and Objectives Chapter 6:
Audit Responsibilities and Objectives Chapter 6 Learning Objective 1 Explain the objective of conducting an audit of financial statements. Objective of Conducting an Audit of Financial Statements The primary objective of the audit is to express an opinion on the financial statements. Steps to Develop Audit Objectives Understand objectives and responsibilities for the audit. 1 2 Divide financial statements into cycles. 3 Know management assertions about accounts. Steps to Develop Audit Objectives Know general audit objectives for classes of transactions and accounts. 4 5 Know specific audit objectives for classes of transactions and accounts. Learning Objective 2 Distinguish management’s responsibilities for preparing financial statements from the auditor’s responsibilities for verifying those financial statements. Responsibilities Management is responsible for the financial statements, and for internal control. Auditors issue an opinion on fairness of the financial statements. Learning Objective 3 Explain the auditor’s responsibility for discovering material misstatements. Auditor’s Responsibilities Material versus immaterial misstatements Reasonable assurance Errors versus fraud Professional skepticism Responsibilities for Discovering Illegal Acts Direct-effect illegal acts Indirect-effect illegal acts Evidence accumulation when there is no reason to believe indirect-effect illegal act exists Responsibilities for Discovering Illegal Acts Evidence accumulation and other actions when there is reason to believe direct- or indirect-effect illegal acts may exist Actions when the auditor knows of an illegal act Learning Objective 4 Classify transactions and account balances into financial statement cycles and identify benefits of a cycle approach to segmenting the audit. Transaction Flow Example Transactions Journals Ledger, Trial Balance, and Financial Statements Acquisition of goods and services Cash receipts journal Sales Sales journal Cash receipts Acquisitions journal General ledger and subsidiary records General ledger trial balance Financial statements Transaction Flow Example Transactions Journals Ledger, Trial Balance, and Financial Statements Allocation and adjustments Payroll journal Cash disbursements Cash disburse- ments journal Payroll services and disbursements General journal General ledger and subsidiary records General ledger trial balance Financial statements Relationships Among Transaction Cycles General cash Capital acquisition and repayment cycle Sales and collection cycle Acquisition and payment cycle Payroll and personnel cycle Inventory and warehousing cycle Learning Objective 5 Describe why the auditor obtains a combination of assurance by auditing classes of transactions and ending balances in accounts. Balance and Transactions Affecting Balances Example $ 19,454 144,328 $ 20,197 139,020 1,242 3,328 Charge-off of uncollectible debts Cash receipts Sales returns and allowances Sales Accounts Receivable (in thousands) Beginning balance Ending balance Learning Objective 6 Distinguish