Chapter 2 Auditing

1
Modern Auditing Assurance Services and the
Integrity of Financial Reporting, 8th Edition
William C. Boynton California Polytechnic State
University at San Luis Obispo Raymond N.
Johnson Portland State University
Chapter 2 Auditors Responsibilities and Reports
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Chapter 2 Overview
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Relationship Between Accounting and Auditing
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Important Fundamental Concepts

• Verifiability
• Fair Presentation
• Professional Judgment
• Materiality

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Independent Auditor Relationships

• Management
• Board of Directors and Audit Committee
• Internal Auditors
• Stockholders

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Study Break

• 1. It is the responsibility of management to
  complete all of the following except
• Assess the risk of material misstatement in the
  financial statements
• Measure and record transaction data
• Classify and summarize recorded data
• Prepare financial statements per GAAP
• A. Assess the risk of material misstatement in
  the financial statements

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Study Break

• 2. Items that are considered to be _____, are
  significant to financial statement users.
• Verifiable
• Material
• Fairly Presented
• Recorded
• B. Material

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Generally Accepted Auditing Standards (GAAS)

• General Standards
• Standards of Field Work
• Standards of Reporting

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GAAS General Standards

• Adequate Technical Training and Proficiency
• Independence in Mental Attitude
• Due Professional Care

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GAAS Standards of Field Work

• Adequate Planning and Proper Supervision
• Understanding the Entity, Environment, and
  Internal Control
• Sufficient Competent Audit Evidence

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GAAS Standards of Reporting

• Financial Statements Presented in Accordance with
  GAAP
• Consistency in the Application of GAAP
• Adequacy of Informative Disclosures
• Expression of Opinion

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Additional Standards

• Statements on Auditing Standards
• AICPA website Audit and Attest Standards
• PCAOB Auditing Standards
• Public Companies Accounting Oversight Board
  website

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Study Break

• 3. General Standards include all of the following
  except
• Adequate Training
• Independence
• Understanding the Entity
• Due Professional Care
• C. Understanding the Entity

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Study Break

• 4. These standards pertain specifically to the
  conduct of the audit at the entitys place of
  business.
• General Standards
• Standards of Field Work
• Standards of Reporting
• Statement on Auditing Standards
• B. Standards of Field Work

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Assurance Provided by an Audit
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The Auditors Standard Report Unqualified
Opinion

• Title and Address
• Introductory Paragraph
• Scope Paragraph
• Opinion Paragraph
• Firms Signature and Date

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Departures from the Standard Report

• Standard Report with Explanatory Language
• Qualified Opinion
• Adverse Opinion
• Disclaimer of Opinion

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Types of Auditors Reports and Circumstances
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Typical Report Profiles
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The Auditors Standard Report on Internal Controls

• Title and Address
• Introductory Paragraph
• Scope Paragraph
• Definition Paragraph

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The Auditors Standard Report on Internal
Controls (cont.)

• Inherent Limitations Paragraph
• Opinion Paragraph
• Explanatory Paragraph
• Firms Signature and Date

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Defining Criteria for Departures from the
Standard Report
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Departures from the Standard Report on Internal
Controls
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Study Break

• 5. All of the following are components of
  assurance provided by an audit except
• Auditor independence
• Reasonable assurance
• Detecting and reporting illegal acts
• Guaranteed accuracy of financial statements
• D. Guaranteed accuracy of financial statements

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Study Break

• The standard report includes all of the following
  except
• Introductory Paragraph
• Scope Paragraph
• Explanatory Language Paragraph
• Opinion Paragraph
• C. Explanatory Language Paragraph

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Study Break

• This opinion states that the auditor does not
  express and opinion on the financial statements.
• Unqualified Opinion
• Qualified Opinion
• Adverse Opinion
• Disclaimer of Opinion
• D. Disclaimer of Opinion