AUDIT RESPONSIBILITIES AND OBJECTIVES

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CHAPTER 5

• AUDIT RESPONSIBILITIES AND OBJECTIVES

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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

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MANAGEMENT RESPONSIBILITIES

• ADOPTION OF SOUND ACCOUNTING PRINCIPLES
• MAINTAINENCE OF ADEQUATE INTERNAL CONTROLS
• PREPARATION OF FAILY PRESENTED FINANCIAL
  STATEMENTS

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AUDITORS RESPONSIBILITIES

• PLAN AND PERFORM AUDIT
• OBTAIN REASONABLE ASSURANCE THAT FINANCIAL
  STATEMENTS ARE NOT MATERIALLY MISSTATED
• EXERCISE PROFESSIONAL SKEPTICISM DURING AUDIT

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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

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• 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

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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

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• 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

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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

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• 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

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AUDIT OBJECTIVES

• MANAGEMENT ASSERTIONS
• EXISTENCE OR OCCURRENCE
• COMPLETENESS
• VALUATION AND ALLOCATION
• RIGHTS AND OBLIGATIONS
• PRESENTATION AND DISCLOSURE

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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

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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

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

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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