Scribd
Upload
22 views

Audit Responsibilities and Objectives

This document outlines the responsibilities of management and auditors in the financial statement audit process. It discusses management's responsibility for financial statements and internal controls as well as auditors' responsibility to gather evidence and provide reasonable assurance. It also describes the differences between errors and fraud, how auditors discover illegal acts, accumulate evidence, and determine their response. Finally, it explains how auditors develop audit objectives and the four phases of a financial statement audit.

Uploaded by

Sayem Ahmed
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
22 views

Audit Responsibilities and Objectives

This document outlines the responsibilities of management and auditors in the financial statement audit process. It discusses management's responsibility for financial statements and internal controls as well as auditors' responsibility to gather evidence and provide reasonable assurance. It also describes the differences between errors and fraud, how auditors discover illegal acts, accumulate evidence, and determine their response. Finally, it explains how auditors develop audit objectives and the four phases of a financial statement audit.

Uploaded by

Sayem Ahmed
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 15

Audit Responsibilities

and Objectives
Chapter 6
Management’s Responsibilities

• Management is responsible for the financial


statements and for internal control.
• The Sarbanes–Oxley Act requires the CEO
and the CFO of public companies to certify
the quarterly and annual financial
statements.
• Criminal penalties for knowingly certifying
false statements
Auditor Responsibilities

• Gather sufficient competent evidential


matter
• Materiality
• Reasonable assurance
• Professional skepticism
Errors versus fraud
• Auditors usually find many errors
• Postings
• Incorrect application of GAAP
• Fraud
• Misappropriation of assets
• Financial reporting fraud
• Misappropriation at any level
• Reporting fraud perpetrated by management
• Fraud harder to find than errors because of attempt
to conceal
Discovering Illegal Acts Other than
Fraud

• Illegal Acts defined in SAS 54 as being


other than fraud
• Direct-effect illegal acts
• Auditor responsible for detection, just as in
errors and fraud
• Indirect-effect illegal acts
• Auditor provides no assurance of detection
Evidence Accumulation

• Evidence accumulation when there is no reason


to believe indirect-effect illegal act exists
• Not expected to search
• When there is reason to believe direct- or
indirect-effect illegal acts may exist
• Inquire of management
• Consult with client’s legal counsel
• Additional evidence
When Illegal Act is Known

• Consider effects on f.s. and disclosures


• Modify report if inadequate
• Consider believability of management
• Consult audit committee
• Consider resignation
• If public, must report to SEC
Transaction Cycles

• Useful for auditor to break it down into cycles


• Cycles include related accounts
• Example: Sales cycle includes sales, cash
receipts, accounts receivable, write-offs
• Other cycles
• Acquisition and payment
• Payroll
• Inventory
• Capital acquisition (funding, not assets) and repayment
Management Assertions

• P resentation and Disclosure


• E xistence or occurrence
• R ights and obligations
• C ompleteness
• V aluation or allocation
Steps to Develop Audit Objectives
Understand objectives and
1
responsibilities for the audit.

Divide financial statements


2
into cycles.

Know management
3
assertions about accounts.
Steps to Develop Audit Objectives
Know general audit objectives for
4
classes of transactions and accounts.

Know specific audit objectives for


5
classes of transactions and accounts.
Transaction-Related Audit Objectives

Management Assertions General Transaction-Related


Audit Objectives

Presentation and Disclosure N/A


Existence or Occurrence Occurrence
Rights and Obligations N/A
Completeness Completeness
Valuation or Allocation Accuracy
Classification
Timing
Posting and summarization
Balance-Related Audit Objectives
Management Assertions General Transaction-Related
Audit Objectives

Presentation and Disclosure Presentation and Disclosure


Existence or Occurrence Existence
Rights and Obligations Rights and Obligations
Completeness Completeness
Valuation or Allocation Accuracy
Classification
Cut-off
Detail tie-in
Realizable value
How Audit Objectives Are Met

• The auditor must obtain sufficient


competent audit evidence to support all
management assertions in the financial
statements.
• An audit process is a methodology for
organizing an audit.
4 Phases of a Financial Statement Audit

• Phase 1: Plan and design an audit approach.


• Phase 2: Perform tests of controls and
substantive tests of transactions.
• Phase 3: Perform analytical procedures and
tests of details of balances.
• Phase 4: Complete the audit and issue an
audit report.

You might also like