UGBA 126 Auditing - Session 1 Chap 1-2 - UGBA 126 Auditing Section Notes Chapter 1 2 Housekeeping Items I Odds\/Ends a GSI Introduction b Name Tents c

UGBA 126 - Auditing Section Notes – Chapter 1 & 2 1/22/2016 Housekeeping Items I. Odds/Ends a. GSI Introduction b. Name Tents c. GSI Office Hours i. Thursdays before class: 8:30 – 9:30 am ii. Bank of America Forum iii. Also by appointment: [email protected] II. Course Importance & Purpose of Section a. The world needs auditors, and audit firms need accountants that know how to do the job! b. Audit class vs Financial Accounting class c. Purpose of Section i. Review key points from class ii. Clarify concepts & answer questions iii. Work through practice problems iv. Disclaimer – concepts & problems I cover are not necessarily fully comprehensive for the course & what could show up on exams… it is my attempt to supplement lecture and enhance your understanding of lecture material Chapter 1 I. Principals & Agents a. Principal / Agent relationship i. Principals: stockholders of the firm ii. Agents: managers of the firm iii. Potential for conflict of interest b. Auditing helps navigate the conflict II. 3 Key Concepts (+ Sampling) a. Materiality i. Magnitude of an omission that may influence judgement of reasonable person b. Audit Risk i. Auditor may unknowingly fail to modify opinion on materially misstated financials c. Evidence i. Relevant & Reliable d. Sampling i. Inferences based on limited observations  too costly to examine everything III. Phases of the Audit a. Client acceptance/continuance b. Preliminary engagement activities c. Plan the audit

UGBA 126 - Auditing Section Notes – Chapter 1 & 2 1/22/2016 d. Consider and audit internal controls e. Audit business processes and related accounts f. Complete the audit IV. Audit Opinions a. Unqualified: fairly stated b. Qualified: fairly stated except for the misstatement identified c. Adverse: pervasive misstatement(s) V. Problems from Lecture a. 1-17: For what primary purpose does an auditor obtain an understanding of the entity and its environment? i. C. To plan the audit and determine the scope of the audit procedures to be performed b. 1-19: Which of the following is the most important reason for an auditor to gain an understanding of an audit client’s system of internal control over financial reporting? Understanding the client’s system of internal control… i. A. Can help the auditor assess risk and identify areas where financial statement misstatements are more likely c. 1- 23: A client used an inappropriate method for accounting… Misstatement is moderately material, but not pervasive… Client does not alter treatment… Rest of financial statements are fairly stated… What kind of audit report would be issued? i. B. Qualified opinion due to departure from GAAP d. 1-28: Financial statements & audit reports i. Any questions from your research? e. 1-29: Identify the phrases or words that indicate the FS are not an “exact” representation i. Scope paragraph: reasonable assurance; material; estimates; reasonable ii. Opinion paragraph: fairly; material VI. Additional Practice Problems a. 1-9: What are the major phases of the audit?