Exam 2 Review - Exam 2 Review Chapter 5, 6, 7, and 8...

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Exam 2 Review Chapter 5, 6, 7, and 8 Chapter 5 Legal Liability The Changed Legal Environment (page 112) Distinguishing Business Failure, Audit Failure, and Audit Risk (page 113) Prudent Person Concept (page 114) Review of Definitions (page 115) It is useful to go over the legal terms in Table 5-1 (page 115). Liability to Clients (page 116) Liability to Third Parties Under Common Law (page 119) The two most important concepts to understand in common law are: Known versus unknown third parties and the impact on liability The variation in different legal jurisdictions in their interpretations Civil Liability - Securities Act of 1933 (page 121) Civil Liability - Securities Exchange Act of 1934 (page 122) Criminal Liability (page 125) The Profession's Response to Liability (page 127)
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Chapter 6 Audit Responsibilities and Objectives Objective of Conducting an Audit of Financial Statements (page 140) Management’s Responsibilities (page 141) The management, and not the auditor, is responsible for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the financial statements. Auditor's Responsibilities (page 142) While SAS 1 does not state that the auditor is responsible for finding all instances of material errors and fraud, it requires the auditor to plan and perform the audit to obtain reasonable assurance that material errors and fraud will be found. It is important to distinguish between errors and fraud . There are two types of fraud: fraudulent financial reporting and misappropriation of assets. The auditor’s responsibility for discovering illegal acts. Distinguish between direct-effect illegal acts and indirect-effect illegal acts, and the auditor’s
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Exam 2 Review - Exam 2 Review Chapter 5, 6, 7, and 8...

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