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Unformatted text preview: Chapter 6 Audit Responsibilities and Objectives Chapter 6 is important because students have difficulty visualizing the relationship between giving an opinion on financial statements and determining specific audit objectives for each component of the statements. We believe this chapter is an essential one to help students understand the audit process. In teaching this chapter, we cover the following topics: Chapter Opening Vignette - Where Were the Auditors? This is the infamous ZZZZ Best case. It is an excellent case for consideration of audit evidence and fraud, and illustrates how an extremely clever crook can fool the auditors through an elaborate scheme. A logical question raised by the case is whether the auditors work was sufficient. We think it was, and that the case illustrates the legitimate limitations of auditing. An interesting twist to the case is Barry Minkows current status. He served his term and now speaks and teaches about fraud, apparently making a good living. There are a number of references that discuss this case in great detail if you wish to investigate it further. Objective of Conducting an Audit of Financial Statements (page 140) We bring different annual reports to class for each student and ask the students to state the objective of an audit as it relates to the annual report. Given the study of audit reports, this takes little time. Managements Responsibilities (page 141) We dont spend a lot of time on this section, except to briefly discuss the fact that management, and not the auditor, is responsible for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the financial statements. It may be useful to highlight the discussion by the management of Boeing in their Report of Management in Figure 6-2 (page 141). (See Figure 6-2) Auditor's Responsibilities (page 142) We begin discussion of auditors responsibilities by referring to the excerpt from SAS 1 (AU 110) on 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...
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- Spring '10