Lecture Notes Ch. 6 (ACCT-422)

Lecture Notes Ch. 6 (ACCT-422) - Chapter 6 Audit...

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Chapter 6 Audit Responsibilities and Objectives Chapters 6 – 13 present an overview of the audit process. Chapter 6 covers the 5 steps in developing audit objectives: (1) Understanding objectives of an audit of financial statements and the responsibilities for the audit (both management’s responsibilities and auditor’s responsibilities, (2) dividing the financial statements into cycles, (3) management’s assertions, (4) knowing general audit objectives (both transaction-related and balance-related audit objectives), and (5) knowing specific audit objectives for classes of transactions and accounts. The chapter also introduces the general phases of an audit. 1. Understanding objectives and responsibilities for the audit As set forth in AU 110, the primary objective of an audit of financial statements is to express an opinion on how fairly the financial statements present the financial position, results of operations, and cash flows in conformity with GAAP. Management’s responsibilities Generally, management is responsible for: (1) adopting appropriate accounting principles, (2) maintaining adequate internal control, (3) preparing financial statements and the accompanying footnotes, and (4) ensuring that the financial statements contain fair representations. As a result of Sarbanes-Oxley, CEOs and CFOs of public companies are required to provide certain certifications with respect to the financial statements (ie., that financial statements in 10K and 10Q filings comply with the ’34 Act requirements). Auditor’s responsibilities Under AU 110, the auditor is responsible for planning and performing the audit to obtain “reasonable assurance” about whether the financial statements are free of “material” misstatements, whether caused by error or fraud. The auditor is only concerned with “material” misstatements, or those misstatements likely to change or influence decisions of a reasonable person using the statements. Also, the auditor provides only “reasonable assurance” which is high assurance but not absolute assurance. As will be discussed in detail in Chapter 11, the auditor is responsible for obtaining reasonable assurance that the statements are free of material misstatements that are caused by error or fraud. Error is the unintentional misstatement of financial statements (ie., mistakes in calculations). Fraud is an intentional misstatement and falls into one of two categories: misappropriation of assets or fraudulent financial reporting. Finally, the auditor should exercise professional skepticism in planning and performing
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This note was uploaded on 04/11/2010 for the course ACCT 422 taught by Professor Blake during the Spring '10 term at MD University College.

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Lecture Notes Ch. 6 (ACCT-422) - Chapter 6 Audit...

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