ch 6 quizz - Terms Definitions AU 110 Objective of the...

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Terms Definitions AU 110 Objective of the ordinary audit of financial statements by the independent auditor is the expression of an opinion on the fairness with which they present , in all material respects, financial position, results of operations, and cash flows in conformity to GAAP. Management's responsibility is to adopt sound accounting policies, maintain adequate internal control, make fair representation in the financial statements AU 110 amended auditor has the responsibility to plan and perform audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. The auditor is able to obtain REASONABLE NOT absolute assurance that material misstatements are detected. The auditor has no responsibility to plan or perform the audit to obtain reasonable assurance, whether caused by error or fraud, that are not material to the financial statements are detected. Material Misstatements if the combined uncorrected errors and fraud in the financial statements would likely have changed or influenced the decision of a reasonable person using the statements. The Auditor is Responsible for reasonable, but NOT ABSOLUTE, assurance for several reasons. .. 1. Most audit evidence results from TESTING A SAMPLE of a population. Sampling inevitably includes some risk of not uncovering a material misstatement. 2. Accounting presentations contain complex estimates, which inherently involve uncertainty and can be affected by future events. 3.Fraudulently prepare financial statements are often extremely difficult for the auditor to detect The auditor's best defense when material misstatements are not uncovered is to have conducted the audit in accordance with auditing standards. Error unintentional misstatement; auditor provides reasonable assurance Fraud intentional misstatement; auditor provides reasonable assurance 3 Types of Fraud
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1. Misappropriation of Assets 2. Fraudulent Financial Reporting 3. Illegal Acts Misappropriation of Assets defalcation or employee fraud; stealing; stockholders, creditors and others are harmed because assets are no longer available to their rightful owners. Fraudulent Financial Reporting management fraud; harms users by providing them incorrect financial statement info for their decision making Professional Skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. Audit must be planned and performed with an attitude of professional skepticism in all aspects of the engagement. Illegal Acts (AU 317) violation of laws or govt regulations other than fraud. Direct-Effect Illegal Acts violations of laws & regulations that have a direct financial effect on specific account balances in the financial statements. You can trace numbers on financial statements directly. Auditor must evaluate whether or not there is evidence available to indicate material violations of federal or state tax law. REASONABLE ASSURANCE is provided
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This note was uploaded on 07/27/2011 for the course AUDIT 307 taught by Professor N/a during the Spring '11 term at Strayer.

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ch 6 quizz - Terms Definitions AU 110 Objective of the...

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