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A6 Twatt - Chapter 6 Tiffany Watt Assignment A6 Oct 21 2011...

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Chapter 6 Tiffany Watt Assignment: A6 Oct. 21, 2011 AC 405 – E01 6-25. What is a top down approach to planning an audit? What are the steps? How does this approach link the financial statements to ultimate audit program steps? Why does AS 5 direct the auditor to use this approach in assessing materiality? AS 5 directs the auditor to use a “top down” approach that applies to materiality in both the financial statement and ICFR aspects of an integrated audit. First, the auditor determines what is material at the financial statement level. Next, the auditor identifies the various accounts and disclosures that are significant to the financial statements. The auditor identifies the management assertions that are relevant for those significant accounts and disclosures. The auditor makes a professional judgment about the amount of a misstatement in that account or disclosure that would be material. Based on all the knowledge accumulated about the company, the auditor determines risks in the business that might cause material misstatements in each financial statement account. One approach to determining
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