ACC450_Exam 2 Study Guide

ACC450_Exam 2 Study Guide - ACC 450 Study Guide Chapter 6...

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ACC 450 Study Guide Chapter 6 Fall 2011 1. Be able to describe management’s responsibility for the financial statements and compare that responsibility to the audit firm. Be able to explain the level of responsibility the auditor takes relative to the accuracy of the financial statements. a. Management’s Responsibility the responsibility for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the financial statements. Assessment of internal control (public company). b. Auditor’s Responsibility to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion whether the financial statements are prepared in accordance with an applicable financial reporting framework; and to report on the financial statements, and communicate as required by auditing standards, in accordance with the auditor’s findings. The auditor is also responsible for identifying material weaknesses in internal control over financial reporting. 2. Be able to explain what “Trust but Verify” means? a. Another way to say Professional Skepticism – an attitude that includes a questioning mind and a critical assessment of audit evidence. Questioning min and critical assessment of audit evidence. 3. Be able to identify situations indicating an error, fraud or illegal act. a. Error Unintentional. A type of misstatement. b. Fraud Intentional. A type of misstatement. There is a distinction between misappropriation of assets , often called defalcation or employee fraud, and fraudulent financial reporting , often called management fraud. c. Illegal Act A Violation of law or government regulations other than fraud. Two examples include a violation of federal tax laws and a violation of the federal environmental protection laws. 4. Be able to describe the auditor’s responsibility for detection of fraud and errors in the conduct of the financial statement audit. a. The auditor must obtain reasonable assurance about whether the statements are free of material misstatements. The difficulty of detection does not change the auditor’s responsibility to properly plan and perform the audit to detect material misstatements, whether caused by error or fraud. 5. Be able to describe the auditor’s responsibility for detection of illegal acts (direct and indirect-effect). a. Direct-Effect – Certain violations of laws and regulations have a direct financial effect on specific account balances in the financial statements. For example, a violation of federal tax laws directly affects income tax expense and income taxes payable. The auditor’s responsibility for these direct-effect illegal acts is the same as for errors and fraud. On each audit the auditor normally evaluates whether or not there is evidence available to indicate material violations of federal or state tax laws. Same responsibility as for errors and fraud.
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This note was uploaded on 02/07/2012 for the course ACC 450 taught by Professor Giles during the Fall '08 term at N.C. State.

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ACC450_Exam 2 Study Guide - ACC 450 Study Guide Chapter 6...

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