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Unformatted text preview: 5-1The objective of the ordinary examination of financial statements by the independent auditor is the expression of an opinion on the fairness with which the financial statements present financial position, results of operations, and changes in cash flows in conformity with generally accepted accounting principles.The auditor meets that objective by accumulating sufficient appropriate audit evidence to determine whether the financial statements are fairly stated.5-2It is management’s responsibility to adopt sound accounting policies, maintain adequate internal control, and make fair representations in the financial statements. The auditor’s responsibility is to conduct an audit of the financial statements in accordance with generally accepted auditing standards and report the findings of the audit in the auditor’s report.5-3Errors are unintentional misstatements of the financial statements. Fraud and other irregularities are intentional misstatements. The auditor is responsible for conducting the audit in accordance with generally accepted auditing standards. In most cases, that will result in finding materialerrors in the financial statements. In many cases, it will also uncover materialfraud and other irregularities.An audit must be designed to provide reasonable assurance of detecting material misstatements in the financial statements. Further, the audit must be planned and performed with an attitude of professional skepticismin all aspects of the engagement. As part of this process, the auditor considers the risks of fraud during the engagement, and examines management’s processes to prevent and detect fraud.With fraud, there is an attempt at concealment of fraud and other irregularities, making fraud and other irregularities more difficult to uncover. Auditors, therefore, have less responsibility to detect fraud and other irregularities than errors, but there is still considerable responsibility. The auditors’ best defence when material misstatements (either errors or fraud) are not uncovered in the audit is that the audit was conducted in accordance with generally accepted auditing standards.5-4Employee fraud is the theft of assets by employees. Management fraud is the intentional misstatement of financial information by management or a theft of assets by management....
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- Spring '12
- Balance Sheet