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Unformatted text preview: Auditing standards make no distinction between the auditor's
responsibilities for searching for errors and fraud. In
either case, the auditor must obtain reasonable
assurance about whether the statements are free of
material misstatements. The standards also
recognize that fraud is often more difficult to detect
perpetrating the fraud attempt to conceal the fraud.
Still, 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. The auditor’s responsibility
for uncovering direct-effect illegal acts is the same
as for errors and fraud. However, the auditor is not
required to search for indirect-effect illegal acts
unless there is reason to believe they exist.
challenging A financial statement audit typically consists of four phases. Identify each of these four phases
of an audit and discuss the major activities performed by the auditor in each phase.
Phase I: Plan and design an audit approach . In this phase, the auditor obtains an
understanding of the client’s entity and its environment. In addition, the auditor obtains an
understanding of the client’s internal control and assesses the risk of material
Phase II: Perform tests of controls and substantive tests of transactions . In this phase, the
auditor tests those internal controls he/she believes may be effective at preventing or
detecting misstatements. In addition, the auditor performs substantive tests of transactions
to verify the monetary amounts of transactions.
Phase III: Perform analytical procedures and tests of details of balances . In this phase, the
auditor performs analytical procedures to assess the overall reasonableness of transactions
and balances. In addition, tests of details of balances are performed to test for monetary
misstatements in the financial statements.
Phase IV: Complete the audit and issue an audit report . In the last phase of the audit, the
information obtained in the previous phases is combined to reach an overall conclusion as
to whether the financial statements are fairly presented. An audit report is then issued
based on this conclusion. 84.
challenging Discuss some precautionary actions an auditor should take when there is a moderate or high risk
of management fraud.
Answer: Some precautionary actions an auditor should take when there
is a moderate or high risk of management fraud
• Critically challenging the client’s choice of accounting principles. 1-105 •
• Assigning more experienced personnel to the engagement.
Doing more audit work at year-end instead of at interim dates.
Closely supervising assistants and other inexperienced staff.
Performing additional or more effective audit procedures.
In extreme situations, the auditor should consider withdrawing from the engagement. 1-106 Other Objective Answer Format Questions
medium Match seven of the terms (a-k) with the definitions provided below (1-7):
k. Tests of details of balances
Tests of controls
Substantive tests of transactions
Transaction-related audit objectives
Balance-related audit objectives
Management fraud h 1. An intentional misstatement of the financial statements. e 2. A set of six audit objectives the auditor must meet, including timing, posting and
summarization, and accuracy. f 3. Implied or expressed representations made by the client about classes of
transactions, account balances and disclosures in the financial statements. a 4. Audit procedures testing for monetary misstatements to determine whether the
balance-related audit objectives have been satisfied for each significant account
balance. g 5. A set of nine audit objectives the auditor must meet, including completeness,
detail tie-in, and rights and obligations. b 6. Audit procedures designed to test the effectiveness of control policies and
procedures. d 7. Use of comparisons and relationships to assess whether account balances or
other data appears reasonable. 86.
challenging Below are five audit procedures, all of which are tests of transactions associated with the audit of
the sales and collection cycle. Also below are the six general transaction-related audit objectives
and the five management assertions. For each audit procedure, indicate (1) its audit objective, and
(2) the management assertion being tested.
F. Audit Objectives
Posting and summarization
Timing 1-107 V.
Compare dates on the bill of lading, sales invoices, and sales journal to test for delays in
recording sales transactions.
W B, C
W, X Account for the sequence of prenumbered bills of lading and sales invoices.
Trace from a...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.
- Fall '13