Procedures and consideration of other audit evidence

This preview shows 23 out of 26 pages.

procedures and consideration of other audit evidence ordinarily leads the  auditor to the correct conclusion Effectiveness  The risk of incorrect acceptance and the risk of assessing control risk too  low relate to the effectiveness of an audit (possibly not) detecting an  existing material misstatement. Auditors usually accept a risk of 5% or  10%. A related concept is that of confidence level (also called reliability).  The auditor is 95% confident that the sample is representative of the  population (risk (of being ineffective)+ confidence level = 100%) Substantive tests of details The recorded value of the population is OK NOT OK The sample indicates that the population is: OK Correct decision Incorrect decision Risk of incorrect acceptance Not effective NOT OK Incorrect decision Risk of incorrect Correct decision
Image of page 23

Subscribe to view the full document.

Tools to gather audit evidence 15:19 rejection Not efficient Tests of controls The true operation of the control is OK NOT OK The sample indicates that the control’s operation is: OK Correct decision Incorrect decision Risk of assessing control risk too low Not effective NOT OK Incorrect decision Risk of assessing control risk too high Not efficient Correct decision
Image of page 24
Auditing for fraud  15:19 Various types of fraud that affect organizations Fraud defined Two broad categories: defalcations and financial reporting fraud with a  common denominator of  an intent to deceive   Defalcations ( , )  are fraud where an employee takes assets from  an organization for personal gain o Fraud due to corruption is defined as fraud in which fraudsters  wrongfully use their influence in a business transaction in order to  procedure some benefit o Asset misappropriations involve the theft or misuse of assets Financial reporting fraud is the  intentional manipulation  of reported  financial results to portray a misstated economic picture of the  firm o Manipulation  ( ),  falsification  ( ), or  alteration  of accounting  records or supporting documents o Misrepresentation or omission of events, transactions or other  significant information o Intentional misapplication  of accounting principles o Generally results in overstatement of assets, understatement of  liabilities, overstatement of revenues, and understatement of expenses Major frauds in accounting and articulating implications for the design of audit  procedures Financial reporting frauds – the second COSO report  o Major characteristics of companies with fraud Smaller (under $200 million in revenues) than most SEC registrants  Board dominated by management No audit committee; or rarely met Overstated revenues No internal audit department 
Image of page 25

Subscribe to view the full document.

Image of page 26
You've reached the end of this preview.
  • Spring '10
  • w
  • Financial audit

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern