3 Perform analytical procedures and tests of details of balances Phase III f

3 perform analytical procedures and tests of details

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3. Perform analytical procedures and tests of details of balances (Phase III) f. Perform analytical procedures comparing the client with similar companies in the industry to gain an understanding of the client’s business and strategies. 1. Plan and design an audit approach (Phase I) g. Compare information on purchase invoices recorded in the acquisitions journal with information on receiving reports. 2. Perform tests of controls and substantive tests of transactions (Phase II) Research Problem 6-1: International and PCAOB Audit Objectives a. Paragraph .11 of AU-C200 states that “[T]he overall objectives of the auditor, in conducting an audit of financial statements, are to a. obtain reasonable assurance about whether the financial statements as a whole are freefrom material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable accounting framework; and b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor’s findings.” As a results of the clarity project, Paragraph .11 of ISA 200 hasidentical wording, except GAAS is replaced by the ISAs in paragraph b. 6-18
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Research Problem 6-1 (continued) b. Paragraph .03 of PCAOB Auditing Standard 5 states that “Theauditor’s objective in an audit of internal control over financialreporting is to express an opinion on the effectiveness of the company’s internal control over financial reporting.” That standard notes that to form a basis for an opinion, the auditor must plan and perform the audit toobtain competent evidence that is sufficient to obtain reasonable assurance about whether material weaknesses exist as of the date specified in management’s assessment. c. Both U.S. GAAS and international auditing standards define financial statements as being fairly stated when they are free of material misstatements. PCAOB Auditing Standard 5 defines internal control as effective when no material weaknesses exist. These definitions are related. The presence of a material misstatement generallysuggests the presence of a material weakness, since management’s internal controls over financial reporting failed to detect the material misstatement. While the presence of a material weakness in internalcontrol does not automatically mean the financial statementscontain a material misstatement, there is a high likelihood that a material misstatement could occur. ( Note : Research problems address current issues, using Internet sources. BecauseInternet sites are subject to change, Internet problems and solutions may change.Any revisions to Research problems will be posted on the book’s Web site atwww.pearsonhighered.com/arens .) 6-19
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