Motivation of the client to misstate the financial

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  • HighnessDangerFish9508
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Motivation of the client to misstate the financial statements 9. Degree of client integrity 10. Reliance by third parties on the audited financial statements For an example, in the first audit, the partner has apparently made the decision to emphasize tests of controls and substantive tests of transactions and minimize tests of details of balances. That implies effective internal controls and a low expectation of misstatement (low inherent and control risk.) In the third audit, the partner apparently has a high expectation of misstatements, and therefore believes it is necessary to do extensive tests of controls and substantive tests of transactions, as well as extensive tests of details of balances. Audit two is somewhere between audit one and three. b. The audit partners could have spent time discussing the audit approach and scope with Bryan prior to the beginning of the field work.
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13-33 (continued) c. The nature of these three engagements and the different circumstances appear to be excellent examples of the tailoring of audit procedures to appropriate levels considering the circumstances. Bryan's judgment could have been improved on each engagement if the audit partner discussed the audit approach with her during the engagement. d. The first audit is most likely the integrated audit of a public company because of the emphasis on tests of controls. The third audit also involves extensive tests of transactions, but the size of the company and extensive tests of balances suggest it is not a integrated audit. 13-34 a. Phase I – Procedures 5, 9, 7 Phase II – Procedure 2 Phase III – Procedures 8, 1, 3 Phase IV – Procedures 4, 6 b. The following is a time line for the audit procedures, showing the sequence of the parts of a typical audit. July Audit Report 31 Date 5, 9, 7, 2 8 1 3 4 6 Parts 5, 9, and 7 are all a part of planning and are therefore done early. These are in the sequence shown in Chapter 8. As part of planning the audit, the auditor obtains an understanding of internal control and initially assesses control risk. The auditor then performs tests of controls and substantive tests of transactions and reassesses control risk. Ideally, most analytical procedures are performed after the client has prepared financial statements, but before tests of details of balances are performed. Therefore, they should be done before confirmation of accounts payable to provide information about the expectation of misstatement. Confirmation of accounts payable should be done as early as possible after the balance sheet date to facilitate getting responses back, performing alternative procedures for nonresponses, and reconciling differences before the audit is completed. Tests for review of subsequent events are normally the last procedures done on the engagement before the audit report date.
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  • Spring '08
  • Brady,J
  • Controls, substantive tests

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