Financial implications such as provincial securities

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financial implications, such as provincial securities acts, tax withholding regulations, min- imum wage laws, wage and price guidelines, credit allocation regulations, income tax laws, environmental regulations, and specialized industry regulations. Compliance with legal terms of the company’s private contracts (e.g., merger agreements and bond indentures) is also important for financial statement presentation, as failures to comply may be a warning sign that the company is not a going concern, which requires financial statement disclosure and must be emphasized in the auditor’s report. CAS 570, “Going Concern,” has elevated the importance of this assertion and provides additional guidance on dealing with it in the audit of financial statements. When the sole purpose of an engagement is to audit compliance with various laws, regu- lations, or rules, it is called a compliance audit . These are discussed in Chapter 16. Compliance with laws and regulations is part of governmental audits, such as those by the Auditor General and provincial auditors. It is generally an objective for internal auditors with respect to man- agerial policies. These types of audits are covered in advanced auditing courses.
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202 PART II Basic Auditing Concepts and Techniques Assertions and Audit Objectives Financial statement assertions are the fundamental management claims to be audited and the focal points for all audit procedures. In an audit program, the evidence produced by each procedure relates to one or more specific objectives linked to specific assertions. When you have a list of audit procedures (e.g., from last year’s audit), begin planning by asking the following questions: What are the assertions management is making by reporting this fi nancial information? What are the risks of material misstatement in these assertions? Which assertion(s) does this procedure produce evidence about? Does the list of procedures (the audit program) address the risk of material misstate- ment in all the assertions? Qualitative factors, cost of the procedure, risk level associated with each assertion, and materiality determine the extent that a particular procedure is used. You can simplify the five major assertions by thinking of them as existence, complete- ness, ownership, valuation, and presentation. Each of them has additional aspects, depend- ing on the financial items you are auditing and the audit evidence available. How procedures are linked to assertions is covered in more detail in Chapters 8 and 9, and in Part III. 37 Briefly explain the five principal assertions that can be made about assets and liabili- ties, and auditors’ objectives related to each. 38 How do financial statement assertions relate to audit procedures? 39 Why is it particularly challenging to obtain audit evidence about the completeness assertion?
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  • Fall '12
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