3 Principles: created by ASB – page 42.
responsibilities – who we are and what we need to be.
Competence and capabilities
Comply with ethical requirements
Due care – give your best everyday
Professional skepticism/ judgment
Performance: what we did or didn’t do
To obtain reasonable assurance
Plan and properly supervise audit.
Apply appropriate materiality
Assess risk of material misstatement
Based on understanding of entity (client)
Environment – inc. internal control
Sufficient appropriate evidence to reach opinions
Reporting – what we need to say
Express opinion or indicate why we don’t express opinion
Measure opinion in accordance with appropriate financial reporting framework GAAP or IFRS
What is an Audit?
3943354572004 stages to an audit:
Planning Interim Substantive Testing Wrap up Planning:
Analytical procedures required. (do the numbers make sense) Layout step by step how to perform audit
Design of controls (could the controls work)
Tests of controls (pressure tests)
If working – do less at the next stage. (do substantive testing at same time as interim – Dual purpose testing) If not working – do more testing at next stage and re do audit plan. Year end – substantive testing
Testing to see if amounts are appropriate (test numbers themselves) Test of controls at year end to make sure they are still working (for public companies) Wrap up:
Analytical procedures required.
Different levels of assurance:
Compilation – NO assurance
Put information together
Review – LIMITED (negative) assurance
Big picture kind of things to make sure the numbers make sense for high level information Auditors will say “nothing has come to our attention”
HUGE GAP BETWEEN REVIEW AND AUDIT
Audit – REASONABLE assurance
public company –
10-Q – review
10-Q – review
10-Q – review
10-K – audit ^ the three Q’s accumulate evidence and all include financial statements (review on steroids) for audit – similar procedures but more in depth.
Definition of auditing:
Systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users. BROKEN DOWN: process of evaluating evidence regarding the financial statements (including footnotes) about events to ascertain the degree of correspondence between assertions and GAAP and write an auditors report that can be understood by the persons who rely on the financial reports (creditors and investors) The more logical, the easier auditing will be.
Goal of an audit (3 box model)
Assertions - Something they claim to be true.
clients will make assertions – our job is to evaluate them. Evidence
Relationships among auditing, attestation and assurance engagements Assurance services – improves quality or context of any information Help people make decisions
Largely unsuccessful (overpriced and late to market)
Attestation services – written report on primarily financial information A written report ex: audit opinion
Auditing – opinion on financial statements
SOX (Sarbanes-Oxley Act of 2002)
Management’s responsibility for financial reporting:
One of most important provisions – MGMT team is responsible for the finc. Reporting process and the financial statements Section 302 – key company officials must certify the financial statements (CEO and CFO) must sign statement indicating They have read the financial statements
They are not aware of any false or misleading statements
They believe that the financial statements present an accurate picture of the company’s financial condition. they must sign off every year before but it was with the white collar penalty...
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