Chapter 6: Audit Responsibilities and Objectives

The purpose of an audit is to provide financial statement users with an opinion by the auditor on:- whether the financial statements are presented fairly- in all material respects,- in accordance with the applicable financial framework

The auditor's opinion enhances the degree of confidence for users of financial statements

1. Understand the objectives and responsibilities for the audit2. Divide financial statements into cycles3.

Know management assertions about financial statements4. Know general audit objectives for classes of transactions, accounts, and disclosures5. Know specific audit objectives for classes of transactions, accounts, and disclosures

By Law:1. Adopt sound accounting practices2. Maintain proper internal control3.

Provide financial statementsIn Spirit:1. Maintaining the integrity and fairness of the representations (assertions) in the financial statements2. Determining which presentations and disclosures it considers necessarySOX:CEO/CFO must certify financial statements

1. Obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are (1) presented fairly (2) in all material aspects (3) within applicable financial framework.2. Report on the financial statements by communicating as required by auditing standards.

1. Material v. ImmaterialCombined effects if error or fraud would change the actions (decisions) of a reasonable user.2.

"Reasonable Assurance"A measure of the level of certainty3. Error v. FraudIntentional or not4. Professional SkepticismA questioning mind and a critical assessment

1.

Questioning mindset2. Suspension of judgement3. Search for knowledge4. Interpersonal understanding5. Autonomy6. Self-esteem

1.

Auditor's responsibilities for detecting material errors- mistakes in calculations, omissions, misunderstanding & misapplication of accounting standards, incorrect summaries2. Auditor's responsibilities for detecting material fraud- fraudulent financial reporting typically committed by management--- decision to omit a disclosure about pending litigation- Misappropriation of assets typically by employees and management--- theft by employees3. Auditor's responsibilities to consider laws and regulationsa) laws and regulations with a direct effect on the financial statements--- tax and pension laws - violations of federal tax laws directly effecting income tax expense and taxes b) Laws and regulations that do not have a direct effect on the financial statements--- compliance with operating license, federal employee security requirements, and environmental regulations

a. Audit procedures when noncompliance is identified or suspected - the auditor should obtain an understanding of the nature and circumstances of the act - more information to evaluate the effect on financial statementsb.

Reporting of identified or suspected noncompliance - auditor should communicate with governance matters involving noncompliance with laws and regulations

Sales (Revenue) --> Receipt of Cash --> InventoryPurchase (Expenditure) --> Payment of Cash --> InventoryInventory -->Payroll

(CA POT Classification)C - CompletenessA - AccuracyP - Posting and summarizationO - Occurrence or existenceT - TimingC - Classification

(ROC's Value of Existence)RO - Rights and ObligationsC - CompletenessV - Value and allocation---(ACCD Value) Accuracy, Classification, Cutoff, Detail tie-in and Realizable ValueE - Existence

OccurrenceCompletenessAccuracyClassification