auditoria chapter 02

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Modern Auditing: Modern Auditing: Assurance Services and the Assurance Services and the Integrity of Financial Reporting, Integrity of Financial Reporting, 8 8 th th Edition Edition William C. Boynton William C. Boynton California Polytechnic State California Polytechnic State University at San Luis Obispo University at San Luis Obispo Raymond N. Johnson Raymond N. Johnson Portland State University Portland State University Chapter 2 – Auditors’ Responsibilities and Reports

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Page 1: Auditoria chapter 02

Modern Auditing:Modern Auditing:Assurance Services and the Assurance Services and the

Integrity of Financial Reporting, 8Integrity of Financial Reporting, 8thth EditionEdition

Modern Auditing:Modern Auditing:Assurance Services and the Assurance Services and the

Integrity of Financial Reporting, 8Integrity of Financial Reporting, 8thth EditionEdition

William C. BoyntonWilliam C. BoyntonCalifornia Polytechnic State California Polytechnic State

University at San Luis ObispoUniversity at San Luis Obispo

Raymond N. Raymond N. JohnsonJohnson

Portland State UniversityPortland State University

Chapter 2 – Auditors’ Responsibilities and Reports

Page 2: Auditoria chapter 02

Chapter 2 OverviewChapter 2 OverviewChapter 2 OverviewChapter 2 Overview

Page 3: Auditoria chapter 02

Relationship Between Relationship Between Accounting and AuditingAccounting and AuditingRelationship Between Relationship Between

Accounting and AuditingAccounting and Auditing

Page 4: Auditoria chapter 02

Important Fundamental Important Fundamental ConceptsConcepts

Important Fundamental Important Fundamental ConceptsConcepts

• Verifiability

• Fair Presentation

• Professional Judgment

• Materiality

Page 5: Auditoria chapter 02

Independent Auditor Independent Auditor RelationshipsRelationships

Independent Auditor Independent Auditor RelationshipsRelationships

• Management

• Board of Directors and Audit Committee

• Internal Auditors

• Stockholders

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1. It is the responsibility of management to complete all of the following except:

A. Assess the risk of material misstatement in the financial statements

B. Measure and record transaction dataC. Classify and summarize recorded dataD. Prepare financial statements per GAAP

A. Assess the risk of material misstatement in the financial statements

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2. Items that are considered to be _____, are significant to financial statement users.

A. VerifiableB. MaterialC. Fairly PresentedD. Recorded

B. Material

Page 8: Auditoria chapter 02

Generally Accepted Auditing Generally Accepted Auditing Standards (GAAS)Standards (GAAS)

Generally Accepted Auditing Generally Accepted Auditing Standards (GAAS)Standards (GAAS)

• General Standards

• Standards of Field Work

• Standards of Reporting

Page 9: Auditoria chapter 02

GAAS – General StandardsGAAS – General StandardsGAAS – General StandardsGAAS – General Standards

• Adequate Technical Training and Proficiency

• Independence in Mental Attitude

• Due Professional Care

Page 10: Auditoria chapter 02

GAAS – Standards of Field GAAS – Standards of Field WorkWork

GAAS – Standards of Field GAAS – Standards of Field WorkWork

• Adequate Planning and Proper Supervision

• Understanding the Entity, Environment, and Internal Control

• Sufficient Competent Audit Evidence

Page 11: Auditoria chapter 02

GAAS – Standards of ReportingGAAS – Standards of ReportingGAAS – Standards of ReportingGAAS – Standards of Reporting

• Financial Statements Presented in Accordance with GAAP

• Consistency in the Application of GAAP

• Adequacy of Informative Disclosures

• Expression of Opinion

Page 12: Auditoria chapter 02

Additional StandardsAdditional StandardsAdditional StandardsAdditional Standards

• Statements on Auditing Standards– AICPA website : Audit and Attest St

andards

• PCAOB Auditing Standards– Public Companies Accounting Overs

ight Board website

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3. General Standards include all of the following except:

A. Adequate TrainingB. IndependenceC. Understanding the EntityD. Due Professional Care

C. Understanding the Entity

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4. These standards pertain specifically to the conduct of the audit at the entity’s place of business.

A. General StandardsB. Standards of Field WorkC. Standards of ReportingD. Statement on Auditing Standards

B. Standards of Field Work

Page 15: Auditoria chapter 02

Assurance Provided by an Assurance Provided by an AuditAudit

Assurance Provided by an Assurance Provided by an AuditAudit

Page 16: Auditoria chapter 02

The Auditor’s Standard Report The Auditor’s Standard Report – Unqualified Opinion– Unqualified Opinion

The Auditor’s Standard Report The Auditor’s Standard Report – Unqualified Opinion– Unqualified Opinion

• Title and Address

• Introductory Paragraph

• Scope Paragraph

• Opinion Paragraph

• Firm’s Signature and Date

Page 17: Auditoria chapter 02

Departures from the Standard Departures from the Standard ReportReport

Departures from the Standard Departures from the Standard ReportReport

• Standard Report with Explanatory Language

• Qualified Opinion

• Adverse Opinion

• Disclaimer of Opinion

Page 18: Auditoria chapter 02

Types of Auditor’s Reports and Types of Auditor’s Reports and CircumstancesCircumstances

Types of Auditor’s Reports and Types of Auditor’s Reports and CircumstancesCircumstances

Page 19: Auditoria chapter 02

Typical Report ProfilesTypical Report ProfilesTypical Report ProfilesTypical Report Profiles

Page 20: Auditoria chapter 02

The Auditor’s Standard Report The Auditor’s Standard Report on Internal Controlson Internal Controls

The Auditor’s Standard Report The Auditor’s Standard Report on Internal Controlson Internal Controls

• Title and Address

• Introductory Paragraph

• Scope Paragraph

• Definition Paragraph

Page 21: Auditoria chapter 02

The Auditor’s Standard Report The Auditor’s Standard Report on Internal Controls (cont.)on Internal Controls (cont.)

The Auditor’s Standard Report The Auditor’s Standard Report on Internal Controls (cont.)on Internal Controls (cont.)

• Inherent Limitations Paragraph

• Opinion Paragraph

• Explanatory Paragraph

• Firm’s Signature and Date

Page 22: Auditoria chapter 02

Defining Criteria for Defining Criteria for Departures from the Standard Departures from the Standard

ReportReport

Defining Criteria for Defining Criteria for Departures from the Standard Departures from the Standard

ReportReport

Page 23: Auditoria chapter 02

Departures from the Standard Departures from the Standard Report on Internal ControlsReport on Internal Controls

Departures from the Standard Departures from the Standard Report on Internal ControlsReport on Internal Controls

Page 24: Auditoria chapter 02

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5. All of the following are components of assurance provided by an audit except:

A. Auditor independenceB. Reasonable assuranceC. Detecting and reporting illegal actsD. Guaranteed accuracy of financial

statements

D. Guaranteed accuracy of financial statements

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6. The standard report includes all of the following except:

A. Introductory ParagraphB. Scope ParagraphC. Explanatory Language ParagraphD. Opinion Paragraph

C. Explanatory Language Paragraph

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7. This opinion states that the auditor does not express and opinion on the financial statements.

A. Unqualified OpinionB. Qualified OpinionC. Adverse OpinionD. Disclaimer of Opinion

D. Disclaimer of Opinion