Audit Responsibilities and Objectives

Chapter
Chapter66
Audit
Audit
Responsibilities
Responsibilities
and
andObjectives
Objectives
Copyright © 2014 Pearson Education

Explain the objective of conducting an
audit of financial statements and an audit
of internal controls.
Distinguish management’s responsibility
for the financial statements and internal
control from the auditor’s responsibility
for verifying the financial statements and
effectiveness if internal control.
6-2
Explain the auditor’s responsibility for
discovering material misstatements due to
fraud or error, and the need to maintain
professional skepticism when conducting
the audit.
Classify transactions and account

balances into financial statement cycles
and identify benefits of a cycle approach
to segmenting the audit.
6-3
Describe why the auditor obtains a
combination of assurance by auditing
classes of transactions and ending
balances in accounts, including
presentation and disclosure.
Distinguish among the three categories of
management assertions about financial
information.
List the six general transaction-related
audit objectives to management assertions
for classes of transactions.
6-4 Copyright © 2014 Pearson Education
Link the eight general balance-related
audit objectives to management assertions
for account balances.
Link the four presentation and disclosure-

related audit objectives to management
assertions for presentation and disclosure.
Explain the relationship between audit
objectives and the accumulation of audit
evidence.
6-5
Explain the objective of conducting an audit of
financial statements and an audit of internal
controls.
6-6
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 applicable financial accounting
framework.
6-7
6-8
2
Distinguish management’s responsibility for
the financial statements and internal control
from the auditor’s responsibility for verifying
the financial statements and effectiveness of
internal control.
6-9
Financial statements and internal controls.
Sarbanes-Oxley increases management’s

responsibility for the financial statements.
CEO and CFO must certify quarterly and annual

financial statements submitted to the SEC.
6-10
6-11
The Sarbanes-Oxley Act provides for criminal
penalties for anyone who knowingly falsely
certifies the statements.
6-12
3
Explain the auditor’s responsibility for
discovering material misstatements due to
fraud or error, and the need to maintain
professional skepticism when conducting the
audit.
6-13
Obtain Free from
Financial
reasonable material
statements
assurance misstatements
Applicable
Financial
Opine reporting
statements
framework
Communicate
Financial
Report per audit
statements
standards
6-14
Material Reasonable
misstatements Assurance
Professional
Errors vs. Fraud
Skepticism
Fraudulent
reporting
vs.
theft of assets
6-15
Type Responsibility
Same for
Direct-Effect errors and
fraud
Indirect-Effect No Assurance
6-16
Auditor suspects
Inquire of management
Consult client’s counsel or specialist
Consider accumulating evidence
Auditor knows
Consider effects on financial
statements
Consider effect on relationship
with management
Communicate with audit
committee or equivalent
6-17
4
Classify transactions and account balances into
financial statement cycles and identify benefits
of a cycle approach to segmenting the audit.
6-18
Audits are performed by dividing the financial
statements into smaller segments or components.
6-19
6-20
General
cash
Capital acquisition
and repayment cycle
Sales and Acquisition Payroll and

collection and payment personnel
cycle cycle cycle
Inventory and
warehousing
cycle
6-21
5
Describe why the auditor obtains a
combination of assurance by auditing classes
of transactions and ending balances in
accounts, including presentation and
disclosure.
6-22
6-23
6
Distinguish among the three categories of
management assertions about financial
information.
6-24
1. Assertions about classes of transactions and
events for the period under audit
2. Assertions about account balances at period end
3. Assertions about presentation and disclosure
6-25
Transactions and Events Account Balances Presentation and Disclosure
Occurrence Existence Occurrence and rights
and obligations
Completeness Completeness Completeness
Accuracy Valuation and Accuracy and
allocation valuation
Classification Classification and
understandability
Cutoff
Rights and
obligations
6-26
Existence or Occurrence
Completeness
Valuation or
allocation
Rights and obligations
Presentation and
disclosure
Similar to AICPA auditing standards as the first three assertions are applicable to
balances and transactions. Presentation is treated as a single assertion.
6-27
7
Link the six general transaction-related audit
objectives to management assertions for classes
of transactions.
6-28
Recorded transactions
Occurrence
exist
Existing transactions
Completeness
are recorded
Recorded transactions
Accuracy are stated at the
correct amounts
6-29
Transactions are included
Posting and
in the master files and
summarization
are correctly summarized.
Transactions are properly

Classification
classified.
Transactions are recorded

Timing
on the correct dates.
6-30
(Applied to Sales Transactions)
6-31
8
Link the eight general balance-related audit
objectives to management assertions for
account balances.
6-32
Existence Amounts included exist
Existing amounts are

Completeness
included
Amounts included are

Accuracy stated at the correct
amounts
6-33
Amounts are properly
Classification
classified
Transactions are recorded

Cutoff
in the proper period
Account balances agree

Detail tie-in with master file amounts,
and with the general ledger
6-34
Realizable Assets are included at
value estimated realizable value
Rights and
Assets must be owned
obligations
6-35
Hillsburg Hardware Co. .
(Applied to Inventory)
6-36
9
Link the four presentation- and disclosure-
related audit objectives to management
assertions for presentation and disclosure.
6-37
(Applied to Notes Payable)
6-38
10
Explain the relationship between audit
objectives and the accumulation of audit
evidence.
6-39
The auditor must obtain sufficient appropriate
audit evidence to support all management
assertions in the financial statements.
 An audit process has four specific phases
6-40
6-41
6-42
Copyright
All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
6-43

Audit Responsibilities and Objectives

Uploaded by

Copyright:

Available Formats

You might also like

Audit Responsibilities and Objectives

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Audit Responsibilities and Objectives

Uploaded by

Copyright:

Available Formats

Chapter

Copyright © 2014 Pearson Education

Classify transactions and account

Link the four presentation and disclosure-

Sarbanes-Oxley increases management’s

CEO and CFO must certify quarterly and annual

Sales and Acquisition Payroll and

2. Assertions about account balances at period end

3. Assertions about presentation and disclosure

Transactions are properly

Transactions are recorded

Existing amounts are

Amounts included are

Transactions are recorded

Account balances agree

 An audit process has four specific phases

All rights reserved. No part of this publication may be reproduced,

You might also like