6-19. The following questions concern the reasons auditors do audits. Choose the best response.
a. Which of the following best describes the reason why an independent auditor reports on financial statements?
(1) A misappropriation of assets may exist, and it is more likely to be detected by independent auditors.
(2) Different interests may exist between the company preparing the statements and the persons using the statements.
(3) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor’s work.
(4) Poorly designed internal controls may be in existence.
b. An independent audit aids in the communication of economic data because the audit
(1) confirms the accuracy of
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Completeness * 8. Accuracy * 9. Posting and summarization * 10. Classification * 11. Timing |
Required
a. Explain the differences among management assertions about classes of transactions and events, general transaction-related audit objectives, and specific transaction-related audit objectives and their relationships to each other.
Management assertions are unforeseen or expressed representations by management about the classes of transactions and related accounts in the financial statements. These claims are the same for every transaction cycle and account. General transaction-related audit objectives are really the same as management assertions, but they are modified a little to help the auditor decide which audit evidence is needed to justify the management assertions. Specific transaction-related audit objectives are determined by the auditor for each general transaction-related audit objective. This process is done for every transaction to help the auditor know what amount of evidence is needed for that cycle to satisfy the general transaction related audit objectives.
b. For each specific transaction-related audit objective, identify the appropriate management assertion.
1. Occurrence-a
2. Completeness-d
3. Accuracy-c and b
4. Classification-e
5. Cutoff-f
c. For each specific transaction-related audit objective, identify the appropriate general transaction-related audit objective.
6. Occurrence-a
7. Completeness-c
E. Why does the auditor not use the same tolerable misstatement or percentage of account balance for all financial statement accounts?
Give an example of how each of these specifically applies to the Smackey Dog Food, Inc audit. For instance, examine the apparent internal control weaknesses and possible negative outcome of each.
Moreover, the auditor should preform test for effectiveness of internal controls. He may interview management by asking questions on the process of the transactions and operational activities. He may discuss with management the process of some transactions from beginning to end and then test it by using sample testing. Also he/she should make sure that there is proper control of activities; policies and procedures for adequate segregation of duties are met.
Compare the primary auditor objectives in auditing historical financial statements to auditing internal controls over financial reporting. Identify at least two (2) objectives that are the most significant in reducing the risk of reporting errors or misstatements in financial statements. Provide a rationale for your response.
Furthermore, when the internal control is fixed, the outside auditor can rely on the clients system and less audit testing can be conducted. When everything is improved, the management letter is given to the organization’s top management and not disclosed to the public, (Finkler, S. A., Ward, D. M., & Calabrese, T. D., 2013). Next, is the auditor’s report that entails the opinion letter usually written in three paragraphs and given to the board of trustees. Then, the opinion paragraph is added on to state the organizations financial statements are in accordance of the financial position and followed through with (GAAP). The clean opinion addresses the opinion of the auditor and the overall exercising of professionalism. Also, the complete opinion of the financial statements is to give a representation of the organization. All other opinions may be included and can be addressed by adverse opinions if (GAAP) was not in accordance. A qualified opinion can be added if a specific area wasn’t included in the financial statement when needed. Finally, the management reports are conducted by the management team and not the auditors. The management report is the annual report the topics included in the report are the internal control system and the responsibility of the audit committee.
E1-5 Cougar’s Accounting Services provides low – cost tax advice and preparation to those with financial need. At the end of the current period, the company reports the following amounts: Asset – 19000; Liabilities – 15000; Revenues – 28000; Expenses = 33000
Dq2 What other types of engagements are auditors involved in besides auditing? What are the other types of reports that auditors will issue? What types of responsibilities
uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company 's manufacturing overhead data:
It is possible for an auditor to come to an improper conclusion because documents, like invoices, could be easily falsified if management originally handles them or if the auditor receives them from management, like in the case of ZZZZ Best and Minkow. The auditor must always confirm payments directly with the third party.
3. Discuss how the auditing procedure should have been modified to address the high-risk financial statement items.
B) I think the auditors should have equal responsibility for detecting material misstatements due to error and fraud. It’s their job to make sure the financial statements are as accurate as possible. Although it may be hard to check all the information from a company it’s the responsibility of the auditor to sign off that everything is in check.
Auditors should plan the audit so that the engagement is conducted in an effective manner.
Analytical procedures can often point to areas that are out of sync with the prior results of the firm. Auditors should look closely at changes in the gross profit ratio and unusual changes in revenues or expenses. Once unusual results have been identified, auditors must search for reasonable explanations. If the explanations provided seem implausible then the auditor must expand the scope of testing and obtain additional corroborating evidence.
An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide
A company prepares financial statement to provide information about its financial position and performance. This information is in turn used by a wide range of stakeholders (such as investors, banks, customers, suppliers etc) in making economic decisions with respect to respective economic interest in the company. Typically, in terms of ownership by investment in shares of the company, shareholders though own the company but do not manage it. Therefore, the shareholder and other such stakeholders to get comfort in taking sound decision need independent assurance from the auditors that the financial statements reflect true and fair view of the company affairs in all material respects. Hence, in order to enhance the level of