aCC403 Ch 4 wk 2 Essay

PCAOB describes professional skepticism as a general duty of care that needs to be applied by the auditor throughout the duration of the audit engagement. Professional skepticism involves the auditor having a clear and questioning mind regarding the assertions that are presented by management or other client personnel. The auditor is instructed to not take the words or data presented by management as sufficient and appropriate audit evidence but rather the auditor needs to thoroughly audit the evidence with a questioning mind to achieve reasonable assurance about the persuasiveness of the evidence. Skepticism is composed of three elements; auditor attributes, mindset and actions. The PCAOB

— Due diligence: extensive research and analysis is done on the company and in the market it operates in

CAS 300 requires auditors to their audit using a risk based model where the nature, timing and extent of audit procedures are based on the assessed risk of material misstatement. Pickett (2006) argues that for audits to be effective and efficient, much of the audit effort should be focused on areas that are considered to pose the highest audit risk. Additional audit procedures should be linked to individual audit assertions whereas other audit procedures need to be performed as and when needed. Thus, for an audit plan to be put in place, it is necessary for an auditor to come up with a risk profile of the client comprising an understanding of the business operating by the audit client, assess business risk and also perform its preliminary analytical review.

(b) Recorded an adjusting entry to record use of $20 of the above supplies. Cash 0/ Net Income -20

c. What is the best evidence of fair value? Describe alternate methods of estimating fair value.

Assuming that the end result is an unqualified audit report, outline the primary responsibilities of the audit firm after it issues the report in question.

If representations are made and said representations are unsubstantiated by management, the auditor should express a qualified opinion.

Secondly, although the audit might have been in its final stages, the fact that there had already been a sticking point between the auditors and CMD as to the validity and accounting procedures of the companies write-off’s of accounts receivable, once the audit team was made aware of the pending lawsuit of CMD by one of its clients for the exact same reason, they should have reconsidered their position on the evidence (suspension of judgment) and made sure to review that evidence before issuing an opinion.

3. Research auditing standards and describe the typical procedures that an auditor would perform in auditing a fair value estimate such as the

Given that Big Spenders Inc. requires professional assistance in deciding on its best option concerning investment – that is, the company needs to select between Auto Wash Bot Ltd. and Popeye’s Muscle Wash Ltd. regarding equity investment. Big Spenders Inc. would require the expertise of a Financial Analyst to conduct comparative examinations of the prospective companies (which are both into the business of car cleaning). This is to ascertain the financial potentials of the two car wash and detailing companies, namely in the area of profitability – in short, the analyst will demonstrate to Big Spenders Inc., the show it should invest in. In the regards to the aforementioned, based on the definition of the word

2. Auditors are required to consider evidence obtained and accumulated throughout the audit and make an overall evaluation as to whether substantial doubt exists with respect to the ability of the client

The auditing firm has been in engagement with the company throughout the period when the fraud was being committed. One of the common and clear indicators of possible fraud was the company’s cash flow statement. The company experienced positive growth in its profits from the year 1996 through to the year 1998. However, a close analysis of the cash flow statement shows that the company had experienced negative figures of cash flow from both operating and investing activities and positive cash flow from financing activities which would not sufficiently offset the negative cash flows from operating and investing. It is therefore evident

d. “The auditor's reliance on substantive tests to achieve an audit objective related to a particular assertion may be derived from tests of details, from analytical procedures, or from a combination of both. The decision about which procedure or procedures to use to achieve a particular audit objective is based on the auditor's judgment on the expected effectiveness and efficiency of the available procedures. For significant risks of material misstatement, it is unlikely that audit evidence obtained from substantive analytical procedures alone will be sufficient (PCAOB, AS 2305.09).”

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.

I am not satisfied that I have sufficient evidence to evaluate the existence and valuation assertion because I wasn’t able to get a hold of some customers. Due to this inconvenience as auditors we should be suspicious about if those sales do in fact exist. Also, in terms valuation, additional audit needs to be performed because from the confirmed amount owed, it is not sure