...1 Session 4 Audit Planning; Materiality and the audit risk model Auditing: Principles and Methods 2 After studying this session you should be able to: 1. Discuss why adequate audit planning is essential 2. Make client acceptance decisions and perform initial audit planning 3. Gain an understanding of the client’s business and industry 4. Assess client business risk 5. Perform preliminary analytical procedures 6. Apply the concept of materiality to the audit 7. Define risk in auditing and the audit risk model Auditing: Principles and Methods 3 8. Consider the impact of engagement risk on acceptable audit risk 9. Discuss the relationship of risks to audit evidence 10. Answer the Review Questions Auditing: Principles and Methods 1. Audit Planning 4 Why is adequate audit planning essential? “The auditor must adequately plan the work and must properly supervise any assistants”. There are three main reasons why the auditor should properly plan engagements: to enable himself to obtain sufficient appropriate evidence, to keep audit cost reasonable and to avoid misunderstanding with the client. Auditing: Principles and Methods 1. Audit Planning 5 An important part of audit planning is assessing acceptable audit risk and inherent risk because it helps determine the amount of evidence that will need to be accumulated and staff assigned to the engagement. Acceptable audit risk is a measure of how willing the auditor is to accept that the FSs...
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...Introduction to Assurance and Financial Statement Auditing True / False Questions 1. | Independence standards are required for audits of public companies, but not for audits of private companies. True False | 2. | Decision makers demand reliable information that is provided by accountants. True False | 3. | Information asymmetry seldom occurs. True False | 4. | Conflicts of interest often occur between absentee owners and managers. True False | 5. | Auditing services and attestation services are the same. True False | 6. | Auditing is a type of attest service. True False | 7. | Testing all transactions that occurred during the period is cost prohibitive. True False | Multiple Choice Questions 8. | Why do auditors generally use a sampling approach to evidence gathering? A. | Auditors are experts and do not need to look at much to know whether the financial statements are correct or not. | B. | Auditors must balance the cost of the audit with the need for precision. | C. | Auditors must limit their exposure to their auditee to maintain independence. | D. | The auditor's relationship with the auditee is generally adversarial, so the auditor will not have access to all of the financial information of the company. | | 9. | Which of the following statements best describes a relationship between sample size and other elements of auditing? A. | If materiality increases, so will the sample size. | B. ...
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...[pic] SCHOOL OF ACCOUNTANCY COLLEGE OF BUSINESS UNIVERSITI UTARA MALAYSIA COURSE CODE : BKAA3023 COURSE NAME : AUDITING AND ASSURANCE II PRE-REQUISITE : AUDITING AND ASSURANCE I _____________________________________________________________________ 1. SYNOPSIS This is a continuation of Audit and Assurance 1. It intends to strengthen and enhance the students’ understanding in auditing. Among the topics that will be discussed are code of ethics, auditors’ liability and in-depth explanations on analytical procedures, computer assisted audit techniques, audit sampling, materiality and audit risk, group audit and current issues facing the auditing profession. This course will justify other activities than financial statement audit that can be performed by a public accountant like performance/operational audit, internal audit and compliance audit. 2. COURSE OBJECTIVES This course intends the student: 1. To comprehend applicable regulations, legal responsibilities and ethical standards and current issues facing the audit profession. 2. To appreciate the concepts of internal control system and the use of computer assisted audit techniques in auditing a computerised environment. 3. To understand and apply audit risk, materiality, and statistical and non statistical audit sampling techniques. 4. To be familiar with related issues in audit completion, group audit, internal audit and related audit services and other services that...
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...Kristin Bamberger Business Risk and Auditing Regis University Auditing Principles June 28, 2014 Business Risk and Auditing In the eyes of the average person auditing is a very black and white business as is all aspects of accounting. However, neither of these are as cut-and-dry as people would like to think. Auditors, as many people assume, are not always looking for fraud. Their main purpose in auditing is to ensure the financial statements comply with Generally Accepted Accounting Principles (GAAP). Auditing is as much for external users as it is for internal users. It is important for internal users because they can ensure they are complying with many of the GAAP laws. For external users auditing allows them to make educated decisions on which companies to invest in and they can see both business risk and audit risk. For any given auditing firm they will evaluate a potential client before actually committing to doing an audit. Auditors are looking at business risk and are always aware of audit risk. These two terms are glaringly different and yet go hand-in-hand for auditors. Many people think that business and audit risk are all about fraud, however, audit risk is more about legally protecting the auditing firm and the CPA’s while business risk is about protecting people that may invest or lend money to a business. Fraud is not actually a large part of auditing because auditing is looking at internal controls, and if a company has strong internal controls they...
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...function of the PCAOB and AS 5 and AS 11 Ramecha Davis This paper is submitted in partial fulfillment of the requirements for Auditing BUS5423 Section 70 Texas Woman’s University Dr. John Nugent April 20, 2015 Abstract The purpose of this research paper is to provide an in depth review of the Public Company Accounting Oversight Board (PCAOB) and how it contributes to the interest of the Sarbanes Oxley Act of 2002. The research highlights the importance of the PCAOB’s role in the accounting profession as well as prospective changes that may evolve in the future related to PCAOB. Upon reading this research the reader will be familiar with PCAOB’s roles and functions, as well as auditing standards (AS) released such as AS5 and AS11. The PCAOB’s significance in the protection of investors is revealed as well. Keywords: SEC, PCAOB, SOX, AS 5, AS 11, Internal Control, Materiality Table of Contents Introduction……………………………………………………………………………………………….5 PCAOB…………….……………………………………..……………………………….……….……5-6 a) The PCAOB Mission, Vision, & Core Values………………………………….………........6-7 b) Current Standards…………………………………………………………….…..............…7-8 c) Future Standard Plans…………………………………………………………………….…8-9 Sarbanes Oxley Act of 2002 Section 404……………………………………………………………...….9 a) Auditing Standard 5…………………………………………………………………….….9-10 b) Auditing Standard 11……………………………………………………………………..10-12 c) Communication Requirements..............................................
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...TEAM B TEAM B ------------------------------------------------- Assessing Materiality and Risk Simulation University of Phoenix ACC/491 Dwayne Thompson March 10, 2013 ------------------------------------------------- Assessing Materiality and Risk Simulation University of Phoenix ACC/491 Dwayne Thompson March 10, 2013 The objective of the audit of financial statements is to enable the auditor to express an opinion if the financial statements are prepared in accordance with an identified financial reporting framework. The reason that materiality is allocated to those accounts sampled because materiality represents the magnitude of an omission or misstatement of an item in a financial report. The three function of the audit risk are inherent risk (IR), control risk (CR), and detection risk (DR). Every level of audit risk has an opposite connection that exists between assessed levels of controls, inherent risk, and level of detection risk Why do certain accounts have to be audited 100%? Accounts need to be audited 100% so the users of the financial statements can rely on the information and be able to make decisions for investment purposes. It also helps management make sure the company is profitable as well as following rules and regulations of the accounting standards and policies. Auditing accounts are done to protect the investors, shareholders, banks, and to give assurance that the information...
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...Memorandum to Apollo Shoes TO: APOLLO SHOES CC: ARNOLD ANDERSON, DARLENE WARDLAW, BRADLEY CRUMPLER & KARINA RAMIREZ FROM: ADAM MARTINEZ of R.E.A.L Auditing DATE: October 20th, 2012 SUBJECT: MATERIALITY The definition of materiality can differ amongst independent auditors, however it remains one of the basic and major concepts of auditing. Research has actually shown that auditors do not have a consensus meaning of what is “material.” The way we will describe it will be as such: an amount or transaction that can influence the decision of users. Materiality is the maximum amount by which an auditor believes that a company’s financial statements can be misstated yet still not affect the decisions of reasonable users. Materiality is a professional judgment and not a calculation. Ultimately it is up to the auditor to determine whether the financial statements are materiality misstated. For the most part when identifying potentially material transactions, auditors have relied upon the 5 percent rule. This rule states that reasonable investors would not be influenced in their investment decision by a fluctuation in net income, gross profit, total revenues and total assets of 5% or less. Auditors also consider both quantitative and qualitative factors when trying to make a determination. The quantitative base for materiality is related to the 5 percent rule. Auditors also take into account several qualitative factors such as a misstatement that changes a loss to a net income...
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...CASE STUDY PA503 FUNDAMENTALS OF AUDITING Audit Firm Contact Number JABATAN PERDAGANGAN Programme Section CHAPTER 1 CHAPTER 2 Email Materiality and Audit Risk Corporate Governance PROBLEM SOLVING CLO2 | LD2/P3 Instruction: Please answer ALL questions. | Part 1 NEW CLIENT ACCEPTANCE DECISION Learning Objectives After completing and discussing this case, you should be able to: 1. Understand the types of information relevant to evaluating a prospective audit client 2. List some of the steps an auditor should take in deciding whether to accept a prospective client 3. Identify and evaluate factors important in the decision to accept or reject a prospective client 4. Understand the process of making and justifying a recommendation regarding client acceptance INTRODUCTION Your accounting firm is a medium-sized, accounting firm in Malaysia, formed in 2012, mainly provides auditing and tax services. But it has recently had success in building the information-systems-consulting side of the business. Recently, your group has been assigned for the first time to perform audit engagement procedures for a small and medium-sized company in Malaysia. One of team member has been a senior auditor for the past three years. Your first assignment is to assist an audit partner on a client acceptance decision. The partner explains to you that the prospective client, Unggul Holdings Berhad, is a medium-sized textile company. The partner recently met the...
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... | | |b. insignificant. | | |c. significant. | | |d. relevant. | | | | |2. |The preliminary judgment about materiality is the amount by which the auditor believes the statements could be misstated and | | |still not affect the decisions of reasonable users. | | |a. minimum | | |b. maximum | | |c. mean average...
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...491 Contemporary Auditing 1, Complete Course + Final Exam Purchase here http://chosecourses.com/acc-491-contemporary-auditing-1-complete-course-final-exam Product Description WEEK 1 Individual Assignment, Generally Accepted Auditing Standards Discussion Questions 1, 2 and 3 Weekly Summary WEEK 2 Individual Assignment from Text, Questions 1-23 Learning Team, Auditing, Attestation, and Assurance Services Paper 1 Learning Team, Auditing, Attestation, and Assurance Services Paper 2 Discussion Questions 1, 2 and 3 WEEK 3 Individual Assignment from Text, 5-29, 5-30, 6-20, 6-21, 6-22, 7-22 Learning Team Assignment, Assessing Materiality and Risk Simulation Paper Learning Team Assignment, Assessing Materiality and Risk Assessment Presentation Learning Team Assignments from Text, Exercises 6-26, 7-25 Discussion Questions 1, 2 and 3 WEEK 4 Individual Assignment from Text, 8-15, 8-16, 10-31, 10-32 Learning Team Assignment - Apollo Shoes Case Assignment Discussion Questions 1, 2 and 3 WEEK 5 Individual Assignment from Text, 11-6, 11-8, 11-9, 13-8 Learning Team Assignment - Audit Sampling Case Memo Weekly Summary Final Examination ACC 491 Contemporary Auditing 1, Complete Course + Final Exam Purchase here http://chosecourses.com/acc-491-contemporary-auditing-1-complete-course-final-exam Product Description WEEK 1 Individual Assignment, Generally Accepted Auditing Standards Discussion...
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...Apollo Shoes, Inc. Materiality Memo September 24, 2014 As stated previously we will be following the Generally Accepted Auditing Standards (GAAP) throughout this audit. One of the key components we will be following is the materiality concept. a. As an independent auditor we will determine, by use of professional judgment, the materiality levels to be utilized for the use of this audit. These levels will help us determine what, if any, misstated information in the financial statements is considered material. Any material misstatements located in the financial statements will require an adjusting entry from the client or we will issue a modified opinion. Materiality can be a determining factor for users in making financial decisions, therefore, it is extremely important we provide reasonable assurance the financial statements are without error. However, we will state in our audit report there is some risk the financial statements will contain material misstatements, we cannot guarantee there are no errors. b....
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...changed its accounting policy for recognizing revenue from the completed contract basis to the percentage-of-completion basis. Your discussions with the controller indicate that, in addition to the controller, there is one full-time clerk in the accounting department. Given the growth of the company, the controller confides to you that the accounting for payables and receivables is backlogged but that EAI intends to hire temporary staff in the upcoming month to help in processing the outstanding invoices. EAI has been audited by a sole practitioner over the past ten years. Due to the large growth experienced by EAI, the President of EAI is considering switching to Check and Balances, professional accountants for the upcoming year. You are an auditing student...
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...Audit Assignment Case: Burnaby Wholesalers Ltd. INTRODUCTION: Burnaby Wholesalers Ltd. is a closely held company. The company distributes building materials, hardware, and related products to retail stores that service the “do-it-yourself” home improvement market. The company operates in a very competitive industry and the company’s profit margins and sales have both been decreasing during the last several years as new competitors have entered the market. The company’s fiscal year end is Sep 30th. Our firm Able & Quick, CPAs was hired to perform the audit for the fiscal year ended Sep 30th 2014. Prior to the current fiscal year, Burnaby Wholesalers was audited by another public accounting firm. The client changed auditors immediately after completion of the audit for the year ended September 30, 2013, following the predecessor firm’s issuance of a qualified (GAAP) opinion on the financial statements because the auditors were not satisfied with the valuation of the client’s inventories. KEY USERS & CONCERNS: The main users of Burnaby Wholesalers include: * Owners/Shareholders who are concerned about profitability and sustainability of the company. * Management/CEO of the company who would be interested in showing increased earnings and profitability of the company to earn bonuses/incentives, etc. * Investors/Bankers whose primary concern is the profitability and cash flow of the company to ensure a return on their investment and recovery of the principal...
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...Overview of Auditing Standards Ethical Standards Ethical Standards (FRS, 2010) is issued by Auditing Practices Board. Its responsibilities are set up standards and guidance for auditing work. According to this standard, APB tries to enhance confidence on auditing process for public. ESs includes five requirements that auditors must adhere to and its primary objective is to give ‘true and fair’ opinions on financial statement. The credibility of audit opinions depends on the integrity, objectivity and independence of the auditor. Accordingly, it requires the quality of audit more stringent, especially the independence of auditors’ assurance. ES2 illustrates the guidance on some particular circumstances, which may generate threats to the independence and objectivity of auditors. ES3 states that senior positions have collaborated with audit engagement for a continuous period should be rotating. ES4 explains that there is no relationship between audit opinion and audit fees or other remuneration. ES5 shows that audit firm should consider whether non-audit service have significant effect on the threats to the auditor’s objectivity or independence. International Standards on Auditing ISA (FRS, 2009) copes with independent auditor’s overall responsibilities when implementing auditing process. These professional standards establish objectives of independent auditors together with explain the scope and nature of auditing process, which is designed to enable auditors to achieve...
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...upheld o Discuss conflict/independence issues involved o Due diligence procedures for takeover target o Draft a preliminary management letter o Audit report issuance matters o Key risks(significant risks) and business issues o Set extent of assurance work o Design procedures based on scope/risk/materiality (& explain purpose of procedures) o Execute the work plan o Discuss engagement options o Document results of procedures o Evaluate evidence & Draw conclusions o Prepare info for stakeholder meetings o Evaluate I/C - Types of side questions (level C): o Pending changes in standards o Evaluate IT portion of I/C o Audits of: offering documents, forecasts/projections in a prospectus, f/s affected by environmental matters (incl. environmental audits) o VFM audits; solvency matters; reports on summarized/comparative F/S; reports on consistent application of GAAP (continuous auditing) o Audit procedures on segment disclosures in F/S o Emerging services; operational audits; forensic engagements - Not tested o Reports on: pension fund f/s; regulated FI’s; insurance companies; trust/savings companies Canadian Standards on Quality Control (CSQC 1) Canadian Auditing Standards (CAS 200 –CAS 810) Other Canadian Standards General Assurance andAuditing (S. 5020 –S. 5970) Specialized Areas (S.7050 –S. 7600) ReviewEngagements (S. 8100 –S. 8600) Related Services (S. 9100 –S. 9200) Public Sector (PS 5000 –PS 6420) Assurance and Related Services Guidelines (AuG-4–AuG-47) ...
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