Acc 403 Week 7 Discussion Acc403 Week 7 Discussion

Evaluating the Reasonableness of the Accounting Estimates, and Determining Misstatements: the auditor shall evaluate, based on the audit evidence, whether the accounting estimates in the financial statements are either

14. In which paragraph of the standard audit report does the auditor communicate to the user that certain combining fund information in the financial statements is not part of the basic financial statements, but that such information has been subjected to auditing procedures and, in his or her opinion, is fairly presented in all material respects in relation to the basic financial statements?

Recommendation of types of accounting evidence and methods of gathering such evidence to support the financial status review

a. Arrange the following asset, liability, and owner’s equity elements of the accounting equation: Cash, Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and Revenues/Expenses. (See Exhibit 1.5)

The Auditing Standards Board has launched the Clarity Project (Lindberg & Seifert, 2011) which is an effort to make the U.S. Generally Accepted Auditing Standards (U.S. GAAS) easier to comprehend in the eyes of non-public businesses. “The Clarity Project will result in the first complete redrafting and recodification of U.S. GAAS since 1972” (Morris & Thomas, 2011, para. 2). Four of the most significant changes are: changing the format of the standards so they are more consistent and readable, the wording in the auditor’s report, group audit standards, and the authoritative status on the 10 generally accepted auditing standards (Morris & Thomas, 2011). The Clarity Project also includes the process of integrating the U.S. GAAS with International Standards on Auditing (ISA).

Financial investors rely on the accuracy of company’s financial statements so they depend on external auditors to insure that the financial statements are free of any material misstatements. 3. In the

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).”

The auditor required to providing a reasonable assurance about the financial statements that they are free of error or fraud by planning and performing audit work in conformity with GAAS (AU-C 240). According to AU-C 240, fraudulent financial reporting and misappropriation of assets are the two main category of fraud. The auditor should consider the incentive or pressure upon the employee, evaluating the environment or the opportunities to commit the fraud and looking at the justifications to committing fraud when he assessing a likelihood of fraud (AU-C 240). However, in the case they were incentive and pressure by management to meet the Wall Street expectations, opportunities to acquire companies in the future, and weakness of the internal control.

The author used a qualitative and quantitative analysis in the research. The researcher analyzed issues of earnings management and financial statement manipulations. The findings demonstrated that qualitative misstatements affect the auditor readiness to provide a judgment. The auditor realizes the outcomes, such as disciplinary actions and litigation consequences. Auditors do not require companies to correct immaterial errors if they based on estimates and earning forecast (pp. 437-438). However, the American Institute of Certified Public Accountants (AICPA) made changes in professional auditing standards that require auditors to discuss errors to audit committee (p.

* How can such apparently reliable evidence lead an auditor to an improper conclusion? (6 points)

For each of the above independent situations: (1) describe the overall impact on audit risk and provide your reasons for your answer, and (2) identify the specific component(s) of audit risk affected.

The paramount onus of an auditing professional is conveying reliable information to clients and the public so that they may make imperative, intellectual decisions. For this obligation to be fulfilled, a quality audit must be performed in accordance with generally accepted auditing standards (GAAS). Executing a quality audit necessitates an auditor reasonably assures financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP) and not materially misstated, whether due to errors or fraud. Furthermore, executing a quality audit obliges an auditor to utilize professional skepticism by exercising proficient judgment and proves competency in accounting principles and professional auditing

Audit evidence directly from outsiders are used to determine competence, internal evidence provides evidence but is weighed against effectiveness of internal controls. Physical evidence that an auditor may actually witness like inventory is the highest of reliability. External and internal evidence is moderately reliable and works best when used with supporting documentation. Client communications and letters are the least reliable and should not be taken on its own merit.

b) The auditor should pay close attention to the changes of company’s financial result and analyze those changes in time to see if they are reasonable. Most auditors should have detected this kind of material misstatement in company’s financial results, because this defalcation is caused by a personal factor.

The way in which audit reports have been documented and presented has slightly changed since the 1940’s whereby the use of guidelines as provided by GAAS (Generally Accepted Auditing Standards) in the documentation and reporting of the report is still in use. The system used for reporting under GAAS within the United States is the pass/ fail model which analysts believe to be a very useful tool for concise and clear assessment of a fair reporting of the audited financial statements of a company. The new set of rules by the PCAOB sets out to seek the presentation of additional information regarding the process of audit pertaining to each business by rolling out new audit standards.