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3
NAME
ACCTG(Last,
33 Given, M.I.)
– AUDITING BARRUGA,
AND MA. CHRISTINE
ASSURANCE A.
PRINCIPLES
COURSE/YEAR/BLOCK: BS ACCOUNTANCY 3C
THINK LIKE AN AUDITOR
INSTRUCTIONS
Read the short situational case presented below.
Using the auditing concepts and principles you have learned in your previous lesson, provide answers to the
questions required for the case.
You answer to each question requirement should be in NO MORE THAN FIVE (5) SENTENCES.
TOTAL POINTS
This activity shall be for a total of 10 points.
CASE PROPER
Feller, the sole owner of a small hardware business, has been told that the business should have its financial
statements audited by an independent CPA. Feller, having some bookkeeping experience before, has personally
prepared the company’s financial statements and does not understand why such statements should be audited by a
CPA. Feller discussed the matter with Farber, a CPA, and asked Farber to explain why an audit is considered
important.
REQUIRED:
1. Describe the objectives of an independent audit.
Independent audit equates to evaluation of the financial statements, ensuring that they are compliant with
generally accepted accounting principles (GAAP). The objective of independent auditing also include obtaining
reasonable assurance about whether the financial statements are free from material misstatement, fraudulent
activities and/or error. It is used to avoid conflicts of interest and to ensure the integrity of performing an audit. It is
done to protect the interest of the public and potential investors from the occasional fraudulent or unrepresentative
financial claims made by the company.
A reasonable level of assurance, it is what auditors can provide to Feller, ensuring that the financial statements of
his business is in conformity with the generally accepted accounting principles (GAAP). An independent audit also
reduce business and information risk. It provides credibility to information which make the public and the intended
users of such information establish more trust and keep a peace of mind when making economic decisions, such
as investing in Feller’s business. Auditors can help him avoid misleading statements that result from unforeseen
mistakes/errors done carelessly by Feller. Simply put, audit can help to make better management decisions as
well as economic decisions by helping detecting errors in financial statements and the provision of the auditor’s
objective views and suggestions to Feller.