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AUDIT RESPONSIBILITIES AND

OBJECTIVES

Group 6
Alvia 008201705037
Juniati Veronica 008201705052
OBJECTIVE OF CONDUCTING AN AUDIT OF
FINANCIAL STATEMENTS
MANAGEMENT’S RESPONSIBILITIES

Financial statements and internal controls.

Sarbanes-Oxley increases management’s


responsibility for the financial statements.

CEO and CFO must certify quarterly and annual


financial statements submitted to the SEC.
Example:

6-5
AUDITOR’S RESPONSIBILITIES
AICPA auditing standards state:
Material Versus Immaterial Misstatements:
Misstatements are usually considered material if the combined uncorrected errors and
fraud in the financial statements would likely have changed or influenced the decisions
of a reasonable person using the statements.

Reasonable Assurance:
Reasonable assurance is a high, but not absolute, level of assurance that the financial
statements are free of material misstatements.

Errors Versus Fraud:


An error is an unintentional misstatement of the financial statements.
A fraud is intentional:
1) Misappropriation of assets
2) Fraudulent financial reporting
Auditor’s Responsibilities for Detecting Material Errors:
Auditors spend a great portion of their time planning and performing audits to detect
unintentional mistakes made by management and employees.

Auditor’s Responsibilities for Detecting Material Fraud:


The standards also recognize that fraud is often more difficult to detect because
management or the employees perpetrating the fraud attempt to conceal the fraud.

Fraud Resulting from Fraudulent Financial Reporting Versus Misappropriation of


Assets:
Both fraudulent financial reporting and misappropriation of assets are potentially
harmful to financial statement users, but there is an important difference between them.
Fraudulent financial reporting harms users by providing them incorrect financial
statement information for their decision making.
Auditor’s Responsibilities for Discovering
Illegal Acts
Type Responsibility
Same as for
Direct-Effect errors and
fraud

Indirect-Effect NoAssurance
FINANCIAL STATEMENT CYCLES
Acommonform of segmenting is called the cycle approach, which divides classes of
transactions and account balances that are closely related into segments.
Example in Figure6-3.
• Sales and collection cycle
• Acquisition and payment cycle
• Payroll and personnel cycle
• Inventory and warehousing cycle
• Capital acquisition and repayment cycle
SETTING AUDIT OBJECTIVES

Auditors conduct financial statement audits using the cycle approach by


performing audit tests of:

• Transaction-related audit objectives


• Balance-related audit objectives
• Presentation and disclosure-related audit objectives.
Example:
MANAGEMENTASSERTIONS

Management assertions are implied or expressed representations by


management about classes of transactions and the related accounts and
disclosures in the financial statements.

Management assertions are directly related to the financial reporting


framework used by the company (usually U.S. GAAP or IFRS).
TRANSACTION-RELATED AUDIT
OBJECTIVES
BALANCE-RELATED AUDIT OBJECTIVES
PRESENTATION AND DISCLOSURE-
RELATED AUDIT OBJECTIVES
THANK YOU