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1、Audit Responsibilitiesand Objectives,Chapter 6,Learning Objective 1,Explain the objective of conducting an audit of financial statements and an audit of internal controls.,Objective of Conducting an Audit of Financial Statements,The overall objectives of the auditor are to obtainreasonable assurance
2、 about whether the financialstatements as a whole are free from material misstatement, whether due to fraud or error, therebyenabling the auditor to express an opinion on whetherthe financial statements are prepared, in all materialaspects, in accordance with applicable financial reporting framework
3、 (HKSA 200.11).,Steps to Develop Audit Objectives,Learning Objective 2,Distinguish managements responsibility for the financial statements and internal control from the auditors responsibility for verifying the financial statements and effectiveness of internal control.,Managements Responsibilities,
4、Financial statements and internal controls.,Managements Responsibilities,As an auditor, what would you do in each of the following situations:1.The client refuses to provide the fixed assets movement and said they do not use such schedule. As it is required by the auditors only, the auditors should
5、prepare such schedule.2.It is found that the audited financial statements has omitted a subsidiary. The client claims that the auditors have been negligent and threatens to sue the auditors.,Learning Objective 3,Explain the auditors responsibility for discovering material misstatements.,Objectives o
6、f the Auditor,Obtain reasonable assurance,Free from material misstatements,Financial statements,Opine,Applicable reporting framework,Financial statements,Report,Communicate per audit standards,Financial statements,Professional Skepticism,Material misstatements,Errors vs. Fraud,Reasonable Assurance,A
7、uditors Responsibilities,Fraudulent reporting vs. theft of assets,Responsibilities for Discovering Illegal Acts,The auditor should obtain a general understanding of the legal and regulatory framework applicable to the entity and the industry and how the entity is complying with that framework (HKSA2
8、50.12). For example, capital adequacy and liquidity requirements for a bank. The auditors should obtain sufficient appropriate audit evidence about compliance with those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in fina
9、ncial statements (HKSA250.13) For example, accrual for income taxes,Responsibilities for Discovering Illegal Acts,The auditor should request management to provide written representations that all known instances of non-compliance with laws and regulations has been disclosed to the auditor (HKSA250.1
10、6).In the absence of identified or suspected non-compliance, the auditor is not required to perform other audit procedures (HKSA250.17).,Responsibilities for Discovering Illegal Acts,The auditors should communicate with those charged with governance matters involving non-compliance with laws and reg
11、ulations (such as the audit committee, the board of directors and senior management regarding noncompliance) (HKSA250.22).If the auditors suspect that members of senior management are involved in noncompliance, the auditors should report the matter to the next higher level of authority, such as audi
12、t committee or a supervisory board. Where no higher authority exists, seek legal advice (HKSA250.24).,Auditors Responsibilities for Discovering Illegal Acts,Direct-Effect,Same for errors and fraud,Indirect-Effect,No Assurance,Type,Responsibility,Learning Objective 4,Classify transactions and account
13、 balances into financial statement cycles and identify benefits of a cycle approach to segmenting the audit.,Financial Statements Cycles,Audits are performed by dividing the financialstatements into smaller segments or components.,Transaction Flow Example,Relationships Among Transaction Cycles,Gener
14、alcash,Capital acquisitionand repayment cycle,Sales andcollectioncycle,Acquisitionand paymentcycle,Payroll andpersonnelcycle,Inventory andwarehousingcycle,Learning Objective 5,Describe why the auditor obtains a combination of assurance by auditing classes of transactions and ending balances in accou
15、nts, including presentation and disclosure.,Balance and Transactions Affecting Balances Example,Learning Objective 6,Distinguish among the three categories of management assertions about financial information.,Management Assertions,Assertions about classes of transactions andevents for the period un
16、der audit,2. Assertions about account balances at period end,3. Assertions about presentation and disclosure,Management Assertions forEach Category of Assertions,Transactions and Events,Account Balances,Presentation and Disclosure,Occurrence,Existence,Occurrence and rightsand obligations,Completeness,Completeness,Completeness,Accuracy,Valuation andallocation,Accuracy andvaluation,Classification,Classification andunderstandability,
