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1、Chapter 6Audit responsibility and objectives6-1 (Objective 6-1) State the objective of the audit of financial statements. In general terms, how do auditors meet that objective?The objective of the audit of financial statements by the independent auditor is the expression of an opinion on the fairnes
2、s with which the financial statements present financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.The auditor meets that objective by accumulating sufficient appropriate evidence to determine whether the financial statements are fairl
3、y stated.6-2 (Objectives 6-2, 6-3) Distinguish between managements and the auditors responsibility for the financial statements being audited.It is managements responsibility to adopt sound accounting policies, maintain adequate internal control and make fair representations in the financial stateme
4、nts. The auditors responsibility is to conduct an audit of the financial statements in accordance with auditing standards and report the findings of the audit in the auditors report.6-3 (Objective 6-3) Distinguish between the terms errors and fraud. What is the auditors responsibility for finding ea
5、ch?An error is an unintentional misstatement of the financial statements. Fraud represents intentional misstatements. The auditor is responsible for obtaining reasonable assurance that material misstatements in the financial statements are detected, whether those misstatements are due to errors or f
6、raud.An audit must be designed to provide reasonable assurance of detecting material misstatements in the financial statements. Further, the audit must be planned and performed with an attitude of professional skepticism in all aspects of the engagement. Because there is an attempt at concealment of
7、 fraud, material misstatements due to fraud are usually more difficult to uncover than errors. The auditors best defense when material misstatements (either errors or fraud) are not uncovered in the audit is that the audit was conducted in accordance with auditing standards.6-4 (Objective 6-3) Disti
8、nguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.Misappropriation of assets represents the theft of assets by employees. Fraudulent financial reporting is the
9、intentional misstatement of financial information by management or a theft of assets by management, which is covered up by misstating financial statements.Misappropriation of assets ordinarily occurs either because of inadequate internal controls or a violation of existing controls. The best way to
10、prevent theft of assets is through adequate internal controls that function effectively. Many times theft of assets is relatively small in dollar amounts and will have no effect on the fair presentation of financial statements. There are also the cases of large theft of assets that result in bankrup
11、tcy to the company. Fraudulent financial reporting is inherently difficult to uncover because it is possible for one or more members of management to override internal controls. In many cases the amounts are extremely large and may affect the fair presentation of financial statements.6-5 (Objective
12、6-3) “It is well accepted in auditing that throughout the conduct of the ordinary audit, it is essential to obtain large amounts of information from management and to rely heavily on managements judgments. After all, the financial statements are managements representations, and the primary responsib
13、ility for their fair presentation rests with management, not the auditor. For example, it is extremely difficult, if not impossible, for the auditor to evaluate the obsolescence of inventory as well as management can in a highly complex business. Similarly, the collectibility of accounts receivable
14、and the continued usefulness of machinery and equipment are heavily dependent on managements willingness to provide truthful responses to questions,” Reconcile the auditors responsibility for discovering material misrepresentations by management with these comment.True, the auditor must rely on mana
15、gement for certain information in the conduct of his or her audit. However, the auditor must not accept managements representations blindly. The auditor must, whenever possible, obtain appropriate evidence to support the representations of management. As an example, if management represents that cer
16、tain inventory is not obsolete, the auditor should be able to examine purchase orders from customers that prove part of the inventory is being sold at a price that is higher than the companys cost plus selling expenses. If management represents an account receivable as being fully collectible, the auditor should be able to examine subsequent payments by the customer or correspondence from the customer that indicates a willingness and ability to pay.6-6 (Objective 6-3) List two