AUDIT RISK

1. AUDITORS’ RESPONSIBILITY Refer to objective of AU-C Section 200 to define the auditor’s responsibility. a. The overall objectives of the auditor, in conducting an audit of financial statements, are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects. 2. AU-C 315 Write the objective of AU-C 315. a. The objective of the auditor is to identify and assess the risk of material misstatement, whether due to fraud of error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity’s internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement. 3. AU-C 500 write the objective of AU-C 500. a. The objective of the auditor is design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion. 4. What is the objective of AU-C 700? a. The objectives of the auditor are to form an opinion on the financial statements based on an evaluation of the audit evidence obtained, including evidence obtained about comparative financial statements or comparative financial information, and express clearly that opinion on the financial statements through a written report that also describes the basis for that opinion. 5. Describe Vouching a. testing for occurrence b. testing of information from sales journal or from general ledger to source documents 6. Describe Tracing a. testing for completeness b. testing of information from source documents to sales journal or general ledger 7. AUDIT RISK Define audit risk. Do not list the elements of audit risk. Define audit risk. a. Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements that are materially misstated. 8. AUDIT RISK MODEL What are the elements of the audit risk model (do not abbreviate). The use an asterisk to indicate which elements of the audit risk model auditors able to reduce with audit procedures. a. Inherent risk b. Control risk c. Detection risk d. Auditors can reduce detection risk with substantive procedures. e. Audit procedures do not reduce inherent risk or control risk. (They improve the auditor's assessment of control risk.) 9. How do we reduce detection risk ? a. 1) Obtain more evidence b. 2) Obtain higher quality evidence c. 3) Assigning more experienced auditors to the engagement d. 4) Adding elements of unpredictability 10.AUDIT RISK MODEL If we believe the controls are effective, we will assess control risk as low. What will be the required level of detection risk? a. Planned detection risk will be High, Maximum or 1.00 11.INDEPENDENCE Write the principle for Objectivity and Independence (which is our operational definition of independence). a. A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in face and appearance when providing professional auditing or attestation services. 12.SALES AND COLLECTION CYCLE Use the management assertions to guide your thinking. Write three audit objectives relating to credit sales transactions. Each objective should be one short sentence. a. Occurrence – reported sales are for shipments actually made to customers. b. Completeness – all sales transactions that occurred are reported. c. Accuracy - reported sales are for the quantity of goods shipped and are billed at the correct price. d. Classification – sales returns and sales discounts are correctly classified. e. Cutoff – sales are reported in the correct accounting period. 13.SALES AND COLLECTION CYCLE Use the management assertions to guide your thinking. Write three audit objectives relating to the accounts receivable (or inventory) balance. Each objective should be one short sentence. 14. 15.ASSERTIONS - OCCURRENCE You are concerned that sales might be overstated. Describe an audit procedure(s) you might use to obtain evidence that only those sales which actually occurred are recorded in the sales journal. 16.ASSERTIONS - ACCURACY Give an example of a misstatement in a sales transaction related to the accuracy assertion. 17. ASSERTIONS - Which assertions relate to Account Balances? a. Completeness b. Existence c. Valuation and Allocation d. Rights and obligations 18.ASSERTIONS You have confirmed customers’ accounts receivable balances. Describe an audit procedure(s) you could perform for those customers who did not respond to your confirmation.