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Lecture

BUS 426 Lecture Notes - American Accounting Association, Audit Evidence, Audit Risk


Department
Business Administration
Course Code
BUS 426
Professor
Brad Bart

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MODULE 2
PROFESSIONAL STANDARDS, ETHICS AND LEGAL LIABILITIES
Practice Standards
Text page 30 briefly discusses the standard setting process. Input on
the development of standards and on changes is sought from a broad
range of users of financial statement information. A general awareness
of the standard setting process described in the text should be
adequate at this stage.
Generally Accepted Auditing Standards (GAAS)
CICA Handbook CAS 200 (Section 5100)
GAAS are the Assurance Handbook recommendations that govern the
activities of external auditors. The recommendation address
qualifications of auditors, the performance of the audit and the
preparation of the auditor’s report.
.02 Generally Accepted Auditing Standards are as follows:
General standard
The examination should be performed and the report prepared
by a person or persons having adequate technical training and
proficiency in auditing, with due care and with an objective state
of mind. [SEPT. 1975]
Examination standards
(i) The auditor should plan and perform the audit to reduce
audit risk to an acceptably low level that is consistent with
the objective of an audit. The auditor should plan the nature,
timing and extent of direction and supervision of
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engagement team members and review of their work. [JAN.
2006 *]
(ii) The auditor should obtain an understanding of the entity
and its environment, including internal control, sufficient to
identify and assess the risks of material misstatement of the
financial statements whether due to fraud or error, and
sufficient to design and perform further audit procedures.
[JAN. 2006]
(iii) The auditor should obtain sufficient appropriate audit
evidence to be able to draw reasonable conclusions on
which to base the audit opinion. [JAN. 2006]
Reporting standards
(i) The report should identify the financial statements and
distinguish between the responsibilities of management and
the responsibilities of the auditor. [MARCH 1991 **]
(ii) The report should describe the scope of the auditor's
examination. [MARCH 1991 **]
(iii) The report should contain either an expression of opinion
on the financial statements or an assertion that an opinion
cannot be expressed. In the latter case, the reasons
therefore should be stated. [SEPT. 1975 *]
(iv) Where an opinion is expressed, it should indicate whether
the financial statements present fairly, in all material
respects, the financial position, results of operations and
cash flows in accordance with Canadian generally accepted
accounting principles, except when the financial statements
are prepared as described in AUDITOR'S REPORT ON
FINANCIAL STATEMENTS PREPARED USING A BASIS
OF ACCOUNTING OTHER THAN GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, paragraph
5600.09.
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The report should provide adequate explanation with
respect to any reservation contained in such opinion. For
entities whose financial statements are prepared in
accordance with the CICA Public Sector Accounting
Handbook, the auditor's opinion should also indicate
whether the financial statements present fairly the changes
in the entity's net debt. [JULY 2007 **]
1. GAAS General Standard
On pages 32 and 33 of the text, the issues of competence,
objectivity and due care are discussed. You should understand
what these issues are and be able to explain them if requested.
2. GAAS Examination Standards
Planning and supervision, internal control assessment and
sufficient, appropriate evidential matter are the 3 examination
standards that provide the criteria for conducting an audit. These
are important since, if followed, they provide documentation of the
procedures done and the evidence collected to support that a
proper audit was completed. There is a possibility that external
parties may ultimately examine this evidence and if sufficient
support is not present, the credibility of the audit could be in
question.
3. GAAS Reporting Standards
All standard unqualified reports contain title, address, notice of
audit, responsibilities, description of the audit , opinion,
signature, and date. The report must refer to GAAP or, if
applicable, another appropriate basis of accounting. Prior to
1991, the auditor’s report required a reference to consistency but
now this consistency reference does not require being detailed in
the auditor’s report. It is presumed that the statements are
consistently presented unless it is stated otherwise. Similarly, it is
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