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Final

exam review of class 6

8 Pages
91 Views

Department
Management
Course Code
MGT393H5
Professor
Schneider, M

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CLASS SIX SUMMARY
CAS 200: Overall Objectives of the independent auditory and the conduct of an
audit
Audit Risk
The sufficiency and appropriateness of audit evidence is a matter of professional
judgement.
Audit risk is a function of material misstatements & detection risk.
Material misstatements occurs at two levels:
oFinancial statement level AND
oTransactions, account balances, and disclosures these kinds of
misstatements usually occur because of control risks or inherent risks.
An example of inherent risk could be a complex calculation that is
derived from estimates.
Controls risks pertain to the companys internal control system.
Detection risk is at the disposal of the auditor. Detection risk can only be reduced,
not eliminated.
Matters that assist the audit procedure in minimize detection risk include:
oAdequate planning
oProper assignment of personnel
oProfessional scepticism
oSupervision and review of all the work
Audit risk can never be zero due to the inherent limitations of an audit which arise
from:
oNature of financial reporting
Accounts that require management decisions
estimates
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oNature of audit procedures
Management may not provide information (intentionally or
unintentionally)
Well-planned fraud
oTime and cost constraints of an audit.
Relevance of information tends to diminish over time which is why the
audit has to be conducted in a timely manner.
The auditor must:
Plan the audit so it is performed in an effective manner.
Direct audit efforts to areas with significant risk.
Use appropriate testing.
oOther limitations:
Fraud
Related-party transactions
Non-compliance with rules and regulations
Going-concern issue
CAS 320: Materiality in Planning and Performing an Audit
Materiality
Judgements about materiality can be based on size OR the nature of the
misstatement.
A judgement regarding materiality is based on common users of the financial
statements and not on specific individual users.
The concept of materiality is applied while performing and planning the audit.
Usually a quantitative bench mark is used for materiality.
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oEx. 5% before taxes of continuing operations for a profit-oriented entity
whereas 1% of total revenues or total expenses may be used for a non-profit
oriented entity.
CAS 500: Audit Evidence
Audit Evidence
Sources for Audit Evidence
oManagement
oBy performing tests
oEvidence from an independent source is considered to provide more
assurance
Audit Procedures
oRisk Assessment procedures AND
oAudit procedures that may test controls and account balances
Inspection
Looking at records or documents (internal and external)
A very good tool to use to confirm the existence of an intangible
asset or inventory.
Observation
Involves looking at how the company performs a procedure or
process (inventory count).
This is a limited test because the quality of the procedure
performed by the company personnel maybe affected by the
fact that he/she is being observed.
External confirmation
A test generally used to confirm balances for accounts payable
or accounts receivable.
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Description
CLASS SIX SUMMARY CAS 200: Overall Objectives of the independent auditory and the conduct of an audit Audit Risk The sufficiency and appropriateness of audit evidence is a matter of professional judgement. Audit risk is a function of material misstatements & detection risk. Material misstatements occurs at two levels: o Financial statement level AND o Transactions, account balances, and disclosures these kinds of misstatements usually occur because of control risks or inherent risks. An example of inherent risk could be a complex calculation that is derived from estimates. Controls risks pertain to the companys internal control system. Detection risk is at the disposal of the auditor. Detection risk can only be reduced, not eliminated. Matters that assist the audit procedure in minimize detection risk include: o Adequate planning o Proper assignment of personnel o Professional scepticism o Supervision and review of all the work Audit risk can never be zero due to the inherent limitations of an audit which arise from: o Nature of financial reporting Accounts that require management decisions estimates www.notesolution.com
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