Management and Organizational Studies 3363A/B Chapter 5: MOS 3363 - Chapter 5

4 Pages
Unlock Document

Management and Organizational Studies
Management and Organizational Studies 3363A/B
Michelle Loveland

CHAPTER 5 - Audit Responsibilities and Objectives Objective of an Audit (Historical Financial Statements) • Must be conducted independently, with the objective of expressing an opinion of the financial statements • The opinion is an auditor’s assessment of: o Being free from material misstatement o Presented fairly, and in accordance with the reporting framework (IFRS/ASPE) • CAS 200 sets out the auditors responsibilities: o Expresses opinion on the financial statements o Provides reasonable assurance that financial statements are without material error o Preform the audit in accordance with GAAS • CAS 200 further requires: o Impartiality o Assume that management is neither dishonest nor honest (professional skepticism) o Consider a broad set of information ▪ Including fraud risk factors, to identify and respond to fraud risk • CAS 210 sets out management’s responsibilities: o Adopt accounting policies in accordance with a framework o Implement and maintain adequate internal controls o Represent financial statements fairly Types of Misstatements • CAS 240 identifies two types of misstatements: o Error – unintentional misstatement o Fraud & Other Irregularities – intentional misstatements ▪ Defalcation - Misappropriation of assets (i.e. theft; lower level employees) ▪ Management fraud - Fraudulent financial reporting (misstatement or omission; senior level management) Illegal Acts • Violation of laws or regulations • One of two categories: o Direct-effect – illegal act has a direct effect on the statements ▪ Ex: violating Tax standards to lower your tax payable o Indirect-effect Illegal Acts – affect the statements only indirectly ▪ Ex: not obeying environmental regulations (subject to fines, but not directly related to the statements) • The auditor must assess the risk of an illegal act occurring, and extend audit procedures as necessary The Audit Process • General Standards: The qualifications of the auditor and the quality of audit work • Examination Standards: The performance of the auditor’s work • Reporting Standards: Identifying the financial statements and distinguishing between the responsibilities of management and the auditor Eight Phases of Conducting an Audit • Phase 1 – Preplanning • Phase 2 – Client Risk Profile • Phase 3 – Plan the Audit • Phase 4 – Design Further Audit Procedures • Phase 5 – Perform Tests of Controls • Phase 6 – Perform Substantive Tests • Phase 7 – Ongoing Evaluation, Quality Control and Final Evidence Gathering • Phase 8 – Issue an Auditor’s Report • Phase 1-3 = risk assessment • Phases 4-7 = risk response • Phase 8 = reporting 1. Preplanning • Before we accept/continue an engagement, we must preplan • Must understand why the client wants the audit, and who the users are • Must conduct an independence threat o 5 risks: self-interest, self-review, advocacy, familiarity, intimidation o If independence cannot be achieved, engagement must be declined • Decide if you’re going to accept the audit • Engagement Letter o Once you decide to accept the engagement, you need to draft an Engagement Letter o This is the contract we have with the client o Should contain information such as: ▪ Which statement you’re auditing & which framework you’re using ▪ Responsibilities of auditors and management ▪ Informing the audit committee about issues, etc. ▪ Correction of error/fraud ▪ Etc. • If the auditor decides to perform an engagement, the auditor must: o Select staff for the engagement o Obtain a signed engagement letter • Staffing o The audit team needs to have sufficient training and proficiency o Continuity of staff, complying with rules (familiarity threat), assigning specialists as needed. 2. Client Risk Profile • Understand the business environment (what do they do
More Less

Related notes for Management and Organizational Studies 3363A/B

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.