Auditing and Assurance Services 4th edition solution c2

Auditing and Assurance Services, 4th Edition, solution. McGraw-Hill Irwin, by Louwers, Ramsay, Sinason, Strawser and Thibodeau

Chapter Two

SOLUTIONS FOR REVIEW CHECKPOINTS

2.1 For independent (external) auditors of financial statements, practice standards are issued by the

AICPA Auditing Standards Board (in the form of Statements on Auditing Standards) and the Public Company Accounting Oversight Board (in the form of Auditing Standards). Statements on Auditing Standards are appropriate for the audits of nonpublic entities, while Auditing Standards are appropriate for the audits of public entities.

For governmental auditors, the Government Accountability Office issues Government Auditing Standards (also known as the “Yellow Book”).

For internal auditors, the Institute of Internal Auditors issues Statements of Internal Auditing

Standards (also known as the “Red Book”).

For fraud auditors, the Association of Certified Fraud Examiners issues Professional Standards and Practices for Certified Fraud Examiners.

For auditors in other countries, the IFAC International Auditing and Assurance Standards Board issues International Standards on Auditing and Assurance.

Generally accepted auditing standards are standards that identify necessary qualifications and characteristics of auditors and guide the conduct of the audit examination.

Generally accepted accounting principles represent the requirements for the preparation and presentation of financial statements and accompanying footnote disclosures.

These two types of standards are related to one another because a primary objective of a GAAS audit is to allow auditors to conclude whether an entity’s financial statements are prepared and presented in conformity with GAAP.

The three fundamental principles are:

1. Responsibilities, which involves having appropriate competence and capabilities,

complying with relevant ethical requirements, maintaining professional skepticism and

exercising professional judgment.

Performance, which requires auditors to obtain reasonable assurance about whether the

financial statements as a whole are free of material misstatement by: (1) planning the

work and properly supervising assistants; (2) determining and applying appropriate

material levels; (3) identifying and assessing the risk of material misstatement; and, (4)

obtaining sufficient appropriate audit evidence.

Reporting, which requires the auditor to express an opinion as to whether the financial

statements are prepared in accordance with the applicable financial reporting framework. 2.2 2.3 2. 3.

Auditing procedures relate to acts to be performed during the engagement. Auditing standards deal

with measures of the quality of performance of those acts and the objectives to be attained.

Auditing standards are less subject to change and provide the criteria for rejecting, accepting, or modifying auditing procedures in a given circumstance.

An example of the relative stability of standards and procedures is found in the change from

non-computerized information systems to computerized information systems. New auditing

Auditing and Assurance Services, 4th Edition, solution. McGraw-Hill Irwin, by Louwers, Ramsay, Sinason, Strawser and Thibodeau

2.4 procedures were required to evaluate computerized information systems, but auditing standards remained unchanged and were the criteria for determining the adequacy of the new auditing procedures. Independence in fact represents auditors’ mental attitudes (do auditors truly act in an unbiased

and impartial fashion with respect to the client and fairness of its financial statements?).

Independence in appearance relates to financial statement users’ perceptions of auditors’

independence.

Auditors can be independent in fact but not perceived to be independent. For example, ownership of a small interest in a public client would probably not influence auditors’ behavior with respect to the client. However, it is likely that third-party users would not perceive auditors to be

independent.

Due care reflects a level of performance that would be exercised by reasonable auditors in similar circumstances. Auditors are expected to have the skills and knowledge of others in their profession (known as that of a prudent auditor) and are not expected to be infallible.

Professional skepticism is a state of mind that is characterized by appropriate questioning and a critical assessment of audit evidence.

Professional judgment is the auditors’ application of relevant training, knowledge, and

experience in making informed decisions about appropriate courses of action during the audit engagement.

Auditors are required to demonstrate professional skepticism and professional judgment

throughout the entire audit process.

Reasonable assurance recognizes that a GAAS audit may not detect all material misstatements and auditors are not “insurers” or “guarantors” regarding the fairness of the company’s financial statements. The following characteristics of an audit do not permit auditors to provide absolute assurance:

Mistakes and misinterpretations may occur

Management judgments and estimates affect financial reporting

Audit procedures cannot always be relied upon to detect misstatements

Audit engagements must be conducted within a reasonable period of time and so as to

achieve a balance between benefit and cost.

Three elements of planning and supervision considered essential in audit practice are:

A written audit plan.

An understanding of the client’s (auditee’s) business.

Policies to allow an audit team member to document disagreements with …… 此处隐藏：20286字，全部文档内容请下载后查看。喜欢就下载吧 ……