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    Arens14e ch06 PPT

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    Nindya Harum Solicha
    Management's responsibility for the financial statements and internal control. CEO and CFO must certify quarterly and annual financial statements submitted to the SEC.

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    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Arens14e ch06 PPT

    Uploaded by

    Nindya Harum Solicha
    193 views38 pages
    Management's responsibility for the financial statements and internal control. CEO and CFO must certify quarterly and annual financial statements submitted to the SEC.

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    Arens14e_ch06_ppt

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    Management's responsibility for the financial statements and internal control. CEO and CFO must certify quarterly and annual financial statements submitted to the SEC.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    193 views38 pages

    Arens14e ch06 PPT

    Uploaded by

    Nindya Harum Solicha
    Management's responsibility for the financial statements and internal control. CEO and CFO must certify quarterly and annual financial statements submitted to the SEC.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 38
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    The key takeaways are that the document discusses the objectives and responsibilities of audits of financial statements and internal controls. It explains management's responsibility for financial reporting and internal controls compared to the auditor's responsibility to verify the financial statements and evaluate internal controls. It also covers the auditor's responsibility for discovering material misstatements in the financial statements.

    The objectives of conducting an audit of financial statements is to provide an opinion on whether the financial statements are fairly presented according to the applicable financial reporting framework. The objective of an audit of internal controls is to evaluate the effectiveness of the company's internal controls.

    Management is responsible for preparing the financial statements according to generally accepted accounting principles and establishing and maintaining an effective system of internal controls. The auditor is responsible for obtaining reasonable assurance that the financial statements are free of material misstatement and reporting on the effectiveness of internal controls.

    Audit Responsibilities and Objectives

    Chapter 6

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-1

    Learning Objective 1
    Explain the objective of conducting an audit of financial statements and an audit of internal controls.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-2

    Objective of Conducting an Audit of Financial Statements


    The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with applicable financial accounting framework.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-3

    Steps to Develop Audit Objectives

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-4

    Learning Objective 2
    Distinguish managements responsibility for the financial statements and internal control from the auditors responsibility for verifying the financial statements and effectiveness of internal control.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-5

    Managements Responsibilities
    Financial statements and internal controls. Sarbanes-Oxley increases managements responsibility for the financial statements. CEO and CFO must certify quarterly and annual financial statements submitted to the SEC.
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 6-6

    Managements Responsibilities

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-7

    Managements Responsibilities
    The Sarbanes-Oxley Act provides for criminal penalties for anyone who knowingly falsely certifies the statements.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-8

    Learning Objective 3
    Explain the auditors responsibility for discovering material misstatements.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6-9

    Objectives of the Auditor


    Obtain reasonable assurance Opine Financial statements Free from material misstatements

    Financial statements
    Financial statements

    Applicable reporting framework


    Communicate per audit standards
    6 - 10

    Report

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    Auditors Responsibilities

    Material misstatements
    Professional Skepticism Fraudulent reporting vs. theft of assets
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    Reasonable Assurance

    Errors vs. Fraud

    6 - 11

    Auditors Responsibilities for Discovering Illegal Acts


    Type Direct-Effect Responsibility Same for errors and fraud

    Indirect-Effect

    No Assurance

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 12

    Auditors Responsibilities for Discovering Illegal Acts


    Auditor suspects Inquire of management Consult clients counsel or specialist Consider accumulating evidence Auditor knows Consider effects on financial statements Consider effect on relationship with management Communicate with audit committee or equivalent
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 6 - 13

    Learning Objective 4
    Classify transactions and account balances into financial statement cycles and identify benefits of a cycle approach to segmenting the audit.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 14

    Financial Statements Cycles


    Audits are performed by dividing the financial statements into smaller segments or components.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 15

    Transaction Flow Example

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 16

    Relationships Among Transaction Cycles


    General cash Capital acquisition and repayment cycle Sales and collection cycle Inventory and warehousing cycle
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 6 - 17

    Acquisition and payment cycle

    Payroll and personnel cycle

    Learning Objective 5
    Describe why the auditor obtains a combination of assurance by auditing classes of transactions and ending balances in accounts, including presentation and disclosure.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 18

    Balance and Transactions Affecting Balances Example

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 19

    Learning Objective 6
    Distinguish among the three categories of management assertions about financial information.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 20

    Management Assertions
    1. Assertions about classes of transactions and events for the period under audit 2. Assertions about account balances at period end

    3. Assertions about presentation and disclosure

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 21

    Management Assertions for Each Category of Assertions


    Transactions and Events Account Balances Presentation and Disclosure

    Occurrence Completeness

    Existence Completeness

    Occurrence and rights and obligations Completeness

    Accuracy
    Classification Cutoff

    Valuation and allocation

    Accuracy and valuation Classification and understandability

    Rights and obligations


    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 6 - 22

    PCAOB Assertions
    Existence or Occurrence Completeness
    Valuation or allocation Rights and obligations Presentation and disclosure
    Similar to U.S. GAAS as the first four assertions are applicable to balances and transactions. Presentation is treated as a single assertion
    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 6 - 23

    Learning Objective 7
    Link the six general transaction-related audit objectives to management assertions for classes of transactions.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 24

    General Transaction-related Audit Objectives


    Occurrence
    Recorded transactions exist Existing transactions are recorded Recorded transactions are stated at the correct amounts
    6 - 25

    Completeness

    Accuracy

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    General Transaction-related Audit Objectives


    Posting and summarization Classification

    Transactions are included in the master files and are correctly summarized.
    Transactions are properly classified. Transactions are recorded on the correct dates.
    6 - 26

    Timing

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    Hillsburg Hardware Co.


    (Applied to Sales Transactions)

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 27

    Learning Objective 8
    Link the eight general balance-related audit objectives to management assertions for account balances.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 28

    General Balance-related Audit Objectives


    Existence
    Completeness Amounts included exist Existing amounts are included Amounts included are stated at the correct amounts
    6 - 29

    Accuracy

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    General Balance-related Audit Objectives


    Classification Cutoff Amounts are properly classified Transactions are recorded in the proper period

    Detail tie-in

    Account balances agree with master file amounts, and with the general ledger
    6 - 30

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    General Balance-related Audit Objectives


    Realizable value Rights and obligations Assets are included at estimated realizable value Assets must be owned

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 31

    Hillsburg Hardware Co.


    (Applied to Inventory)

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 32

    Learning Objective 9
    Link the four presentation- and disclosurerelated audit objectives to management assertions for presentation and disclosure.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 33

    Hillsburg Hardware Co.


    (Applied to Notes Payable)

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 34

    Learning Objective 10
    Explain the relationship between audit objectives and the accumulation of audit evidence.

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 35

    How Audit Objectives Are Met


    The auditor must obtain sufficient appropriate audit evidence to support all management assertions in the financial statements. An audit process has four specific phases

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 36

    Four Phases of a Financial Statement Audit

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 37

    End of Chapter 6

    2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

    6 - 38

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