Lecture 4

Audit Responsibilities &

Objectives

Chapter 6
Lecturer: Yen Pham

Adapted from 2014 Pearson Education

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 Objective of an audit of FS

Management's and Auditor's

responsibilities
Financial Statement cycles

Learning Management Assertions

objectives
Transaction - related audit objectives

Balance - related audit objectives

Phases of FS audit

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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.

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Management’s vs Auditor’s
responsibilities

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Management’s responsibilities

Adopting sound accounting policies

Maintaining adequate internal controls

Making fair representations of financial statements

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 Objective of auditor

Obtain Free from

reasonable assurance material misstatements

Financial Applicable
Opinion
statements reporting framework

Communicate
Report
per audit standards

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Auditor responsibilities
• Providing Reasonable Assurance
• Detecting Material misstatements
• caused by Errors or Fraud
• 2 types of fraud:
Fraudulent financial reporting
Misappropriation of assets
• Maintaining professional Skepticism

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Auditor’s responsibilities
to Consider Law and Regulations
Type Responsibility

Same for
Direct-Effect errors and
fraud

Indirect-Effect No Assurance

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Auditor’s responsibilities
to Consider Law and Regulations
Auditor suspects
Ø Inquire of management
Ø Consult client’s counsel or specialist
Ø Consider accumulating evidence

Auditor knows
Ø Consider effects on financial statements
Ø Consider effect on relationship with management
Ø Communicate with audit committee or equivalent
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Financial statement cycles

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Management assertions

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 Assertions about classes of
transactions and events for
the period under audit

Management Assertions about account

assertions balances at period end

Assertions about
presentation and
disclosure

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 Presentation &
Transactions & events Account balances
Disclosure
Occurrence and rights
Occurence Existence
and obligations
Completeness Completeness Completeness

Accuracy Valuation & allocation Accuracy & valuation

Classification and
Classification
understandability
Cut off
Rights & obligations

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Audit objectives

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 General Transaction-related
Audit Objectives

Occurrence Recorded transactions exist

Completeness Existing transactions are recorded

Recorded transactions are stated at

Accuracy
the correct amounts

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 General Transaction-related
Audit Objectives

Transactions are included in the

Posting &
master files and are correctly
Summarizing
summarized.

Classification Transactions are properly classified.

Transactions are recorded on the

Timing
correct dates.

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 General Balance-related
Audit Objectives

Existence Amounts included exist

Completeness Existing amounts are included

Amounts included are stated at the

Accuracy
correct amounts

Classification Amounts are properly classified

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 General Balance-related
Audit Objectives

Transactions are recorded in the

Cut off
proper period

Account balances agree with master

Detail tie - in file amounts, and with the general
ledger

Realizable value Assets are included at

estimated realizable value

Rights &
Assets must be owned
obligations
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Phases of FS audit

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

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Four phases of a FS Audit

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