Financial

Audit
Accounting
•Construct •Analytical
Financial skills
Statements •Test Financial
•Follow rules Statements
 Accuracy
Occurrence
Cutoff
Completeness
Classification
Authorization
Presentation
 Accuracy
Existence
Valuation &
Allocation
Rights & Obligations
Classification
Completeness
Presentation
Assurance

Attest

Auditing
Assurance

Attest

Auditing
Assurance

Attest

Auditing
Assurance

Attest

Auditing
 Management Terms of Engagement Audit

Implements
internal controls Obtains
evidence
Conducts
transactions Tests management
assertions against
Accumulates transactions criteria (GAAP)
into account balances
Determines overall
fairness of financial
Prepares Financial
statements
Statements
Issues audit report
Issues financial to accompany
statements to users financial statements
 Key Concepts in Conducting an
Audit

Materiality Audit Risk Evidence

Materiality
 Audit Risk

Reasonable assurance
Risk of auditor An audit provides means there is some
expressing a clean reasonable assurance risk that a material
audit opinion when the that the financial misstatement could be
financial statements statements do not present in the financial
are materially contain material statements and not be
misstated. misstatements. detected by a
competent auditor.
 Consists of the Relevance – Evidence
underlying accounting related to a specific
Evidence that helps the data and any additional assertion being tested.
auditor evaluate information available to Reliability – Evidence
management’s financial the auditor. that can be relied on to
statement assertions. Could be originated signal the true state of
from the client or a specific assertion that
externally is tested.
 Sampling
previous audits, an
understanding of
Auditors examine a Examining every
the company’s
subset of the transaction would
internal control
transactions based not be cost
system, or
on: effective
knowledge of the
company’s industry
 Audit Report for a Public
Company
Usually
Independent
addressed to
Registered
Title line the stockholders
Public
includes: & board of
Accounting
directors of the
Firm.
company
Opinion Ends with
• “Opinion on the • Signature of the CPA
Financial Statements” Basis for Opinion form
• A paragraph with the • The year the auditor
auditor’s opinion of Critical Audit began serving as auditor
internal controls, if the Matters • City and state where
report on internal report is issued
controls is included in a • Date of report
separate report.
Unqualified

Qualified

Adverse

Disclaimer
 Unqualified
The auditor’s report Unqualified means that
(audit opinion) is the because the financial
main product or statements are free of
output of the audit. material misstatements,
The standard the auditor does not find
unqualified (clean) it necessary to qualify his
audit report is the or her opinion about the
most common type of fairness of the financial
report issued. statements.
 Qualified

or if the auditor is unable

to obtain sufficient
If an auditee’s financial
evidence regarding a
statements contain a
specific account, the
misstatement that the
auditor may qualify the
auditor considers material
report, explaining that the
and management refuses
financial statements are
to correct the
fairly stated except for the
misstatement,
misstatement identified by
the auditor.
 Adverse

If an auditee’s financial statements

the auditor will issue an adverse
contain a misstatement that the
opinion, indicating that the
auditor considers so material that
financial statements are not fairly
it pervasively affects the
stated and should not be relied
interpretation of the financial
upon.
statements
 Disclaimer

the auditor will issue a

If a scope limitation is so large
that it limits the ability of the
auditor to make an opinion on
the financial statements,
“disclaimer of opinion,”
indicating that it is not
possible to express an opinion
on the fairness of the financial
statements.
 Client acceptance or continuance
Preliminary engagement activities
Plan the audit
Consider & audit internal controls
Audit business processes & related accounts
Complete the audit
Evaluate results and issue audit report