Yến Linh xinh vcl

AUDIT

1. What conditions are required for a standard unmodified opinion audit report to be issued?
Distinguish between a qualified opinion, an adverse opinion, and a disclaimer of opinion, and explain
the circumstances under which each is appropriate?

A standard unmodified opinion audit report may be issued under the following circumstances:
+All statements—balance sheet, income statement, statement of retained earnings, and statement of
cash flows—are included in the financial statements.
+Sufficient appropriate evidence has been accumulated and the auditor has conducted the engagement
in a manner that enables him or her to conclude that the audit was performed in accordance with
auditing standards.
+The financial statements are presented in accordance with appropriate accounting standards such as
U.S. generally accepted accounting principles or IFRS. This also means that adequate disclosures have
been included in the footnotes and other parts of the financial statements.
+There are no circumstances requiring the addition of an explanatory paragraph or modification of the
wording of the report.

Distinguish:
+A qualified opinion states that there has been either a limitation on the scope of the audit of material
accounts, transactions, or disclosures or a material departure from GAAP in the financial statements,
but that the auditor believes that the overall financial statements are fairly presented. This type of
opinion may not be used if the auditor believes the exceptions being reported upon are extremely
material, in which case a disclaimer or adverse opinion would be used.
+An adverse opinion states that the auditor believes the overall financial statements are so materially
misstated or misleading that they do not present fairly in accordance with GAAP the financial
position, results of operations, or cash flows.
+A disclaimer of opinion states that the auditor has been unable to satisfy himself or herself as to
whether or not the overall financial statements are fairly presented because of a significant limitation
of the scope of the audit, or a non-independent relationship under the AICPA Code of Professional
Conduct between the auditor and the client.

Examples of situations that are appropriate for each type of opinion are as follows:
+Qualified - Inability to confirm the existence of an asset which is material but not extremely material
in value.
+Adverse - A highly material departure from GAAP.
+Disclaimer - Material physical inventories not observed and the inventory cannot be verified through
other procedures.
Lack of independence by the auditor.

3. Discuss the purposes of (1) substantive tests of transactions, (2) tests of controls, and (3) tests of
details of balances. Give an example of each.

+The purpose of substantive tests of transactions is to determine whether all six transaction-related
audit objectives have been satisfied for each class of transactions. For example, as part of the auditor's
test of the accuracy objective for sales, the auditor would compare the amount recorded in the sales
journal for a sample of sales transactions with the total on the corresponding sales invoices.
+The purpose of tests of controls is to determine the effectiveness of both the design and operations of
specific internal controls. For example, the auditor might observe for a month whether statements are
mailed to all customers.
+The purpose of tests of details of balances is to determine the monetary correctness of the accounts to
which they relate. The confirmation of accounts receivable is an example.

2. Why is the appropriateness of audit evidence obtained by the auditor important in forming an audit
opinion? Describe the qualities information should have to be considered appropriate by the auditor
Yến Linh xinh vcl
-Appropriateness is a measure of the quality of evidence. Audit evidence that is considered appropriate
contains the characteristics of relevance and reliability. Relevant evidence refers to the assertion being
tested. Reliability refers to the degree to which evidence can be believable or worthy of trust.
-Appropriateness = Relevance + Reliability
+Relevance: deal with the logical connection with the purpose of the audit procedure and the assertion
under consideration
+Reliability of audit evidence
External Audit evidence from external source is more reliable than that obtained
from the entity’s records because it is from an independent source
Auditor Evidence obtained directly by the auditor is more reliable than that
obtained indirectly or by inference
Entity (ICS strength) Evidence obtained from the entity records is more reliable when the
related control system operates effectively
Written Evidence in the form of documents (paper) or written representation are
more reliable than oral representations
Originals Original documents are more reliable than photocopis or facsimiles

4. Define fraudulent financial reporting and give two examples that illustrate fraudulent financial
reporting? Define misappropriation of assets and give two examples of misappropriation of assets?
Describe the fraud triangle and identify conditions for fraud?

+Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures

with the intent to deceive users. Two examples of fraudulent financial reporting are accelerating the
timing of recording sales revenue to increase reported sales and earnings, and recording expenses as
fixed assets to increase earnings.
+Misappropriation of assets is fraud that involves theft of an entity's assets. Two examples are an
accounts payable clerk issuing payments to a fictitious company controlled by the clerk, and a sales
clerk failing to record a sale and pocketing the cash receipts.
+The fraud triangle is a model showing the conditions that increase the likelihood of fraud being
committed. Fraud is any intentional deception engaged in for personal gain. The three
components of the fraud triangle are perceived pressure, opportunity, and rationalization.

5. The reliability of evidence refer to the degree to which evidence is considered believable or
trustworthy. There are some (six) factors that effect the reliability of audit evidence. Discuss three
following factors that affect the reliability of audit evidence:
◦ Effectiveness of client's internal control
◦ Auditor's direct knowledge.
◦ Qualifications of individuals providing the information

+Effectiveness of client's internal control: When a client's internal controls are effectuve, evidence
obtained from the client is more than when controls are not effective.
+Auditor's direct knowledge: Evidence obtained directly by the auditor is more reliable than
information obtained indirectly.
+Qualifications of individuals providing the information: Although the source of information mayby
independent, the evidence will not be reliable unless the individual providing it is qualified to do so.
Also, evidence obtained directly by the auditor many not be reliable if the auditor lacks the
qualifications to evaluate the evidence.

6. There are three stages of the audit in which analytical procedures are performed. Identify each of
these three stages and, for each stage, discuss the purpose of performing analytical procedures in that
stage. Also indicate in which stage(s) analytical procedures are required by current professional
auditing standards?

+Analytical procedures are performed in the audit planning stage to help the auditor decide the other
evidence needed to satisfy sufficient competent evidence requirements.
+Analytical procedures can also be performed as substantive tests in the testing phase of the audit.
Yến Linh xinh vcl
+Analytical procedures are performed in the audit completion phase as a final test of reasonableness.
Auditing standards require that analytical procedures be performed in the planning and completion
phases of every audit.

7. Distinguish between internal documentation and external documentation as types of audit evidence.
Give two examples of each. Which type is considered more reliable?

-Internal documentation involves the auditor's examination of documents that have been prepared and
used within the client's organization and are retained without ever going to an outside party. Examples
would include duplicate sales invoices, employees' time reports, and inventory receiving reports.
-External documentation involves the auditor's examination of documents that have been in the hands
of someone outside the client's organization. Examples include vendors' invoices, canceled checks,
canceled notes payable, and insurance policies.
-External documentation are regarded as more reliable evidence than internal documentation

Các fen thi tốt nhé J