Not all audit engagements are the same; reviews and financial statement audits provide different scopes and varying levels of assurance. According to the AICPA’s AU-C Section 930, a review is performed to, “obtain a basis for reporting whether the auditor is aware of any material modifications that should be made to the interim financial information.” The PCAOB in AS 4105 also places importance on awareness of material modifications that should be made to financial statements. In their legal defense against a lawsuit from a California bank, Ernst & Whinney accurately stated that, a review is not suitable for “expressing an opinion about whether the financial statements are presented fairly” (AS 4105.07). The focus of an audit review is to …show more content…
In contrast, a financial statement audit has four phases: planning, internal control review, substantive testing, and reporting to provide reasonable assurance that there are no material …show more content…
audit as it restricted the auditor’s ability to gather sufficient appropriate evidence about the financial statements. According to the third Auditing Field Work Standard, “sufficient appropriate evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination” (AU Section 150). Sufficient evidence is defined as enough evidence to form an opinion on the client’s financial statements (Boyle, 2015). The confidentiality agreement prevented the Ernst & Whinney audit team from obtaining enough evidence because it only allowed one representative to visit the insurance restoration project site. Appropriate evidence was also difficult to obtain as section two of the confidentiality agreement prohibited the auditor from contacting any independent third parties, which ultimately compromised the relevance and reliability of the evidence gathered. The inability of Ernst & Whinney to contact a third party decreased the relevance and reliability of the evidence (Boyle, 2015). Evidence is most reliable if it is obtained from an outside source, if it is objective, and if it is obtained directly by the auditor (Boyle, 2015). Since the confidentiality agreement barred the auditor from getting both outside and objective evidence, the auditor cannot
Auditors do not provide audit opinions for different levels of assurance. Therefore, auditors consider providing more or less assurance when modifying evidence for engagement risk to be unnecessary. However, auditors should be professionally responsible to accumulate additional evidence, assign more experienced personnel, and review the audit more thoroughly, particularly when a client poses a higher than normal degree of engagement risk. The auditor should also modify evidence for engagement risk when high legal exposure and other potential actions affecting the auditor
During the 2004 DHB audit, the company’s independent auditors had considerable difficulty obtaining reliable audit evidence regarding the $7 million of obsolete vest components that allegedly had been destroyed by a hurricane. What responsibility do auditors have when the client cannot provide the evidence they need to complete one or more audit tests or procedures?
The audit committee should respect the independent opinions from external auditors. Also, there should be certain amount of CPA in the Audit Committee of the Board.
Some procedures that the auditor should have done is to examine the Hidden Valley transaction and should have questioned it more. One of the questions they should have asked was if they buyer was qualified enough for this transaction. The auditors should have also questioned the size and amount of this transaction. Another procedure the auditor should have done to ensure this transaction was correct was to do sample testing. Some evidence that the auditors should have collected is the names of all the professionals that were involved within this transaction such as any advisors, or
Ernst & Young performed an audit of the consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ending January 31, 2006 for the Wal-Mart Stores, Inc. and January 28, 2006 for the Target Corporation. The responsibility of Ernst & Young is to express an opinion on the financial statements given by Wal-Mart and Target, holding both corporations responsible that the statements being audited are accurate and true. The audits have to be in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB), which require that the audit must have sufficient evidence that the financial statements do not contain any false material.
Various definitions have been proposed for the audit expectation gap. Humphrey, Moizer and Turley (1992), suggest that the common element in the various definitions of the gap is that auditors are performing in a manner that is at variance with the beliefs and desires of others who are party to or interested in the audit.
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
Financial accounting is the analysis, classification, and recording of financial transactions and reporting such information to respective users especially external users who use the information to make decisions about their engagements with the entity. In financial accounting general purpose financial statements are used for external reporting. The public by standards imposes the development of the statements through respective national professional bodies, International Accounting Standards Board and respective company Acts for various nations.
The level of assurance that the audit report will offer should be foolproof in that it will cover all the risky areas. The report will make sure that the company is covered from an audit professional perspective. All the risk that may face the company in this regard will be covered completely (Turley, 1997).
Professional judgement is a necessary skill for preparers, auditors and regulators of financial statements to have. A professional accountant with good judgement will be able to serve the needs of businesses, the public and investors in the best way possible. Principle-based accounting will help preparers and auditors make and document significant accounting judgement. Guidance is also provided for regulators involved in assessing key judgements, and recommendations are made for standard setters in maintaining and producing principle-based standards which provide the scope for professional judgement. The framework is intended for different sized companies. The audit committees have a key role in challenging initial judgements. They speak to the auditors and make recommendations to approve key judgements. As business transactions become more complex, the validity and usefulness of financial reporting relies on good judgement to be made. We believe that a professional judgement reinforces the quality and integrity of the judgements made and also trust in the operation of principle-based financial
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
Exercise of “reasonable skill, care and caution” varies according to situations (Lopes, J. in Kingston Cotton Mill Co 1896). Nevertheless, to achieve such in performing an audit, its an auditors responsibility to comply with the requirements cited in ISA (NZ) 200, as follows (1) Ethical requirements
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
The accounting cycle is a series of steps starting with recording business transactions and leading up to the preparation of financial statements. This financial process demonstrates the purpose of financial accounting–to create useful financial information in the form of general-purpose financial statements. In other words, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, statement of owner’s equity, and statement of cash flows.
No matter auditors work with technology or not, the most important thing in process of auditing is evidence. The basic framework for the auditor understands of evidence and its use to support the auditor's opinion on the financial statement. In reaching an opinion on the financial statements, the evidence gathered from the audit procedure is used to determine the fairness of the financial statements and the type of audit report to be issued. The characters of paper audit evidence are: