ECON 132A Auditing: Chapter 9 Class Notes, Lecture notes of Auditing

Download ECON 132A Auditing: Chapter 9 Class Notes and more Lecture notes Auditing in PDF only on Docsity!

Auditing

University of California, Santa Barbara ECON 132

Chapter 9 Class Notes

CH. 9 - Audit Sampling Scope paragraph says “an audit includes examining, ON A TEST BASIS, evidence supporting the amounts and disclosures in the financial statements” If tested internal control and found it to be effective, wouldn’t you still want to test a sample? ● Can’t rely on understanding of internal control ● Take a statistical sample to confirm ICs Frequency of Application of Control Sample sizes: ● Recurring = 30 ● Daily = 15 ● Monthly = 2 ● Annually = 1 ● Systemwide (e.g. computer) = 1 Auditors Report

Audit company’s most valuable asset is their REPUTATION 2 primary things present in unqualified opinion ● Did GAAS Audit ● Issued opinion that statements are in accordance with GAAP ○ One of 2 things not able to be done by auditors, have different opinions expressed for different situations ■ Departure from GAAP ■ Departure from GAAS (Minor Scope Limitation) Shared Responsibilities Report Report saying other auditors audited certain parts of a company’s business ● Use their opinion and rely on it for your opinion Panning Audit Analytics (Required by GAAS) ● Preliminary risk assessment ● Helps identify inherent risk Understand Internal Controls (required) ● Make preliminary control risk assessment ○ If less than high or a Public COmpany, TODs and TOEs required RMM allows auditor to create APG

● List of all substantive tests to be performed Identify fraud risk factors ● Ties in with inherent risk Engagement risk - client acceptance or continuance ● Do I want to be here? ● New client: Contact prior auditors (written permission from client) ○ Lawyers and bankers also ○ Relying on opening balance on financial statements ■ Check predecessors papers ○ If yes, send ENGAGEMENT LETTER ■ Management responsible for financial statements ■ Auditor responsible for opinion Fieldwork Analytics - Balance Sheet Approach (optional) Perform substantive procedures ● Analytics option here but most pervasive procedure performed ● All documented in the Working Papers ○ Who did work ○ Who reviewed the work ○ Allow for reperformance ○ If not documented, you DIDN’T DO IT SUMMARY OF AUDIT DIFFERENCES

● Auditor could have made a mistake - Oops! ● Book difference in Financial Statement - Booked ● Management can pass on differences - Passed ○ Management’s responsibility If minor = Booked If Significant = Internal Controls NOT WORKING ● Significant Deficiency ● Material Weakness ○ Reported to Audit Committee (required communication) If pass, auditor creates: SUMMARY OF UNCORRECTED MISSTATEMENTS ● Attached to Management Representation Letter ● Also reported to audit committee (required) Wrap Up / Conclusion Analytics (help P&L), check if financial statement is correct Required communication of audit committee ● Material weakness ● MRFS, ARO Management Representation Letter (MRFS, ARO) ● Attached is Summary of Uncorrected Misstatement Opinion Rendered ● Financial Statement free from material misstatement ● MRFS, ARO

● Date (day planning ends); can go back and update procedures ○ Anything else kicks back to more work