, CHAPTER
OVERVIEW OF THE QF QF
AUDIT PROCESS
QF QF
1-1. Q F Q F Auditor’s Q F reports Q F are Q F important Q F to Q F users Q F of Q F financial
QF statements Q F because Q F they QFinform QFusers QFof QFthe QFauditor’s QFopinion QFas
QFto QFwhether QFor QFnot QFthe QFstatements QFare QFfairly QFstated QFor QFwhether QFno
QFconclusion QFcan QFbe QFmade QFwith QFregard QFto QFthe QFfairness QFof QFtheir
QFpresentation. Q F Users QFespecially QFlook QFfor QFany QFdeviation QFfrom QFthe
QFwording QFof QFthe QFstandard QFunqualified QFreport QFand QFthe QFreasons QFand
QFimplications QFof QFsuch QFdeviations.
1-2. Other QF requirements QF for QF an QF effective Q F audit Q F are:
a. Comprehensive Q F knowledge Q F of Q F GAAP;
b. Understanding Q F of Q F internal Q F control Q F concepts;
c. Understanding QF of QF the QF client’s QF unique QF system Q F of QF internal Q F control; Q F and
d. Knowledge QF of Q F evidence Q F gathering Q F and QF evaluation Q F methodology.
1-3. Q F The Q F scope Q F paragraph Q F tells Q F what Q F the Q F auditor Q F did, Q F and
Q F
QF whether Q F or Q F not Q F the QFexamination QFwas QFconducted QFin QFaccordance
QFwith QFgenerally QFaccepted QFauditing QFstandards QF(GAAS). Q F The QFopinion
QFparagraph QFtells QFwhat QFthe QFauditor QFfound, QFand Q F whether QFor QFnot QFthe
QFfinancial QFstatements QFconform QFto QFgenerally QFaccepted QFaccounting QFprinciples
QF(GAAP) QFin QFall QFmaterial QFrespects.
1-4. Q F An Q F engagement Q F letter Q F is Q F the Q F agreement Q F or Q F understanding
Q F
QF between Q F the Q F CPA Q F and QFhis/her QFclient QFconcerning QFthe QFnature QFof
QFthe QFengagement. Q F It QFprovides QFprotection QFfor Q F the QFCPA QFin QFthe QFevent
QFof QFsubsequent QFlegal QFaction QFalleging QFnegligence QFor QFbreach QFof QFcontract.
Q F By QFcommitting QFthe QFagreement QFto QFwriting, QFthe QFengagement QFletter QFalso
QFminimizes QFfuture QFmisunderstandings QFbetween QFthe QFCPA QFand QFclient
QFconcerning QFthe QFservices QFto QFbe QFperformed QFby QFthe QFCPA.
1-5. Q F Q F The QFaudit QFprogram QFis QFan QFimportant QFpart QFof QFthe QFsystematic
QFapproach QFto QFauditing, QFand QFdemonstrates QFthat QFthe QFaudit QFwas QFproperly
QFplanned.
1-6. Q F Q F The QFpre-audit QFconference QFshould QFbe QFattended QFby QFall QFmembers QFof
QFthe QFaudit QFteam, QFincluding QFthe QFpartner QFin QFcharge QFof QFthe QFexamination.
Q F The QFconference QFshould QFcover Q F the QFfollowing QFareas:
a. Nature QFof QF the QF client’s QF activities;
b. General QF nature QF of QF the QF client’s QF system Q F of QF internal Q F control;
c. Unique Q F accounting Q F practices;
d. Duties QF of QF individual QF audit QF team Q F members; Q F and
e. Known QF areas QF of QFhigh QF audit QF risk.
,1-2 Solutions QF Manual Q F to Q F Accompany QF Applied Q F Auditing, QF 2006 Q F Edition
1-7. Q F Q F Q F The Q F main Q F feature Q F distinguishing Q F the QF interim Q F audit Q F phase
QFfrom Q F the QF final Q F audit Q F phase QFis QFthe QFfocal QFpoint. Q F In QFthe QFinterim
QFaudit, QFthe QFprimary QFfocus QFis QFon QFtesting QFthe QFclient’s QFinternal QFcontrols
QFas QFa QFmeans QFfor QFfurther QFreduction QFof QFassessed QFcontrol QFrisk. Q F In QFthe
QFfinal QFaudit, QFthe QFauditor QFis QFprimarily QFconcerned QFwith QFthe QFexamination
QFof QFtransactions QFand QFbalances.
1-8. Q F The QFaccuracy QFof QFtransactions QFand QFbalances QFis QFa QFfunction QFof QFthe
QFreliability QFof QFthe QFinformation QFsystem. Q F An QFeffective QFcontrol
QFenvironment, QFaccounting QFsystem, QFand QFcontrol QFactivities QF(the QFinformation
QFsystem), QFtogether QFwith QFa QFsystem QFof QFmonitoring QFsuch QFthat QFcontrols
QFadapt QFto QFa QFchanging QFenvironment, QFserves QFto QFproduce QFaccurate QFfinancial
QFdata. Q F Weak QFcontrols QFare QFmore QFlikely QFto QFproduce QFinaccurate QFfinancial
QFdata. QFBy QFfirst QFtesting QFthe QFinformation QFsystem, QFthe QFauditor QFis QFable QFto
QFincrease QFor QFdecrease Q F the Q F nature, Q F timing, Q F and Q F extent Q F of
Q F transaction Q F and Q F balance Q F testing Q F according Q F to QFhis/her QFassessment
QFof QFcontrol QFrisk.
1-9. Q F Q F Q F The Q F ten Q F generally Q F accepted Q F auditing Q F standards, Q F along
QF with Q F the Q F related Q F statements QFon QFauditing QFstandards, QFprovide QFa
QFframework QFby QFdefining QFthe QFrequisite QFquality QFto QFbe QFachieved QFin
QFperforming QFan QFaudit.
1-10. Q F Attestation QFrefers QFto QFan QFexpert QFcommunicating QFa QFconclusion QFabout QFthe
QFreliability QFof QFsomeone QFelse’s QFassertion. Q F Auditing QFis QFa QFform QFof
QFattestation QFin QFthat QFthe QFauditor QFcommunicates, QFto QFthird QFparty QFfinancial
QFstatement QFusers, QFhis/her QFconclusions Q F regarding QFthe QFfairness QFof
QFmanagement’s QFassertions QFcontained QFin QFthe QFfinancial QFstatements. Q F The
QFindependent QFauditor QFis QFconsidered QFan QF“expert” QFin QFboth QFaccounting QFand
QFauditing.
1-11. Q F Q F In Q F planning Q F an Q F audit, Q F an Q F auditor Q F must Q F be Q F familiar
QF with Q F the Q F client’s Q F industry, QFbusiness QFactivities, QFaccounting QFsystem,
QFand QFpolicies QFand QFprocedures. Q F Once QFthe QFassertions Q F to Q F be Q F tested
Q F have Q F been Q F identified, Q F the Q F auditor Q F must Q F assess Q F the Q F risk Q F of
QFtheir QFbeing QFmisstated. Q F Auditors QFmust QFbe QFreasonably QFsure QFof QFissuing
QFan QFappropriate QFopinion. Q F Hence, QFthey QFmust QFconsider QFthe QFrisk QFof
QFmisstatements QFand QFthe QFvarious QFprocedures Q F available Q F for Q F gathering
Q F audit Q F evidence Q F as Q F a Q F basis Q F for Q F forming Q F an QFopinion. Q F Audit
Q F planning Q F includes Q F designing QFthe Q F specific Q F procedures QFto QFbe
QFperformed QFand QFassigning QFpersonnel QFto QFwork QFon QFthe QFaudit.
The Q F audit Q F report Q F indicates Q F that Q F auditors Q F conduct Q F audits Q F in
Q F accordance Q F with QFgenerally QFaccepted Q F auditing Q F standards. Q F Further,
Q F the Q F report Q F communicates Q F the Q F role QFof QFrisk QFin QFthe QFaudit QFprocess
QFby QFstating QFthat QFthose QFstandards QFrequire QFauditors QFto QFplan Q F and QFperform
QFthe QFaudit QFto QFobtain QFreasonable QFassurance QFabout QF(not QFto QFprove) QFwhether
QFthe QFfinancial QFstatements QFare QFfree QFof QFmaterial QFmisstatement. Q F An QFaudit
QFincludes QFexamining, QFon QFa QFtest QFbasis, QFevidence QFsupporting QFthe QFamounts
QFand QFdisclosures QFin QFthe QFfinancial QFstatements. Q F Hence, QFan QFaudit QFinvolves
QFrisk. Q F Finally, QFauditors QFexpress QFan QFopinion, QFnot QFa QFguarantee.
Q F However, QFthey QFbelieve QFthat QFtheir QFaudit QFprovides QFa QFreasonable QFbasis
QFfor QFtheir QFopinion.
, Overview QF of QF the QF Audit QF Process 1-3
1-12. Q F Q F Auditing QFstandards QFindicate QFthat QFauditors QFshould QFreport QFmajor
QF issues QFdiscussed QFwith QFthe QFentity’s QFmanagement QFprior QFto QFbeing QFretained
QFas QFauditor, QFincluding QFdiscussions QFregarding QFthe QFapplication QFof
QFaccounting QFprinciples QFand QFauditing QFstandards. Q F Discussion QFof QFsuch
QFmatters QFmay QFplace QFpressure QFon QFthe QFauditor QFto QFyield QFto QFmanagement’s
QFview. Q F Making QFthe QFaudit QFcommittee QFmembers QFaware QFof QFsuch QFmatters
QFshould Q F enable Q F them Q F to Q F better Q F monitor Q F the Q F auditor’s
Q F independence. Q F Standards Q F do QFnot QFpreclude QFclients QFfrom QFmaking
QFsuggestions QFabout QFaudit QFstaff. Q F Clients QFfrequently QFmake Q F requests Q F to
Q F have Q F persons Q F on Q F the Q F audit Q F who Q F have Q F experience Q F in Q F the
Q F industry. QFIf QFa QFclient QFrequests QFthat QFminority QFpersons QFnot QFbe QFassigned
QFto QFan QFaudit, QFhowever, QFthe QFauditor QFmust QFcarefully QFconsider QFthe QFethical
QFimplications QFof QFthat QFrequest.
1-13. QF Q F Auditing QFstandards QFrequire QFauditors QFassociated QFwith QFfinancial
QF statements QFto QFissue QFa QFreport Q F on Q F them. Q F An Q F auditor Q F is Q F associated
Q F with Q F financial Q F statements Q F when QF he Q F or QF she
(a) “has QFconsented QFto QFthe QFuse QFof QFhis QF[her] QFname QFin QFa QFreport,
QFdocument, QFor QFwritten QFcommunication QFcontaining QFthe QFstatements,” QFor QF(b)
QFhas QFprepared QFor QFassisted QFin QFpreparing Q F the Q F financial Q F statements.
Q F An Q F auditor Q F who Q F prepares Q F or Q F assists Q F in QFpreparing QFfinancial
QFstatements QFis QFassociated QFeven QFif QFhis QFor QFher QFname QFis QFnot QFincluded
QFwith QFthe QFstatements. Q F Typing QFthe QFfinancial QFstatements QFon QFplain QFpaper
QFrather QFthan QFon QFthe QFauditor’s QFletterhead QFtherefore QFcannot QFbe QFused QFto
QFavoid QFassociation QFand QFthe QFrequirement QFto QFissue QFa QFreport.
1-14. Q F Q F In Q F determining Q F whether Q F financial Q F statements Q F are Q F presented
QF fairly Q F in Q F conformity QFwith QFGAAP, QFthe QFauditor QFshould QFconsider
QFwhether:
▪ The QFaccounting QFprinciples QFselected QFand QFapplied QFhave QFgeneral
QFacceptance. Q F The QFaccounting Q F principles Q F followed Q F in Q F preparing
Q F the Q F financial Q F statements Q F must QFhave QFgeneral QFacceptance, QFwhich
QFmeans QFthat QFthe QFprinciples QFmust QFbe QFGAAP. QFAuditing QFstandards
QFdefine QFGAAP QFas QFa QF“technical QFaccounting QFterm QFwhich QFencompasses
QFthe QFconventions, QFrules, QFand QFprocedures QFnecessary QFto QFdefine QFaccepted
QFaccounting QFpractice QFat QFa QFparticular QFtime.” Q F No QFsingle QFreference
QFsource QFexists Q F for Q F GAAP. Q F Rather, Q F auditing Q F standards Q F establish
Q F a Q F hierarchy QFof Q F sources QFto QFbe QFfollowed QFwhen QFdetermining QFwhich
QFprinciple QFapplies QFto QFa QFparticular QFsituation.
▪ The Q F accounting Q F principles QF are QF appropriate QF in QF the Q F circumstances.
▪ The Q F statements Q F contain Q F appropriate QF disclosures.
▪ The QFfinancial QFstatements QFreflect QFthe QFunderlying QFevents QFand
QFtransactions QFin QFa QFmanner QFthat QFpresents QFthe QFfinancial QFposition,
QFresults QFof QFoperations, QFand QFchanges Q F in QFfinancial QFposition QFwithin
QFa QFrange QFof QFacceptable QFlimits; QFthat QFis, QFlimits QFthat QFare QFreasonable
QFand QFpracticable QFto QFattain QFin QFfinancial QFstatements.
1-15. QF QF Auditing QFstandards QFrequire QFthe QFauditor QFto QFdisclose QFthe QFeffects QFof
QFdeviations QFfrom Q F GAAP QFon QFthe QFfinancial QFstatements. Q F As QFa QFresult,
QFclients QFoften QFchoose QFto QFadjust QFthe QFfinancial QFstatements QFfor QFthe
QFdeviations.
1-16. Q F An Q F auditor Q F may QFnot Q F offer Q F reasons Q F for Q F the Q F lack Q F of
QF independence Q F since QFsuch QFexplanations QFmight QFmitigate QFthe QFlack QFof
QFindependence QFin QFthe QFview QFof QFthe QFreader.
OVERVIEW OF THE QF QF
AUDIT PROCESS
QF QF
1-1. Q F Q F Auditor’s Q F reports Q F are Q F important Q F to Q F users Q F of Q F financial
QF statements Q F because Q F they QFinform QFusers QFof QFthe QFauditor’s QFopinion QFas
QFto QFwhether QFor QFnot QFthe QFstatements QFare QFfairly QFstated QFor QFwhether QFno
QFconclusion QFcan QFbe QFmade QFwith QFregard QFto QFthe QFfairness QFof QFtheir
QFpresentation. Q F Users QFespecially QFlook QFfor QFany QFdeviation QFfrom QFthe
QFwording QFof QFthe QFstandard QFunqualified QFreport QFand QFthe QFreasons QFand
QFimplications QFof QFsuch QFdeviations.
1-2. Other QF requirements QF for QF an QF effective Q F audit Q F are:
a. Comprehensive Q F knowledge Q F of Q F GAAP;
b. Understanding Q F of Q F internal Q F control Q F concepts;
c. Understanding QF of QF the QF client’s QF unique QF system Q F of QF internal Q F control; Q F and
d. Knowledge QF of Q F evidence Q F gathering Q F and QF evaluation Q F methodology.
1-3. Q F The Q F scope Q F paragraph Q F tells Q F what Q F the Q F auditor Q F did, Q F and
Q F
QF whether Q F or Q F not Q F the QFexamination QFwas QFconducted QFin QFaccordance
QFwith QFgenerally QFaccepted QFauditing QFstandards QF(GAAS). Q F The QFopinion
QFparagraph QFtells QFwhat QFthe QFauditor QFfound, QFand Q F whether QFor QFnot QFthe
QFfinancial QFstatements QFconform QFto QFgenerally QFaccepted QFaccounting QFprinciples
QF(GAAP) QFin QFall QFmaterial QFrespects.
1-4. Q F An Q F engagement Q F letter Q F is Q F the Q F agreement Q F or Q F understanding
Q F
QF between Q F the Q F CPA Q F and QFhis/her QFclient QFconcerning QFthe QFnature QFof
QFthe QFengagement. Q F It QFprovides QFprotection QFfor Q F the QFCPA QFin QFthe QFevent
QFof QFsubsequent QFlegal QFaction QFalleging QFnegligence QFor QFbreach QFof QFcontract.
Q F By QFcommitting QFthe QFagreement QFto QFwriting, QFthe QFengagement QFletter QFalso
QFminimizes QFfuture QFmisunderstandings QFbetween QFthe QFCPA QFand QFclient
QFconcerning QFthe QFservices QFto QFbe QFperformed QFby QFthe QFCPA.
1-5. Q F Q F The QFaudit QFprogram QFis QFan QFimportant QFpart QFof QFthe QFsystematic
QFapproach QFto QFauditing, QFand QFdemonstrates QFthat QFthe QFaudit QFwas QFproperly
QFplanned.
1-6. Q F Q F The QFpre-audit QFconference QFshould QFbe QFattended QFby QFall QFmembers QFof
QFthe QFaudit QFteam, QFincluding QFthe QFpartner QFin QFcharge QFof QFthe QFexamination.
Q F The QFconference QFshould QFcover Q F the QFfollowing QFareas:
a. Nature QFof QF the QF client’s QF activities;
b. General QF nature QF of QF the QF client’s QF system Q F of QF internal Q F control;
c. Unique Q F accounting Q F practices;
d. Duties QF of QF individual QF audit QF team Q F members; Q F and
e. Known QF areas QF of QFhigh QF audit QF risk.
,1-2 Solutions QF Manual Q F to Q F Accompany QF Applied Q F Auditing, QF 2006 Q F Edition
1-7. Q F Q F Q F The Q F main Q F feature Q F distinguishing Q F the QF interim Q F audit Q F phase
QFfrom Q F the QF final Q F audit Q F phase QFis QFthe QFfocal QFpoint. Q F In QFthe QFinterim
QFaudit, QFthe QFprimary QFfocus QFis QFon QFtesting QFthe QFclient’s QFinternal QFcontrols
QFas QFa QFmeans QFfor QFfurther QFreduction QFof QFassessed QFcontrol QFrisk. Q F In QFthe
QFfinal QFaudit, QFthe QFauditor QFis QFprimarily QFconcerned QFwith QFthe QFexamination
QFof QFtransactions QFand QFbalances.
1-8. Q F The QFaccuracy QFof QFtransactions QFand QFbalances QFis QFa QFfunction QFof QFthe
QFreliability QFof QFthe QFinformation QFsystem. Q F An QFeffective QFcontrol
QFenvironment, QFaccounting QFsystem, QFand QFcontrol QFactivities QF(the QFinformation
QFsystem), QFtogether QFwith QFa QFsystem QFof QFmonitoring QFsuch QFthat QFcontrols
QFadapt QFto QFa QFchanging QFenvironment, QFserves QFto QFproduce QFaccurate QFfinancial
QFdata. Q F Weak QFcontrols QFare QFmore QFlikely QFto QFproduce QFinaccurate QFfinancial
QFdata. QFBy QFfirst QFtesting QFthe QFinformation QFsystem, QFthe QFauditor QFis QFable QFto
QFincrease QFor QFdecrease Q F the Q F nature, Q F timing, Q F and Q F extent Q F of
Q F transaction Q F and Q F balance Q F testing Q F according Q F to QFhis/her QFassessment
QFof QFcontrol QFrisk.
1-9. Q F Q F Q F The Q F ten Q F generally Q F accepted Q F auditing Q F standards, Q F along
QF with Q F the Q F related Q F statements QFon QFauditing QFstandards, QFprovide QFa
QFframework QFby QFdefining QFthe QFrequisite QFquality QFto QFbe QFachieved QFin
QFperforming QFan QFaudit.
1-10. Q F Attestation QFrefers QFto QFan QFexpert QFcommunicating QFa QFconclusion QFabout QFthe
QFreliability QFof QFsomeone QFelse’s QFassertion. Q F Auditing QFis QFa QFform QFof
QFattestation QFin QFthat QFthe QFauditor QFcommunicates, QFto QFthird QFparty QFfinancial
QFstatement QFusers, QFhis/her QFconclusions Q F regarding QFthe QFfairness QFof
QFmanagement’s QFassertions QFcontained QFin QFthe QFfinancial QFstatements. Q F The
QFindependent QFauditor QFis QFconsidered QFan QF“expert” QFin QFboth QFaccounting QFand
QFauditing.
1-11. Q F Q F In Q F planning Q F an Q F audit, Q F an Q F auditor Q F must Q F be Q F familiar
QF with Q F the Q F client’s Q F industry, QFbusiness QFactivities, QFaccounting QFsystem,
QFand QFpolicies QFand QFprocedures. Q F Once QFthe QFassertions Q F to Q F be Q F tested
Q F have Q F been Q F identified, Q F the Q F auditor Q F must Q F assess Q F the Q F risk Q F of
QFtheir QFbeing QFmisstated. Q F Auditors QFmust QFbe QFreasonably QFsure QFof QFissuing
QFan QFappropriate QFopinion. Q F Hence, QFthey QFmust QFconsider QFthe QFrisk QFof
QFmisstatements QFand QFthe QFvarious QFprocedures Q F available Q F for Q F gathering
Q F audit Q F evidence Q F as Q F a Q F basis Q F for Q F forming Q F an QFopinion. Q F Audit
Q F planning Q F includes Q F designing QFthe Q F specific Q F procedures QFto QFbe
QFperformed QFand QFassigning QFpersonnel QFto QFwork QFon QFthe QFaudit.
The Q F audit Q F report Q F indicates Q F that Q F auditors Q F conduct Q F audits Q F in
Q F accordance Q F with QFgenerally QFaccepted Q F auditing Q F standards. Q F Further,
Q F the Q F report Q F communicates Q F the Q F role QFof QFrisk QFin QFthe QFaudit QFprocess
QFby QFstating QFthat QFthose QFstandards QFrequire QFauditors QFto QFplan Q F and QFperform
QFthe QFaudit QFto QFobtain QFreasonable QFassurance QFabout QF(not QFto QFprove) QFwhether
QFthe QFfinancial QFstatements QFare QFfree QFof QFmaterial QFmisstatement. Q F An QFaudit
QFincludes QFexamining, QFon QFa QFtest QFbasis, QFevidence QFsupporting QFthe QFamounts
QFand QFdisclosures QFin QFthe QFfinancial QFstatements. Q F Hence, QFan QFaudit QFinvolves
QFrisk. Q F Finally, QFauditors QFexpress QFan QFopinion, QFnot QFa QFguarantee.
Q F However, QFthey QFbelieve QFthat QFtheir QFaudit QFprovides QFa QFreasonable QFbasis
QFfor QFtheir QFopinion.
, Overview QF of QF the QF Audit QF Process 1-3
1-12. Q F Q F Auditing QFstandards QFindicate QFthat QFauditors QFshould QFreport QFmajor
QF issues QFdiscussed QFwith QFthe QFentity’s QFmanagement QFprior QFto QFbeing QFretained
QFas QFauditor, QFincluding QFdiscussions QFregarding QFthe QFapplication QFof
QFaccounting QFprinciples QFand QFauditing QFstandards. Q F Discussion QFof QFsuch
QFmatters QFmay QFplace QFpressure QFon QFthe QFauditor QFto QFyield QFto QFmanagement’s
QFview. Q F Making QFthe QFaudit QFcommittee QFmembers QFaware QFof QFsuch QFmatters
QFshould Q F enable Q F them Q F to Q F better Q F monitor Q F the Q F auditor’s
Q F independence. Q F Standards Q F do QFnot QFpreclude QFclients QFfrom QFmaking
QFsuggestions QFabout QFaudit QFstaff. Q F Clients QFfrequently QFmake Q F requests Q F to
Q F have Q F persons Q F on Q F the Q F audit Q F who Q F have Q F experience Q F in Q F the
Q F industry. QFIf QFa QFclient QFrequests QFthat QFminority QFpersons QFnot QFbe QFassigned
QFto QFan QFaudit, QFhowever, QFthe QFauditor QFmust QFcarefully QFconsider QFthe QFethical
QFimplications QFof QFthat QFrequest.
1-13. QF Q F Auditing QFstandards QFrequire QFauditors QFassociated QFwith QFfinancial
QF statements QFto QFissue QFa QFreport Q F on Q F them. Q F An Q F auditor Q F is Q F associated
Q F with Q F financial Q F statements Q F when QF he Q F or QF she
(a) “has QFconsented QFto QFthe QFuse QFof QFhis QF[her] QFname QFin QFa QFreport,
QFdocument, QFor QFwritten QFcommunication QFcontaining QFthe QFstatements,” QFor QF(b)
QFhas QFprepared QFor QFassisted QFin QFpreparing Q F the Q F financial Q F statements.
Q F An Q F auditor Q F who Q F prepares Q F or Q F assists Q F in QFpreparing QFfinancial
QFstatements QFis QFassociated QFeven QFif QFhis QFor QFher QFname QFis QFnot QFincluded
QFwith QFthe QFstatements. Q F Typing QFthe QFfinancial QFstatements QFon QFplain QFpaper
QFrather QFthan QFon QFthe QFauditor’s QFletterhead QFtherefore QFcannot QFbe QFused QFto
QFavoid QFassociation QFand QFthe QFrequirement QFto QFissue QFa QFreport.
1-14. Q F Q F In Q F determining Q F whether Q F financial Q F statements Q F are Q F presented
QF fairly Q F in Q F conformity QFwith QFGAAP, QFthe QFauditor QFshould QFconsider
QFwhether:
▪ The QFaccounting QFprinciples QFselected QFand QFapplied QFhave QFgeneral
QFacceptance. Q F The QFaccounting Q F principles Q F followed Q F in Q F preparing
Q F the Q F financial Q F statements Q F must QFhave QFgeneral QFacceptance, QFwhich
QFmeans QFthat QFthe QFprinciples QFmust QFbe QFGAAP. QFAuditing QFstandards
QFdefine QFGAAP QFas QFa QF“technical QFaccounting QFterm QFwhich QFencompasses
QFthe QFconventions, QFrules, QFand QFprocedures QFnecessary QFto QFdefine QFaccepted
QFaccounting QFpractice QFat QFa QFparticular QFtime.” Q F No QFsingle QFreference
QFsource QFexists Q F for Q F GAAP. Q F Rather, Q F auditing Q F standards Q F establish
Q F a Q F hierarchy QFof Q F sources QFto QFbe QFfollowed QFwhen QFdetermining QFwhich
QFprinciple QFapplies QFto QFa QFparticular QFsituation.
▪ The Q F accounting Q F principles QF are QF appropriate QF in QF the Q F circumstances.
▪ The Q F statements Q F contain Q F appropriate QF disclosures.
▪ The QFfinancial QFstatements QFreflect QFthe QFunderlying QFevents QFand
QFtransactions QFin QFa QFmanner QFthat QFpresents QFthe QFfinancial QFposition,
QFresults QFof QFoperations, QFand QFchanges Q F in QFfinancial QFposition QFwithin
QFa QFrange QFof QFacceptable QFlimits; QFthat QFis, QFlimits QFthat QFare QFreasonable
QFand QFpracticable QFto QFattain QFin QFfinancial QFstatements.
1-15. QF QF Auditing QFstandards QFrequire QFthe QFauditor QFto QFdisclose QFthe QFeffects QFof
QFdeviations QFfrom Q F GAAP QFon QFthe QFfinancial QFstatements. Q F As QFa QFresult,
QFclients QFoften QFchoose QFto QFadjust QFthe QFfinancial QFstatements QFfor QFthe
QFdeviations.
1-16. Q F An Q F auditor Q F may QFnot Q F offer Q F reasons Q F for Q F the Q F lack Q F of
QF independence Q F since QFsuch QFexplanations QFmight QFmitigate QFthe QFlack QFof
QFindependence QFin QFthe QFview QFof QFthe QFreader.
