SOLUTION MANUAL FOR
Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson, Laura
Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
Chapter 1-16
H
CHAPTER 1 H
Introduction and Overview of Audit and Assurance H H H H H H
Learning Objectives
H
1. Differentiate among assurance, attestation, and auditing services.
H H H H H H
2. Describe the different types of assurance services.
H H H H H H
3. Explain the demand for audit and assurance services.
H H H H H H H
4. Discuss the different roles of the financial statement preparer and the auditor.
H H H H H H H H H H H
5. Identify the roles of different regulators and organizations that affect the audit profession.
H H H H H H H H H H H H
6. Explain the concepts of reasonable assurance, materiality, and the nature of an unquali-
H H H H H H H H H H H H
Hfied/unmodified report on the audit of financial statements.
H H H H H H H
7. Explain the concept of reasonable assurance and the nature of an unqualified report on
H H H H H H H H H H H H H
Hinternal controls over financial reporting.
H H H H
8. Discuss the audit expectation gap.
H H H H
ANSWERS TO MULTIPLE-CHOICE QUESTIONS H H H
1. C
LOH1,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HAssurance,HAttestation,HandHAuditHServices
2. A
LOH2,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HDifferentHAssuranceHServices
3. B
LOH2,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HDifferentHAssuranceHServices
4. C
LOH2,HBT:HC,HDifficulty:HMedium,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HS
ection:HDifferentHAssuranceHServices
5. C
LOH3,HBT:HC,HDifficulty:HMedium,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HS
ection:HDemandHforHAuditHandHAssuranceHServices
For Instructor Use Only
H H H
,6. B
LOH4,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HPreparersHandHAuditors
7. A
LOH5,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HTheHRoleHofHRegulatorsHandHR
egulations
8. D
LOH5,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHBC:HGovernanceHPerspective,HSection:HTheHRoleHofHRe
gulatorsHandHRegulations
9. D
LOH6,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HAuditHReportHonHFinancialHStatements
10. C
LOH6,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HAuditHReportHonHtheHFinancialH
Statements
11. B
LOH7,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HAuditHReportHonHInternalHCont
rolsHoverHFinancialHReporting
12. B
LOH8,HBT:HC,HDifficulty:HMedium,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHPC:HProfessionalHBehavior,HSection:HTheHAudit
ExpectationHGap
ANSWERS TO REVIEW QUESTIONS H H H
R1.1 An assurance service is any service provided by an independent practitioner that im-
H H H H H H H H H H H H H
Hproves the quality of information, or its context, for decision makers. An independent practitioner
H H H H H H H H H H H H H
Hcan verify that the information meets relevant criteria, which provides assurance to users who in
H H H H H H H H H H H H H H
tend to use the information for decision making. An assurance engagement has three parties: th
H H H H H H H H H H H H H H
e assurance provider (auditor/practitioner), the party responsible for providing the information (cl
H H H H H H H H H H H
ient), and the intended users of the information (investors/lenders/others who rely on the in-
H H H H H H H H H H H H H
Hformation).
LOH1,HBT:HC,HDifficulty:HEasy,HTOT:H5Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HAssurance,HAttestation,HandHAuditHServices
R1.2 The criterion used in a financial statement audit to measure and evaluate subject matter is
H H H H H H H H H H H H H H H H
the applicable financial reporting framework used by the client. The most common framework
H H H H H H H H H H H H
For Instructor Use Only
H H H
,used in the U.S. is Generally Accepted Accounting Principles (GAAP).
H H H H H H H H H
LOH1,HBT:HC,HDifficulty:HEasy,HTOT:H5Hmin.,HAACSB:HNone,HAICPAHAC:HMeasurementHAnalysisHandHInterpretation,HSec-
tion:HAssurance,HAttestation,HandHAuditHServices
H
R1.3 Financial statements are not guaranteed to be free from error or fraud due to several limi-
H H H H H H H H H H H H H H H H
Htations. These limitations include the nature of financial reporting, the nature of audit procedures
H H H H H H H H H H H H H
Hand the need for the audit to be conducted within a reasonable period of time and within a rea-
H H H H H H H H H H H H H H H H H H
Hsonable budget. The nature of financial reporting causes limitations because it includes man-
H H H H H H H H H H H H
Hagement‘s judgment when applying accounting standards and estimates. The nature of the au-
H H H H H H H H H H H H
Hdit procedures is a limitation because the auditors have to rely on management to provide all th
H H H H H H H H H H H H H H H H
e necessary documentation needed for the audit. The auditor may arrive at an inappropriate con
H H H H H H H H H H H H H H
- clusion if information is tampered with or excluded. The last limitation refers to the limited re-
H H H H H H H H H H H H H H H H
Hsources of time and money for an audit engagement. It would be impractical for auditors to ex-
H H H H H H H H H H H H H H H H
Hamine every transaction. Therefore, auditors rely on sampling measures to provide an accurate
H H H H H H H H H H H H H
representation of the population, and sampling cannot provide absolute assurance.
H H H H H H H H H
LOH2,HBT:HC,HDifficulty:HMedium,HTOT:H15Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,H
Section:HDifferentHAssuranceHServices
R1.4 Management and those charged with governance can request an operational audit to help
H H H H H H H H H H H H H H
improve the efficiency and effectiveness of a company‘s operations. An organization‘s internal a
H H H H H H H H H H H H
udit department typically conducts operational audits.
H H H H H
LOH2,HBT:HC,HDifficulty:HEasy,HTOT:H5Hmin.,HAACSB:HNone,HAICPAHBC:HGovernanceHPerspective,HSection:HDifferentHAs-
suranceHServices
H
R1.5 Investors are interested in the information that financial statements can provide about their
H H H H H H H H H H H H H
investment. This includes, but is not limited to, information regarding the profitability of the com-
H H H H H H H H H H H H H H
Hpany, return on investment, going concern/continuity of operations, and dividend distributions.
H H H H H H H H H H H
An independent audit helps to ensure that the information in the financial statements is credible
H H H H H H H H H H H H H H H
and of high quality.
H H H
LOH3,HBT:HC,HDifficulty:HEasy,HTOT:H10Hmin.,HAACSB:HNone,HAICPAHBC:HGovernanceHPerspective,HSection:HDemandHforHA
uditHandHAssuranceHServices
R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financial
H H H H H H H H H H H H H
statements. Management (the preparer) is in charge of preparing the financial statements. This i
H H H H H H H H H H H H H
ncludes ensuring the information is presented fairly and in compliance with GAAP, or other ap-
H H H H H H H H H H H H H H
Hplicable financial reporting framework. Management is responsible for designing, implementing,
H H H H H H H H H
Hand maintaining internal control over financial reporting, as well as providing auditors with all th
H H H H H H H H H H H H H H
e necessary documentation and personnel needed to complete the audit. Auditors are responsib
H H H H H H H H H H H H
le for providing an opinion on whether the financial statements are presented fairly and in accord
H H H H H H H H H H H H H H H
-
Hance with the applicable financial reporting framework. The three responsibilities of auditors are
H H H H H H H H H H H H
Hto conduct the audit in accordance with the appropriate audit standards, plan and perform the a
H H H H H H H H H H H H H H H
udit with professional skepticism, and exercise professional judgment.
H H H H H H H
LOH4,HBT:HC,HDifficulty:HMedium,HTOT:H15Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HPreparersHandHAuditors
For Instructor Use Only
H H H
, R1.7 The SOX Act of 2002, which emphasized a need for better governance over financial re-
H H H H H H H H H H H H H H H
Hporting, created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a
H H H H H H H H H H H H H
non-profit corporation established to oversee the audits of public companies. The U.S. Securi-
H H H H H H H H H H H H
Hties and Exchange Commission (SEC) is a federal government agency whose role is to enforce
H H H H H H H H H H H H H H
Hand interpret securities laws. The SEC approves each new auditing standard established by th
H H H H H H H H H H H H H
e PCAOB before it can be implemented. The SEC and PCAOB work closely together to ensure
H H H H H H H H H H H H H H H H
standards are in place for both public companies and auditors to safeguard investors.
H H H H H H H H H H H H
LOH5,HBT:HC,HDifficulty:HMedium,HTOT:H10Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HTheHRoleHofHRegulatorsHa
ndHRegulations
R1.8 Some functions of the state boards of accountancy include issuing Certified Public Ac-
H H H H H H H H H H H H H
countant (CPA) licenses, adopting and enforcing professional conduct rules for CPAs, enforcing
H H H H H H H H H H H H
continuing professional education requirements, and administering disciplinary actions. The Na-
H H H H H H H H H H
tional Association of State Boards of Accountancy (NASBA) is a professional organization that
H H H H H H H H H H H H H H
works to unite the interests of the 55 jurisdictions of state boards with regulative and legislative b
H H H H H H H H H H H H H H H H
odies.
LOH5,HBT:HAP,HDifficulty:HEasy,HTOT:H10Hmin.,HAACSB:HAnalytic,HAICPAHPC:HProfessionalHBehavior,HSection:HTheHRoleHofH
RegulatorsHandHRegulations
R1.9 The principles of Generally Accepted Audit Standards (GAAS) start with the purpose of an
H H H H H H H H H H H H H H
audit, which is to provide an opinion on whether a company‘s financial statements are presented
H H H H H H H H H H H H H H
Hfairly and in accordance with GAAP. The next principle describes the premise upon which an au
H H H H H H H H H H H H H H H
dit is conducted. This outlines management‘s responsibility to prepare the financial state-
H H H H H H H H H H H
Hments in accordance with the applicable framework, manage and maintain internal controls ove
H H H H H H H H H H H H
r financial reporting, and provide the auditor with access to all documentation relevant to conduc
H H H H H H H H H H H H H H
t the audit. The next principle outlines the responsibilities of the auditor, which explicitly states a
H H H H H H H H H H H H H H H
uditors have to be competent, comply with auditing standards, maintain professional skepti-
H H H H H H H H H H H
Hcism and exercise professional judgment during an audit. While performing an audit, an auditor
H H H H H H H H H H H H H H
must obtain reasonable assurance that the financial statements are free from material mis-
H H H H H H H H H H H H
Hstatement, but also recognize it is not an absolute assurance due to several limitations. The last
H H H H H H H H H H H H H H H
Hprinciple states that auditors must report the results of the audit in a formalized written report.
H H H H H H H H H H H H H H H
LOH5,HBT:HC,HDifficulty:HEasy,HTOT:H10Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HTheHRoleHofHRegulatorsHandHR
egulations
R1.10 Audit reports for private and public companies are very similar in content. Both reports c
H H H H H H H H H H H H H H H
ontain the essential components: a title with the word ―independent,‖ an address to the share-
H H H H H H H H H H H H H H
holders/owners and board, identification of which financial statements were audited, an opinion
H H H H H H H H H H H H
on the outcome, a description of the responsibilities of the parties involved, a description of the
H H H H H H H H H H H H H H H H
conduct of an audit, a signature with the firm‘s name and a date indicating the end of fieldwork.
H H H H H H H H H H H H H H H H H H
However, there are a few differences between the two. The title for an audit report of a public c
H H H H H H H H H H H H H H H H H H H
ompany includes the term ―registered‖ indicating the firm is registered with the PCAOB. Audit r
H H H H H H H H H H H H H H
eports for public companies state the auditor is required to be independent from the company in
H H H H H H H H H H H H H H H
accordance with U.S. federal securities laws and with regulations of the SEC and PCAOB. The
H H H H H H H H H H H H H H H
report for a public company includes a paragraph referencing the audit of the firm‘s internal
H H H H H H H H H H H H H H H
For Instructor Use Only
H H H
Auditing A Practical Approach with Data Analytics, 2nd Edition Raymond N. Johnson, Laura
Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton
Chapter 1-16
H
CHAPTER 1 H
Introduction and Overview of Audit and Assurance H H H H H H
Learning Objectives
H
1. Differentiate among assurance, attestation, and auditing services.
H H H H H H
2. Describe the different types of assurance services.
H H H H H H
3. Explain the demand for audit and assurance services.
H H H H H H H
4. Discuss the different roles of the financial statement preparer and the auditor.
H H H H H H H H H H H
5. Identify the roles of different regulators and organizations that affect the audit profession.
H H H H H H H H H H H H
6. Explain the concepts of reasonable assurance, materiality, and the nature of an unquali-
H H H H H H H H H H H H
Hfied/unmodified report on the audit of financial statements.
H H H H H H H
7. Explain the concept of reasonable assurance and the nature of an unqualified report on
H H H H H H H H H H H H H
Hinternal controls over financial reporting.
H H H H
8. Discuss the audit expectation gap.
H H H H
ANSWERS TO MULTIPLE-CHOICE QUESTIONS H H H
1. C
LOH1,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HAssurance,HAttestation,HandHAuditHServices
2. A
LOH2,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HDifferentHAssuranceHServices
3. B
LOH2,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HDifferentHAssuranceHServices
4. C
LOH2,HBT:HC,HDifficulty:HMedium,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HS
ection:HDifferentHAssuranceHServices
5. C
LOH3,HBT:HC,HDifficulty:HMedium,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HS
ection:HDemandHforHAuditHandHAssuranceHServices
For Instructor Use Only
H H H
,6. B
LOH4,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HPreparersHandHAuditors
7. A
LOH5,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HTheHRoleHofHRegulatorsHandHR
egulations
8. D
LOH5,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHBC:HGovernanceHPerspective,HSection:HTheHRoleHofHRe
gulatorsHandHRegulations
9. D
LOH6,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HAuditHReportHonHFinancialHStatements
10. C
LOH6,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HAuditHReportHonHtheHFinancialH
Statements
11. B
LOH7,HBT:HC,HDifficulty:HEasy,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HAuditHReportHonHInternalHCont
rolsHoverHFinancialHReporting
12. B
LOH8,HBT:HC,HDifficulty:HMedium,HTOT:H2Hmin.,HAACSB:HNone,HAICPAHPC:HProfessionalHBehavior,HSection:HTheHAudit
ExpectationHGap
ANSWERS TO REVIEW QUESTIONS H H H
R1.1 An assurance service is any service provided by an independent practitioner that im-
H H H H H H H H H H H H H
Hproves the quality of information, or its context, for decision makers. An independent practitioner
H H H H H H H H H H H H H
Hcan verify that the information meets relevant criteria, which provides assurance to users who in
H H H H H H H H H H H H H H
tend to use the information for decision making. An assurance engagement has three parties: th
H H H H H H H H H H H H H H
e assurance provider (auditor/practitioner), the party responsible for providing the information (cl
H H H H H H H H H H H
ient), and the intended users of the information (investors/lenders/others who rely on the in-
H H H H H H H H H H H H H
Hformation).
LOH1,HBT:HC,HDifficulty:HEasy,HTOT:H5Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,HSecti
on:HAssurance,HAttestation,HandHAuditHServices
R1.2 The criterion used in a financial statement audit to measure and evaluate subject matter is
H H H H H H H H H H H H H H H H
the applicable financial reporting framework used by the client. The most common framework
H H H H H H H H H H H H
For Instructor Use Only
H H H
,used in the U.S. is Generally Accepted Accounting Principles (GAAP).
H H H H H H H H H
LOH1,HBT:HC,HDifficulty:HEasy,HTOT:H5Hmin.,HAACSB:HNone,HAICPAHAC:HMeasurementHAnalysisHandHInterpretation,HSec-
tion:HAssurance,HAttestation,HandHAuditHServices
H
R1.3 Financial statements are not guaranteed to be free from error or fraud due to several limi-
H H H H H H H H H H H H H H H H
Htations. These limitations include the nature of financial reporting, the nature of audit procedures
H H H H H H H H H H H H H
Hand the need for the audit to be conducted within a reasonable period of time and within a rea-
H H H H H H H H H H H H H H H H H H
Hsonable budget. The nature of financial reporting causes limitations because it includes man-
H H H H H H H H H H H H
Hagement‘s judgment when applying accounting standards and estimates. The nature of the au-
H H H H H H H H H H H H
Hdit procedures is a limitation because the auditors have to rely on management to provide all th
H H H H H H H H H H H H H H H H
e necessary documentation needed for the audit. The auditor may arrive at an inappropriate con
H H H H H H H H H H H H H H
- clusion if information is tampered with or excluded. The last limitation refers to the limited re-
H H H H H H H H H H H H H H H H
Hsources of time and money for an audit engagement. It would be impractical for auditors to ex-
H H H H H H H H H H H H H H H H
Hamine every transaction. Therefore, auditors rely on sampling measures to provide an accurate
H H H H H H H H H H H H H
representation of the population, and sampling cannot provide absolute assurance.
H H H H H H H H H
LOH2,HBT:HC,HDifficulty:HMedium,HTOT:H15Hmin.,HAACSB:HNone,HAICPAHAC:HRiskHAssessment,HAnalysisHandHManagement,H
Section:HDifferentHAssuranceHServices
R1.4 Management and those charged with governance can request an operational audit to help
H H H H H H H H H H H H H H
improve the efficiency and effectiveness of a company‘s operations. An organization‘s internal a
H H H H H H H H H H H H
udit department typically conducts operational audits.
H H H H H
LOH2,HBT:HC,HDifficulty:HEasy,HTOT:H5Hmin.,HAACSB:HNone,HAICPAHBC:HGovernanceHPerspective,HSection:HDifferentHAs-
suranceHServices
H
R1.5 Investors are interested in the information that financial statements can provide about their
H H H H H H H H H H H H H
investment. This includes, but is not limited to, information regarding the profitability of the com-
H H H H H H H H H H H H H H
Hpany, return on investment, going concern/continuity of operations, and dividend distributions.
H H H H H H H H H H H
An independent audit helps to ensure that the information in the financial statements is credible
H H H H H H H H H H H H H H H
and of high quality.
H H H
LOH3,HBT:HC,HDifficulty:HEasy,HTOT:H10Hmin.,HAACSB:HNone,HAICPAHBC:HGovernanceHPerspective,HSection:HDemandHforHA
uditHandHAssuranceHServices
R1.6 Both the preparer and the auditor have responsibilities regarding the company‘s financial
H H H H H H H H H H H H H
statements. Management (the preparer) is in charge of preparing the financial statements. This i
H H H H H H H H H H H H H
ncludes ensuring the information is presented fairly and in compliance with GAAP, or other ap-
H H H H H H H H H H H H H H
Hplicable financial reporting framework. Management is responsible for designing, implementing,
H H H H H H H H H
Hand maintaining internal control over financial reporting, as well as providing auditors with all th
H H H H H H H H H H H H H H
e necessary documentation and personnel needed to complete the audit. Auditors are responsib
H H H H H H H H H H H H
le for providing an opinion on whether the financial statements are presented fairly and in accord
H H H H H H H H H H H H H H H
-
Hance with the applicable financial reporting framework. The three responsibilities of auditors are
H H H H H H H H H H H H
Hto conduct the audit in accordance with the appropriate audit standards, plan and perform the a
H H H H H H H H H H H H H H H
udit with professional skepticism, and exercise professional judgment.
H H H H H H H
LOH4,HBT:HC,HDifficulty:HMedium,HTOT:H15Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HPreparersHandHAuditors
For Instructor Use Only
H H H
, R1.7 The SOX Act of 2002, which emphasized a need for better governance over financial re-
H H H H H H H H H H H H H H H
Hporting, created the Public Company Accounting Oversight Board (PCAOB). The PCAOB is a
H H H H H H H H H H H H H
non-profit corporation established to oversee the audits of public companies. The U.S. Securi-
H H H H H H H H H H H H
Hties and Exchange Commission (SEC) is a federal government agency whose role is to enforce
H H H H H H H H H H H H H H
Hand interpret securities laws. The SEC approves each new auditing standard established by th
H H H H H H H H H H H H H
e PCAOB before it can be implemented. The SEC and PCAOB work closely together to ensure
H H H H H H H H H H H H H H H H
standards are in place for both public companies and auditors to safeguard investors.
H H H H H H H H H H H H
LOH5,HBT:HC,HDifficulty:HMedium,HTOT:H10Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HTheHRoleHofHRegulatorsHa
ndHRegulations
R1.8 Some functions of the state boards of accountancy include issuing Certified Public Ac-
H H H H H H H H H H H H H
countant (CPA) licenses, adopting and enforcing professional conduct rules for CPAs, enforcing
H H H H H H H H H H H H
continuing professional education requirements, and administering disciplinary actions. The Na-
H H H H H H H H H H
tional Association of State Boards of Accountancy (NASBA) is a professional organization that
H H H H H H H H H H H H H H
works to unite the interests of the 55 jurisdictions of state boards with regulative and legislative b
H H H H H H H H H H H H H H H H
odies.
LOH5,HBT:HAP,HDifficulty:HEasy,HTOT:H10Hmin.,HAACSB:HAnalytic,HAICPAHPC:HProfessionalHBehavior,HSection:HTheHRoleHofH
RegulatorsHandHRegulations
R1.9 The principles of Generally Accepted Audit Standards (GAAS) start with the purpose of an
H H H H H H H H H H H H H H
audit, which is to provide an opinion on whether a company‘s financial statements are presented
H H H H H H H H H H H H H H
Hfairly and in accordance with GAAP. The next principle describes the premise upon which an au
H H H H H H H H H H H H H H H
dit is conducted. This outlines management‘s responsibility to prepare the financial state-
H H H H H H H H H H H
Hments in accordance with the applicable framework, manage and maintain internal controls ove
H H H H H H H H H H H H
r financial reporting, and provide the auditor with access to all documentation relevant to conduc
H H H H H H H H H H H H H H
t the audit. The next principle outlines the responsibilities of the auditor, which explicitly states a
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uditors have to be competent, comply with auditing standards, maintain professional skepti-
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Hcism and exercise professional judgment during an audit. While performing an audit, an auditor
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must obtain reasonable assurance that the financial statements are free from material mis-
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Hstatement, but also recognize it is not an absolute assurance due to several limitations. The last
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Hprinciple states that auditors must report the results of the audit in a formalized written report.
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LOH5,HBT:HC,HDifficulty:HEasy,HTOT:H10Hmin.,HAACSB:HNone,HAICPAHAC:HReporting,HSection:HTheHRoleHofHRegulatorsHandHR
egulations
R1.10 Audit reports for private and public companies are very similar in content. Both reports c
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ontain the essential components: a title with the word ―independent,‖ an address to the share-
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holders/owners and board, identification of which financial statements were audited, an opinion
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on the outcome, a description of the responsibilities of the parties involved, a description of the
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conduct of an audit, a signature with the firm‘s name and a date indicating the end of fieldwork.
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However, there are a few differences between the two. The title for an audit report of a public c
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ompany includes the term ―registered‖ indicating the firm is registered with the PCAOB. Audit r
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eports for public companies state the auditor is required to be independent from the company in
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accordance with U.S. federal securities laws and with regulations of the SEC and PCAOB. The
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report for a public company includes a paragraph referencing the audit of the firm‘s internal
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For Instructor Use Only
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