,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
h h h h h h h h h h
Chapterh01h-hAuditinghandhAssurancehServices
CHAPTERh01
AuditinghandhAssurancehServices
LEARNINGhOBJECTIVES
ReviewhC Multipleh Exercises,hProblems,h
heckpoints Choice andhSimulations
1.hDefinehinformationhriskhandhexplainhhowhthehfi
nancialhstatementhauditinghprocesshhelpshtohr
1,h2,h3 29,h31,h38 65*
educehthishrisk,htherebyhreducinghthehcosthofh
capitalhforhahcompany.
2.
4,h5,h6,h7,h8 23,h25,h28,h44,h50 60,h65*
Definehandhcontrasthassurance,hattestation,h
andhfinancialhstatementhauditinghservices.
3.
36,h39,h40,h41,h45,
Describehandhdefinehthehassertionshthathma
46,h47,h48,h49,h52,
nagementhmakeshabouththehrecognition,hmeasu 9,h10,h11 62,h63,h67,h68,h69
53,h54,h55,h57,h58,
rement,hpresentation,handhdisclosurehofhthehfin
59
ancialhstatementshandhexplainhwhyhauditorshus
ehthemhashahfocalhpointhofhthehaudit.
4.
Definehprofessionalhskepticismhandhexplai 12 24,h37 61
nhitshkeyhcharacteristics.
5.
Describehthehorganizationhofhpublichaccount 13,h14 30,h42,h56 72
inghfirmshandhidentifyhthehvarioushserviceshthath
theyhoffer.
6.
Describehthehauditshandhauditorshinh 15,h16,h17,h18 26,h27,h32,h34,h35 64,h66
governmental,hinternal,handhoperationalh
auditing.
7.
Listhandhexplainhthehrequirementshforhbeco
19,h20,h21,h22 33,h43,h51 70,h71
minghahcertifiedhpublichaccountanth(CPA)handh
otherhcertificationshavailablehtohanhaccounting
hprofessional.
(*)hItemhrelateshtohmultiplehlearninghobjectives
1-1
Copyrighth©2024hMcGraw-
HillhEducation.hAllhrightshreserved.hNohreproductionhorhdistributionhwithouththehpriorhwrittenhconsenthofhMc
Graw-HillhEducation.
mynursytest.store
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
h h h h h h h h h h
Chapterh01h-hAuditinghandhAssurancehServices
SOLUTIONShFORhREVIEWhCHECKPOINTS
1.1 Businesshriskhishthehriskhthathanhentityhwillhfailhtohmeethitshbusinesshobjectives.hWhenhassessinghbusinesshrisk,h
ahprofessionalhmusthconsiderhallhpossiblehthreatshtohanhentity’shgoalshandhobjectives.hSomehillustrativehexamp
leshincludehthehriskhthat:h1)hitshexistinghcustomershwillhstarthbuyinghproductshorhserviceshfromhitshprimaryhco
mpetitors;h2)hitshproducthlineshwillhbecomehobsolete;h3)hitshtaxeshwillhincrease;h4)hkeyhgovernmenthcontractsh
willhbehlost;h5)hkeyhemployeeshwillhleavehthehentity;handhmanyhotherhexampleshexist.
1.2 Tohhelphminimizehbusinesshriskhandhtakehadvantagehofhotherhopportunitieshpresentedhinhtoday’shcompetitiveh
businesshenvironment,hdecisionhmakershsuchhashchiefhexecutivehofficersh(CEOs)hdemandhtimely,hrelevant,ha
ndhreliablehinformation.hThereharehathleasthfourhenvironmentalhconditionshthathincreasehdemandhforhreliablehi
nformation.hFirst,hcomplexityhwhichhimplieshthatheventshandhtransactionshinhtoday’shglobalhbusinesshenviron
menthcanhbehcomplicated.hMosthinvestorshdohnothhavehthehlevelhofhexpertisehneededhtohproperlyhaccounthforh
complexhtransactions.hSecondhishremotenesshwhichhimplieshthathdecisionhmakersharehoftenhseparatedhfromhc
urrenthandhpotentialhbusinesshrelationshipshduehtohdistancehandhtime.hForhexample,hinvestorshmayhnothbehableh
tohvisithdistanthlocationshtohcheckhuphonhtheirhinvestments.hThirdhishtime-sensitivityhwhich
implieshthathinhtoday’sheconomichenvironment,hinvestorshandhotherhusershofhfinancialhstatementshneedhtoh
makehdecisionshmorehrapidlyhthanheverhbefore.hAshahresult,hthehabilityhtohpromptlyhobtainhhigh-
qualityhinformationhishessential.hFourthhishahconsequencehwhichhimplieshthathdecisionshmayhveryhwellhin
volvehsignificanthinvestments.hAshahresult,hthehconsequenceshcanhbehseverehifhinformationhcannothbehobt
ained
1.3 Ofhallhthehdifferenthriskshdiscussedhinhthehchapterhuphtohthishpoint,hinformationhriskhishthehonehthathishmosthlik
elyhtohcreatehthehdemandhforhindependenthandhobjectivehassurancehserviceshishinformationhriskhorhthehprobab
ilityhthaththehinformationhcirculatedhbyhanhentityhwillhbehfalsehorhmisleading.hBecausehthehprimaryhsourcehofh
informationhforhinvestorshandhcreditorshishthehcompanyhitself,hanhincentivehexistshforhthathcompany’shmanag
ementhtohmakehtheirhbusinesshorhservicehappearhtohbehbetterhthanhithactuallyhmayhbe,htohpuththeirhbesthfoothfor
ward.hAshahresult,hpreparershandhissuershofhfinancialhinformationh(directors,hmanagers,haccountants,handhoth
erhpeoplehemployedhinhahbusiness)hmighthbenefithbyhgivinghfalse,hmisleading,horhoverlyhoptimistichinformati
on.hThishpotentialhconflicthofhinteresthbetweenhinformationhprovidershandhusershwhichhprovideshthehunderlyi
nghbasishforhthehdemandhforhreliablehinformation.
1.4 Thehfourhmajorhelementshofhthehbroadhdefinitionhofhassurancehserviceshare
Independence.hCPAshwanthtohpreservehtheirhreputationhandhcompetitivehadvantagehbyhalwayshpreservingh
integrityhandhobjectivityhwhenhperforminghassurancehservices.
Professionalhservices.hVirtuallyhallhworkhperformedhbyhCPAshishdefinedhash“professionalhservices”hashlongh
ashithinvolveshsomehelementhofhjudgmenthbasedhonheducationhandhexperience.
Improvinghthehqualityhofhinformationhorhitshcontext.hThehemphasishishonh“information,”hCPAs’htraditionalha
reahofhexpertise.hCPAshcanhenhancehqualityhbyhassuringhusershabouththehreliabilityhandhrelevancehofhinform
ation,handhthesehtwohfeaturesharehcloselyhrelatedhtohthehfamiliarhcredibility-lendinghproductshof
attestationhandhaudithservices.h“Context”hishrelevancehinhahdifferenthlight.hForhassurancehservices,himprovingh
thehcontexthofhinformationhrefershtohimprovinghitshusefulnesshwhenhtargetedhtohparticularhdecisionhmakershinh
thehsurroundingshofhparticularhdecisionhproblems.
Forhdecisionhmakers.hAshtheh“consumers”hofhassurancehservices,hdecisionhmakersharehthehbeneficiarieshofhtheh
assurancehservices.hDecisionhmakershmayhorhmayhnothbehtheh“client”hthathpayshthehfeehandhmayhorhmayhnothb
ehonehofhthehpartieshtohanhassertionhorhotherhinformation,hbuththeyhpersonifyhthehconsumerhfocushofhnewhandhd
ifferenthprofessionalhwork.
1.5 Anhassurancehserviceshengagementhishanyhassignmenththathimproveshthehqualityhofhinformation,horhitshconte
xt,hforhdecisionhmakers.hBecausehinformationh(e.g.,hfinancialhstatements)harehpreparedhbyhmanagershofhanhen
tityhwhohhavehauthorityhandhresponsibilityhforhfinancialhsuccesshorhfailure,hanhoutsiderhmayhbehskepticalhthatht
hehinformationhtrulyhishobjective,hfreehfromhbias,hfullyhinformative,handhfreehfromhmaterialherror,
1-2
Copyrighth©2024hMcGraw-
HillhEducation.hAllhrightshreserved.hNohreproductionhorhdistributionhwithouththehpriorhwrittenhconsenthofhMc
Graw-HillhEducation.
mynursytest.store
, ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
h h h h h h h h h h
Chapterh01h-hAuditinghandhAssurancehServices
intentionalhorhinadvertent.hThehserviceshofhanhindependenthauditorhhelpshresolvehthosehdoubtshbecausehthehau
ditor’shsuccesshdependshuponhhishorhherhindependent,hobjective,handhcompetenthassessmenthofhthehinformatio
nh(e.g.,hthehconformityhofhthehfinancialhstatementshwithhthehappropriatehreportinghframework).hThehindepende
nthauditor’shrolehishtohlendhcredibilityhtohthehinformation;hhence,hthehoutsiderhwillhlikelyhseekhhishorhherhindepe
ndenthopinionhabouththehfinancialhstatements.
1.6 Anhattestationhengagementhish“anhengagementhinhwhichhahpractitionerhishengagedhtohissuehorhdoeshissuehah
writtenhcommunicationhthathexpresseshahconclusionhabouththehreliabilityhofhahwrittenhassertionhthathishthehre
sponsibilityhofhanotherhparty”h(SSAEh10,hATh101.01).hTohattesthmeanshtohlendhcredibilityhorhtohvouchhforhth
ehtruthhorhaccuracyhofhthehstatementshthathonehpartyhmakeshtohanother.hThehattesthfunctionhishahtermhoftenhap
pliedhtohthehactivitieshofhindependenthCPAshwhenhactinghashauditorshofhfinancialhstatements.
1.7 Anhassurancehservicehengagementhishonehthathimproveshthehqualityhofhinformation,horhitshcontext,hforhdecisio
nhmakers.hThus,hanhattestationhservicehengagementhishonehtypehofhanhassurancehservice.hAnotherhwayhofhthin
kinghabouththehissuehishtohrememberhthaththehfinancialhstatementhaudithengagementhishonehtypehofhanhattestat
ionhservice.hPleasehseehexhibith1.3hinhthehtexthwhichhdepictshthehrelationshiphamonghassurance,hattestation,ha
ndhauditinghengagements.
1.8 AccordinghtohthehAmericanhAccountinghAssociation,h“Auditinghishahsystematichprocesshofhobjectivelyhobta
ininghandhevaluatinghevidencehregardinghassertionshaboutheconomichactionshandheventshtohascertainhthehdeg
reehofhcorrespondencehbetweenhthehassertionshandhestablishedhcriteriahandhcommunicatinghthehresultshto
interestedhusers.”hInheffect,hauditorshaddhreliabilityhtohthehinformationhthathishprovidedhtohinterestedhusers.hOfh
course,hthishdefinitionhishfocusedhonhanhexternalhreportinghcontext.hStudentshmayhalsohdiscusshhowhgovernm
entalhandhinternalhauditorshoperatehashwell.
Inhresponsehtoh“Whathdohauditorshdo?”hstudentshcanhrespondhbyhstatinghthathauditorsh(1)hobtainhandhevaluateh
evidencehabouthassertionshmadehbyhmanagementhaboutheconomichactionshandhevents,h(2)hascertainhthehdegre
ehofhcorrespondencehbetweenhthehassertionshandhthehappropriatehreportinghframework,handh(3)hissuehanhaudith
reporth(opinion).hStudentshcanhalsohrespondhmorehgenerallyhbyhstatinghthathauditorshessentiallyhlendhcredibil
ityhtohthehfinancialhstatementshpresentedhbyhmanagement.
1.9 Financialhaccountinghrefershtohthehprocesshofhrecording,hclassifying,hsummarizing,handhreportinghabouthahco
mpany’shassets,hliabilities,hcapital,hrevenues,handhexpenseshinhthehfinancialhstatementshinhaccordancehwithhth
ehapplicablehfinancialhreportinghframeworkh(e.g.,hGAAP).hInhsohdoing,hthehmanagementhteamhishmakinghsev
eralhassertionshabouththehfinancialhstatements.hThehfinancialhaccountinghprocesshishthehresponsibilityhofhtheh
managementhteam.
Financialhstatementhauditinghrefershtohthehprocesshwherebyhprofessionalhauditorshgatherhevidencehrelatedhtoh
thehassertionshthathmanagementhmakeshinhthehfinancialhstatements,hevaluateshthehevidencehandhconcludeshonh
thehfairnesshofhthehfinancialhstatementshinhahreport.
Theyhdifferhbecausehaccountantshproducehthehfinancialhstatementshinhaccordancehwithhthehapplicablehfinanci
alhreportinghframework.hAfterhthishishcomplete,hfinancialhstatementhauditorshthenhperformhprocedureshtohasce
rtainhwhetherhthehfinancialhstatementshhavehbeenhpreparedhinhaccordancehwithhthehapplicablehfinancialhreporti
nghframework.
1.10 ThehtwohmajorhclassificationshofhASBhassertionshwithhseveralhassertionshinheachhclassificationhare:h
AssertionshAbouthClasseshofhTransactionshandhEvents,handhRelatedhDisclosures
Occurrencehassertion:hThehobjectivehishtohestablishhwithhevidencehthathtransactionshgivinghrisehtohassets,hli
abilities,hsales,handhexpenseshoccurred.hKeyhquestionshincludeh“Didhthehrecordedhsaleshtransactionshreallyho
ccur?”
1-3
Copyrighth©2024hMcGraw-
HillhEducation.hAllhrightshreserved.hNohreproductionhorhdistributionhwithouththehpriorhwrittenhconsenthofhMc
Graw-HillhEducation.
mynursytest.store
h h h h h h h h h h
Chapterh01h-hAuditinghandhAssurancehServices
CHAPTERh01
AuditinghandhAssurancehServices
LEARNINGhOBJECTIVES
ReviewhC Multipleh Exercises,hProblems,h
heckpoints Choice andhSimulations
1.hDefinehinformationhriskhandhexplainhhowhthehfi
nancialhstatementhauditinghprocesshhelpshtohr
1,h2,h3 29,h31,h38 65*
educehthishrisk,htherebyhreducinghthehcosthofh
capitalhforhahcompany.
2.
4,h5,h6,h7,h8 23,h25,h28,h44,h50 60,h65*
Definehandhcontrasthassurance,hattestation,h
andhfinancialhstatementhauditinghservices.
3.
36,h39,h40,h41,h45,
Describehandhdefinehthehassertionshthathma
46,h47,h48,h49,h52,
nagementhmakeshabouththehrecognition,hmeasu 9,h10,h11 62,h63,h67,h68,h69
53,h54,h55,h57,h58,
rement,hpresentation,handhdisclosurehofhthehfin
59
ancialhstatementshandhexplainhwhyhauditorshus
ehthemhashahfocalhpointhofhthehaudit.
4.
Definehprofessionalhskepticismhandhexplai 12 24,h37 61
nhitshkeyhcharacteristics.
5.
Describehthehorganizationhofhpublichaccount 13,h14 30,h42,h56 72
inghfirmshandhidentifyhthehvarioushserviceshthath
theyhoffer.
6.
Describehthehauditshandhauditorshinh 15,h16,h17,h18 26,h27,h32,h34,h35 64,h66
governmental,hinternal,handhoperationalh
auditing.
7.
Listhandhexplainhthehrequirementshforhbeco
19,h20,h21,h22 33,h43,h51 70,h71
minghahcertifiedhpublichaccountanth(CPA)handh
otherhcertificationshavailablehtohanhaccounting
hprofessional.
(*)hItemhrelateshtohmultiplehlearninghobjectives
1-1
Copyrighth©2024hMcGraw-
HillhEducation.hAllhrightshreserved.hNohreproductionhorhdistributionhwithouththehpriorhwrittenhconsenthofhMc
Graw-HillhEducation.
mynursytest.store
,ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
h h h h h h h h h h
Chapterh01h-hAuditinghandhAssurancehServices
SOLUTIONShFORhREVIEWhCHECKPOINTS
1.1 Businesshriskhishthehriskhthathanhentityhwillhfailhtohmeethitshbusinesshobjectives.hWhenhassessinghbusinesshrisk,h
ahprofessionalhmusthconsiderhallhpossiblehthreatshtohanhentity’shgoalshandhobjectives.hSomehillustrativehexamp
leshincludehthehriskhthat:h1)hitshexistinghcustomershwillhstarthbuyinghproductshorhserviceshfromhitshprimaryhco
mpetitors;h2)hitshproducthlineshwillhbecomehobsolete;h3)hitshtaxeshwillhincrease;h4)hkeyhgovernmenthcontractsh
willhbehlost;h5)hkeyhemployeeshwillhleavehthehentity;handhmanyhotherhexampleshexist.
1.2 Tohhelphminimizehbusinesshriskhandhtakehadvantagehofhotherhopportunitieshpresentedhinhtoday’shcompetitiveh
businesshenvironment,hdecisionhmakershsuchhashchiefhexecutivehofficersh(CEOs)hdemandhtimely,hrelevant,ha
ndhreliablehinformation.hThereharehathleasthfourhenvironmentalhconditionshthathincreasehdemandhforhreliablehi
nformation.hFirst,hcomplexityhwhichhimplieshthatheventshandhtransactionshinhtoday’shglobalhbusinesshenviron
menthcanhbehcomplicated.hMosthinvestorshdohnothhavehthehlevelhofhexpertisehneededhtohproperlyhaccounthforh
complexhtransactions.hSecondhishremotenesshwhichhimplieshthathdecisionhmakersharehoftenhseparatedhfromhc
urrenthandhpotentialhbusinesshrelationshipshduehtohdistancehandhtime.hForhexample,hinvestorshmayhnothbehableh
tohvisithdistanthlocationshtohcheckhuphonhtheirhinvestments.hThirdhishtime-sensitivityhwhich
implieshthathinhtoday’sheconomichenvironment,hinvestorshandhotherhusershofhfinancialhstatementshneedhtoh
makehdecisionshmorehrapidlyhthanheverhbefore.hAshahresult,hthehabilityhtohpromptlyhobtainhhigh-
qualityhinformationhishessential.hFourthhishahconsequencehwhichhimplieshthathdecisionshmayhveryhwellhin
volvehsignificanthinvestments.hAshahresult,hthehconsequenceshcanhbehseverehifhinformationhcannothbehobt
ained
1.3 Ofhallhthehdifferenthriskshdiscussedhinhthehchapterhuphtohthishpoint,hinformationhriskhishthehonehthathishmosthlik
elyhtohcreatehthehdemandhforhindependenthandhobjectivehassurancehserviceshishinformationhriskhorhthehprobab
ilityhthaththehinformationhcirculatedhbyhanhentityhwillhbehfalsehorhmisleading.hBecausehthehprimaryhsourcehofh
informationhforhinvestorshandhcreditorshishthehcompanyhitself,hanhincentivehexistshforhthathcompany’shmanag
ementhtohmakehtheirhbusinesshorhservicehappearhtohbehbetterhthanhithactuallyhmayhbe,htohpuththeirhbesthfoothfor
ward.hAshahresult,hpreparershandhissuershofhfinancialhinformationh(directors,hmanagers,haccountants,handhoth
erhpeoplehemployedhinhahbusiness)hmighthbenefithbyhgivinghfalse,hmisleading,horhoverlyhoptimistichinformati
on.hThishpotentialhconflicthofhinteresthbetweenhinformationhprovidershandhusershwhichhprovideshthehunderlyi
nghbasishforhthehdemandhforhreliablehinformation.
1.4 Thehfourhmajorhelementshofhthehbroadhdefinitionhofhassurancehserviceshare
Independence.hCPAshwanthtohpreservehtheirhreputationhandhcompetitivehadvantagehbyhalwayshpreservingh
integrityhandhobjectivityhwhenhperforminghassurancehservices.
Professionalhservices.hVirtuallyhallhworkhperformedhbyhCPAshishdefinedhash“professionalhservices”hashlongh
ashithinvolveshsomehelementhofhjudgmenthbasedhonheducationhandhexperience.
Improvinghthehqualityhofhinformationhorhitshcontext.hThehemphasishishonh“information,”hCPAs’htraditionalha
reahofhexpertise.hCPAshcanhenhancehqualityhbyhassuringhusershabouththehreliabilityhandhrelevancehofhinform
ation,handhthesehtwohfeaturesharehcloselyhrelatedhtohthehfamiliarhcredibility-lendinghproductshof
attestationhandhaudithservices.h“Context”hishrelevancehinhahdifferenthlight.hForhassurancehservices,himprovingh
thehcontexthofhinformationhrefershtohimprovinghitshusefulnesshwhenhtargetedhtohparticularhdecisionhmakershinh
thehsurroundingshofhparticularhdecisionhproblems.
Forhdecisionhmakers.hAshtheh“consumers”hofhassurancehservices,hdecisionhmakersharehthehbeneficiarieshofhtheh
assurancehservices.hDecisionhmakershmayhorhmayhnothbehtheh“client”hthathpayshthehfeehandhmayhorhmayhnothb
ehonehofhthehpartieshtohanhassertionhorhotherhinformation,hbuththeyhpersonifyhthehconsumerhfocushofhnewhandhd
ifferenthprofessionalhwork.
1.5 Anhassurancehserviceshengagementhishanyhassignmenththathimproveshthehqualityhofhinformation,horhitshconte
xt,hforhdecisionhmakers.hBecausehinformationh(e.g.,hfinancialhstatements)harehpreparedhbyhmanagershofhanhen
tityhwhohhavehauthorityhandhresponsibilityhforhfinancialhsuccesshorhfailure,hanhoutsiderhmayhbehskepticalhthatht
hehinformationhtrulyhishobjective,hfreehfromhbias,hfullyhinformative,handhfreehfromhmaterialherror,
1-2
Copyrighth©2024hMcGraw-
HillhEducation.hAllhrightshreserved.hNohreproductionhorhdistributionhwithouththehpriorhwrittenhconsenthofhMc
Graw-HillhEducation.
mynursytest.store
, ACCESS Test Bank for Auditing & Assurance Services 9th Edition Louwers
h h h h h h h h h h
Chapterh01h-hAuditinghandhAssurancehServices
intentionalhorhinadvertent.hThehserviceshofhanhindependenthauditorhhelpshresolvehthosehdoubtshbecausehthehau
ditor’shsuccesshdependshuponhhishorhherhindependent,hobjective,handhcompetenthassessmenthofhthehinformatio
nh(e.g.,hthehconformityhofhthehfinancialhstatementshwithhthehappropriatehreportinghframework).hThehindepende
nthauditor’shrolehishtohlendhcredibilityhtohthehinformation;hhence,hthehoutsiderhwillhlikelyhseekhhishorhherhindepe
ndenthopinionhabouththehfinancialhstatements.
1.6 Anhattestationhengagementhish“anhengagementhinhwhichhahpractitionerhishengagedhtohissuehorhdoeshissuehah
writtenhcommunicationhthathexpresseshahconclusionhabouththehreliabilityhofhahwrittenhassertionhthathishthehre
sponsibilityhofhanotherhparty”h(SSAEh10,hATh101.01).hTohattesthmeanshtohlendhcredibilityhorhtohvouchhforhth
ehtruthhorhaccuracyhofhthehstatementshthathonehpartyhmakeshtohanother.hThehattesthfunctionhishahtermhoftenhap
pliedhtohthehactivitieshofhindependenthCPAshwhenhactinghashauditorshofhfinancialhstatements.
1.7 Anhassurancehservicehengagementhishonehthathimproveshthehqualityhofhinformation,horhitshcontext,hforhdecisio
nhmakers.hThus,hanhattestationhservicehengagementhishonehtypehofhanhassurancehservice.hAnotherhwayhofhthin
kinghabouththehissuehishtohrememberhthaththehfinancialhstatementhaudithengagementhishonehtypehofhanhattestat
ionhservice.hPleasehseehexhibith1.3hinhthehtexthwhichhdepictshthehrelationshiphamonghassurance,hattestation,ha
ndhauditinghengagements.
1.8 AccordinghtohthehAmericanhAccountinghAssociation,h“Auditinghishahsystematichprocesshofhobjectivelyhobta
ininghandhevaluatinghevidencehregardinghassertionshaboutheconomichactionshandheventshtohascertainhthehdeg
reehofhcorrespondencehbetweenhthehassertionshandhestablishedhcriteriahandhcommunicatinghthehresultshto
interestedhusers.”hInheffect,hauditorshaddhreliabilityhtohthehinformationhthathishprovidedhtohinterestedhusers.hOfh
course,hthishdefinitionhishfocusedhonhanhexternalhreportinghcontext.hStudentshmayhalsohdiscusshhowhgovernm
entalhandhinternalhauditorshoperatehashwell.
Inhresponsehtoh“Whathdohauditorshdo?”hstudentshcanhrespondhbyhstatinghthathauditorsh(1)hobtainhandhevaluateh
evidencehabouthassertionshmadehbyhmanagementhaboutheconomichactionshandhevents,h(2)hascertainhthehdegre
ehofhcorrespondencehbetweenhthehassertionshandhthehappropriatehreportinghframework,handh(3)hissuehanhaudith
reporth(opinion).hStudentshcanhalsohrespondhmorehgenerallyhbyhstatinghthathauditorshessentiallyhlendhcredibil
ityhtohthehfinancialhstatementshpresentedhbyhmanagement.
1.9 Financialhaccountinghrefershtohthehprocesshofhrecording,hclassifying,hsummarizing,handhreportinghabouthahco
mpany’shassets,hliabilities,hcapital,hrevenues,handhexpenseshinhthehfinancialhstatementshinhaccordancehwithhth
ehapplicablehfinancialhreportinghframeworkh(e.g.,hGAAP).hInhsohdoing,hthehmanagementhteamhishmakinghsev
eralhassertionshabouththehfinancialhstatements.hThehfinancialhaccountinghprocesshishthehresponsibilityhofhtheh
managementhteam.
Financialhstatementhauditinghrefershtohthehprocesshwherebyhprofessionalhauditorshgatherhevidencehrelatedhtoh
thehassertionshthathmanagementhmakeshinhthehfinancialhstatements,hevaluateshthehevidencehandhconcludeshonh
thehfairnesshofhthehfinancialhstatementshinhahreport.
Theyhdifferhbecausehaccountantshproducehthehfinancialhstatementshinhaccordancehwithhthehapplicablehfinanci
alhreportinghframework.hAfterhthishishcomplete,hfinancialhstatementhauditorshthenhperformhprocedureshtohasce
rtainhwhetherhthehfinancialhstatementshhavehbeenhpreparedhinhaccordancehwithhthehapplicablehfinancialhreporti
nghframework.
1.10 ThehtwohmajorhclassificationshofhASBhassertionshwithhseveralhassertionshinheachhclassificationhare:h
AssertionshAbouthClasseshofhTransactionshandhEvents,handhRelatedhDisclosures
Occurrencehassertion:hThehobjectivehishtohestablishhwithhevidencehthathtransactionshgivinghrisehtohassets,hli
abilities,hsales,handhexpenseshoccurred.hKeyhquestionshincludeh“Didhthehrecordedhsaleshtransactionshreallyho
ccur?”
1-3
Copyrighth©2024hMcGraw-
HillhEducation.hAllhrightshreserved.hNohreproductionhorhdistributionhwithouththehpriorhwrittenhconsenthofhMc
Graw-HillhEducation.
mynursytest.store
