Responsibilities
Management
o Financial statements and internal control
Auditor
o Provide reasonable assurance
Requirements of an audit
Comply with ethical requirements
Plan and perform with professional skepticism
Exercise professional judgment
Obtain sufficient appropriate evidence
Obtain reasonable assurance on the fairness of the financial statements
Form opinion on going concern, internal control system and occurrence of fraud
Materiality
If, individually or in aggregate, they could reasonable be expected to influence the
economic decisions of users taken on basis of the financial statement.
o Size
o Nature
Assertions
Occurrence (T/P)
o Have occurred and pertain to the entity
Completeness (T/B/P)
o Everything that should have been recorded is recorded
Accuracy (T/P)
o Recorded appropriately
Cut-off (T)
o Recorded in correct accounting period
Classification (T)
o Recorded in proper accounts
Existence (B)
o Balances exist
Rights and obligations (B)
o Balances are controlled by the entity
Valuation and allocation (B)
o Balances have appropriate amounts and (re)valuations are appropriate recorded
Understandability (P)
o Appropriately presented and described, clearly expressed
Client acceptance
1. Evaluation client’s background
2. Determine whether auditor meets ethical requirements
3. Determine other professionals needed
4. Communicate with predecessor auditor
5. Acceptance by client
, Theories
Policeman theory
o Focus on accuracy and on prevention/detection of fraud
Lending credibility theory
o Enhance stakeholders’ faith
Theory of inspired confidence
o Demand: Participation of outside stakeholders
o Supply: Level of audit assurance should meet reasonable public expectations
Agency theory
o Principal: External users (shareholders)
o Agent: Company (management, BoD)
o Monitor: Auditor
Code of Ethics Principles
Integrity
o Straightfoward and honest
Objectivity
o Not allow bias, conflict of interest or influence override professional judgment
Professional competence and due care
o Maintain knowledge/skill at required level
o Act diligently/in accordance with standards
Confidentiality
o Not disclose or use information for personal advantages without authority unless
duty to disclose
Professional behavior
o Comply with law/regulation avoid to discredit profession
Code of Ethics Threats
Self-interest
o When auditor benefits from financial interest in or with client
Self-review
o Auditor needs to re-evaluate previous engagement for conclusions present
engagement
o Auditor previous was an employee of client
Advocacy
o Auditor promotes client’s position or opinion
Familiarity
o Auditor becomes too sympathetic to client’s interest due to close relationship
Intimidation
o Auditor is deterred from acting according to principles cause of (perceived)
threats
Management
o Financial statements and internal control
Auditor
o Provide reasonable assurance
Requirements of an audit
Comply with ethical requirements
Plan and perform with professional skepticism
Exercise professional judgment
Obtain sufficient appropriate evidence
Obtain reasonable assurance on the fairness of the financial statements
Form opinion on going concern, internal control system and occurrence of fraud
Materiality
If, individually or in aggregate, they could reasonable be expected to influence the
economic decisions of users taken on basis of the financial statement.
o Size
o Nature
Assertions
Occurrence (T/P)
o Have occurred and pertain to the entity
Completeness (T/B/P)
o Everything that should have been recorded is recorded
Accuracy (T/P)
o Recorded appropriately
Cut-off (T)
o Recorded in correct accounting period
Classification (T)
o Recorded in proper accounts
Existence (B)
o Balances exist
Rights and obligations (B)
o Balances are controlled by the entity
Valuation and allocation (B)
o Balances have appropriate amounts and (re)valuations are appropriate recorded
Understandability (P)
o Appropriately presented and described, clearly expressed
Client acceptance
1. Evaluation client’s background
2. Determine whether auditor meets ethical requirements
3. Determine other professionals needed
4. Communicate with predecessor auditor
5. Acceptance by client
, Theories
Policeman theory
o Focus on accuracy and on prevention/detection of fraud
Lending credibility theory
o Enhance stakeholders’ faith
Theory of inspired confidence
o Demand: Participation of outside stakeholders
o Supply: Level of audit assurance should meet reasonable public expectations
Agency theory
o Principal: External users (shareholders)
o Agent: Company (management, BoD)
o Monitor: Auditor
Code of Ethics Principles
Integrity
o Straightfoward and honest
Objectivity
o Not allow bias, conflict of interest or influence override professional judgment
Professional competence and due care
o Maintain knowledge/skill at required level
o Act diligently/in accordance with standards
Confidentiality
o Not disclose or use information for personal advantages without authority unless
duty to disclose
Professional behavior
o Comply with law/regulation avoid to discredit profession
Code of Ethics Threats
Self-interest
o When auditor benefits from financial interest in or with client
Self-review
o Auditor needs to re-evaluate previous engagement for conclusions present
engagement
o Auditor previous was an employee of client
Advocacy
o Auditor promotes client’s position or opinion
Familiarity
o Auditor becomes too sympathetic to client’s interest due to close relationship
Intimidation
o Auditor is deterred from acting according to principles cause of (perceived)
threats
