FINANCIAL STATEMENT AUDIT-- D

FINANCIAL STATEMENT AUDIT

1. What is the overall objective of the financial statement audit?

Provide assurance to creditors and investor an opinion of the stability of the organization being audited and the financial statement are correct and accurate.

2. Identify the six phases of a financial statement audit.

 Engagement Acceptance

 Planning

 Audit Tests

 Account Analysis

 Reporting

 Summation

3. What are the three components of audit risk?

 Inherent risk

 Control risk

 Detection risk

4. The three risk factors related to the risk of fraud are:

 Incentive/Pressure

 Opportunity

 Attitude/Rationalization

5. What is audit evidence and what does it include?

Audit evidence is all the information, whether obtained from audit procedures or other sources, which is used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Audit evidence consists of both information that supports and corroborates management's assertions regarding the financial statements or internal control over financial reporting and information that contradicts such assertions.

6. The five assertions for fixed assets can be stated as follows:

 Accuracy. The assertion is that all information disclosed is in the correct amounts, and which reflect their proper values.

 Completeness. The assertion is that all transactions that should be disclosed have been disclosed.

 Occurrence. The assertion is that disclosed transactions have indeed occurred.

 Rights and obligations. The assertion is that disclosed rights and obligations actually relate to the reporting entity.

 Understandability. The assertion is that the information included in the financial statements has been appropriately presented and is clearly understandable.

7. The steps in accepting an audit engagement are:

The audit engagement decision is the result of two sets of decisions: the

Prospective clients and the proposed audit firms

8. For a new client, the auditor can obtain information about the client's management by:

A successor auditor ordinarily should request to review the predecessor's audit documentation relating to:

 Contingencies

 Internal control

9. Materiality is defined by the FASB as:

The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.

10. In the planning phase of the audit, the auditor should assess materiality at the following two levels:

 Financial Statement Level

 Account

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