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by: Samuel Notetaker

practice upload Acct 5335

Samuel Notetaker

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practice upload
Financial Statement Auditing
Sam Goble
Class Notes
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Popular in Financial Statement Auditing

Popular in Accounting (ACCT)

This 4 page Class Notes was uploaded by Samuel Notetaker on Friday September 16, 2016. The Class Notes belongs to Acct 5335 at University of Houston taught by Sam Goble in Fall 2016. Since its upload, it has received 2 views. For similar materials see Financial Statement Auditing in Accounting (ACCT) at University of Houston.

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Date Created: 09/16/16
Class 3 Notes 9/15/16 Continuation of Ch 6 Pg 200 Assertions need to be understood for Exam “We audit assertions related to BS Accounts” Risk assessment procedures: 4 bullet points Extensive use of questionnaires Observe procedures, inspect Review any proc that give understanding of client Industry Client’s business to better understand books and records Articles of Inc needed from client By-laws DOA from Board DOA from Exec Comm Policy and Procedure manuals Job Descriptions Flow charts BOD minutes These all go into permanent file Auditors want to know “What reports is mgmt reviewing on a daily, wekkly monthly basis to run their business” Read pgs 200-201 Case on pg 203 Understanding the Client’s Business VW fraud case “Derivatives” – used to minimize risk by company Investors use them to maximize gains/rtrns Derivatives are financial instruments, and Fin Inst must be booked, reported at Fair Value Should EY have been familiar with VW and known how they use derivatives and currency exchanges? Pg 204 F.S. Materiality – we are required to determine financial statement materiality before the audit begins Materiality – 10% of net income Amount of change that would cause user of FS to alter their decisions Pg 205 Every manual will have a methodology to determine materiality F.S. materiality on BS Accounts We are requirted to allocation FS materiality to BS Acct during planning stages Performance materiality – tolerable misstatement, mean the same thing: amt of fs mat allocated to a particular bs acct Perf Mat allocates $50k to AR, and AR is misstated by $70k, our recourse is to issue a qualified opinion because the misstatement exceeds perf mat. Pg 206 Numbers are quantitative materiality Qualitative materiality refers to face of FS, but also refers to footnote disclosure GAAP is specific about what needs to be disclosed in footnotes Audit Risk defined again on 207 Pg 208 Significant risk – (VW case) – hedges, derivatives Pg 209 2 types of Fraud: Fraudulent Fin Rpting Misappropriation of Assets AICPA – REQUIRES AU-C 315 and AU-C 240 Every member of audit team and discusses potential for misstatement and fraud Pg 210 Inquiries related to fraud – Required Every firm has a fraud quesitionnaire Considering Fraud Risk Factors AICPA looked @ 75 companies that went bankrupt and analyzed. Came up with 3 fraud risk factors: Conclusion, high percent of time, when companies go bankrupt, these 3 factors exist: 1-incentive 2-opportunity 3-attitude IOA – when these 3 factors exist, then we have to react to it. Must be documented and do something about it. How do we respond? 1-modification to approach and overall effect 2-alter our audit program 3-be on the lookout for management override Overall Response Increase professional skepticism, obtain higher level and more audit evidence Assign more experienced personnel and increase supervision Any change in acct princ must be closely scruitinized Decr predictability of audit procedures Linkage Response to Mgmt Override Examine all Gen Journal entries @ month ending/period ending Any acct that will be FV’d, we will closely scrutinize work papers and estimates All this must be done if fraud risk factors exist Increase scrutiny of results of our audit test Discover of fraud – must be reported to next highest level of mgmt not directly involved in audit until you get a satisfactory response. Further audit procedures – test of controls and substantive audit testing Fig 6.4 (pg 215) Normal AIS system Leaves out 2 words: if verifying existence, select sample from the ledger, then you “vouch” a reasonable sample. Vouch meaning select sample from sub-ledger Trace-means start with source documents and follow through to end. Must understand t-acct analysis Indirect verification of Inc Statement accts-done via t-acct analysis Verify one acct balances through looking at related accounts…t-acct analysis AR beg bal (end bal last year) Verified end bal this year through confirmations (random sample of customers) Can we discern how much was paid by customers on acct Query in AIS system What’s missing? Sales on account Indirect verification of sales on account Figure 6.6 (pg 218) Verify some Inc Statmeent accts direction: i.e. Income Tax Expense If controls are weak, will do more substantive testing Understand list of Assertions Any work performed before year-end is considered “interim period work” Pg 224 – Fig 6.8 Be familiar with Assertions (ex of Accts Rec) for first test Ch 2 HW questions review Test made up of released CPA exam questions


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