Download Auditing & Assurance Services: A Systematic Approach by William Messier Jr, Steven Glover, Douglas Prawitt PDF
By William Messier Jr, Steven Glover, Douglas Prawitt
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Additional info for Auditing & Assurance Services: A Systematic Approach
Example text
In other words, can a particular type of evidence be relied upon to signal the true state of the account balance or assertion being examined? Using the house inspection example, inspecting the foundation of a house may not give us relevant evidence about whether the roof leaks. Likewise, evidence about the roof that is obtained by standing on the ground and looking up likely would not be as reliable as evidence obtained by climbing up on the roof or by inspecting the attic space. While the auditor has a professional responsibility to obtain “sufficient appropriate evidence,” the auditor seldom has the luxury of obtaining completely convincing evidence about the true state of a particular management assertion.
Understand the demand for auditing and be able to explain the desired characteristics of auditors and audit services through an analogy to a house inspector and a house inspection service. Understand the relationships among auditing, attestation, and assurance services. Know the basic definition of a financial statement audit. 1-5 1-6 1-7 1-8 1-9 Understand three fundamental concepts that underlie financial statement auditing. Be able to explain why on most audit engagements an auditor tests only a sample of transactions that occurred.
While other factors must be considered in determining materiality, a common rule of thumb is that total (aggregated) misstatements of more than about 3 to 5 percent of income before tax would cause the financial statements to be materially misstated. Suppose the auditor decides that the financial statements of a client with $8 million in net income would be materially misstated if total misstatements exceed 5 percent of income, or $400,000. The auditor would design audit procedures precise enough to detect misstatements that, either by themselves or in combination with other misstatements, might exceed the materiality threshold of $400,000.