Question

Sarah O’Hann enjoyed taking her first auditing course as part of her father discussed the class, and it was clear that he didn’t really understand the nature of the audit process as he asked the following questions:

a) What is the main objective of the audit of an entity’s financial statements?

b) Given the CPA firm is auditing financial statements, why would they need to understand anything about the client’s business?

c) What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements?

d) The audit represents the CPA firm’s guarantee about the accuracy of the financial statements, right?

e) Isn’t the auditor’s primary responsibility to detect all kinds of fraud at the client?

If you were Sarah, how would you respond to each question?

Answer 1

(a) -- What is the main objective of the audit of an entity’s financial statements?

Answer -

The main objective of the audit of an entity’s financial statements is to express an opinion on the fairness of the financial statements in all material respects.

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(b) -- Given the CPA firm is auditing financial statements, why would they need to understand anything about the client’s business?

Answer -

To be able to identify risks and industry strategies that may affect the fairness of the financial statements.

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(c) -- What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements?

Answer -

An auditor obtains reasonable assurance about whether financial statements are free of material misstatement, plan work and supervise assistants, determine and apply materiality, identify and assess risks of material misstatement to obtain sufficient appropriate audit evidences.

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(d) -- The audit represents the CPA firm’s guarantee about the accuracy of the financial statements, right?

Answer -

The audit cannot provide guarantee of the accuracy of financial statements. It expresses the fairness of financial statement in all material respects.

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(e) -- Isn’t the auditor’s primary responsibility to detect all kinds of fraud at the client?

Answer -

An auditors primary responsibility to form an opinion regarding the fairness of the financial statements.

The primary responsibility to detect all kinds of fraud and error rests with both those charged with the governance and the entity's management.