Describe materiality and how auditors assess and identify materiality. Contrast between Operation Audit, Compliance Audit, Financial Statement Audit. Provide examples from a publicly-traded company.
Materiality is a concept within the auditing and accounting relating to significance of an amount, transaction or discrepency.
For Example, an expense of 10%s on paper is generally immaterial, and, if it were forgotten or recorded incorrectly, then no practical difference would result, even for a very small business. However, a transaction of many millions of dollars is almost always material, and if it were forgotten or recorded incorrectly, then financial managers, investors, and others would make incorrect decisions as a result of this error.
Materiality is applied by an auditor both in planning and performing the audit and to identify the risk of material mis-statement , if any on the financial statements and also in forming the opinion on auditor's report.
Auditor's Involves these steps in assessing and identifying the materiality- Choosing the benchmark, determining the level of this benchmark and justyfying the choices.In planning the audit the auditors the auditor make judgement about the size of the misstatements that will be considered material. These judgements provides a basis for determining the nature and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature , timing and extent of further audit procedures.
2. Operation audit focuses on the review and assessment of a business process. The business activities results in direct or indirect financial impact to the organisation. It is used to determine the operational efficiency of a company or organisation.
Compliance audit differs significantly from operational audit. Compliance audit is used to determine whether a company has comlied with various laws and reguations required. This type of audit is especially important in the financial industry, where activities are regulated primarily by the Securities and Exchange Commission.
Financial statement audit is the examination of an entity's financial statements and accompanying disclosures by an independent auditor. The result of this examination is a report by the auditor, which discloses the true and fair view of the financial statements and related disclosures. The auditor's report must accompany the financial statements when they are issued to the intended recipients. It is also called statutory audit.
The purpose of a financial statement audit is to add credibility to the reported financial position and performance of a business. The Securities and Exchange Commission requires that all entities that are publicly held must file annual reports with it that are audited. Similarly, lenders typically require an audit of the financial statements of any entity to which they lend funds. Suppliers may also require audited financial statements before they will be willing to extend trade credit.
Describe materiality and how auditors assess and identify materiality. Contrast between Operation Audit, Compliance Audit, Financial...
Compare and contrast materiality and evidence auditors assess, and identify materiality in both. Contrast between Operation Audit, Compliance Audit, Financial Statement Audit. Provide examples from a publicly-traded company.
Demonstrate how the auditor assesses the risk of material misstatement. Contrast between Operation Audit, Compliance Audit, Financial Statement Audit. Provide examples from a publicly-traded company.
How to gather evidence fo an Operation Audit, a Compliance Audit, and a Financial Statement Audit and when and when not to apply that evidence. Use appropriate terminology.
Description of attribute sampling for an Operation Audit, a Compliance Audit, and a Financial Statement Audit.
Describe sampling of internal controls, account balances, and monetary units for an Operation Audit, a Compliance Audit, and a Financial Statement Audit.
Demonstrate non-statistical sampling for an Operation Audit, a Compliance Audit, and a Financial Statement Audit.
(a) Give examples of how auditors gather information to help execute each step in Audit Planning (b) Describe materiality in general terms; discuss how auditors set materiality, and describe what role it plays in the audit. (c) Describe the factors auditors consider in setting audit risk
According to your textbook, auditors have to make judgments concerning materiality on every audit. Since the auditing standards give no formal guidance for how to determine materiality, auditors must rely on their own experience. Determine at least three (3) qualitative factors that affect the auditor's judgment. Provide a rationale for your response. According to the textbook, auditors rely on the audit risk formula to determine the types and amount of audit evidence to collect in order to keep the overall...
AU Section 316 requires auditors to consider fraud in the financial statement audit. Research this section of the AICPAs standards and discuss some of the activities you would implement in your audit of a publicly traded company to document your audit teams consideration of fraud in the clients financial statements. In your discussion, include who would be involved in the brainstorming session and why.
Audit Describe the purpose and Value of a Financial Statement Audit Recognize an integrated audit report and a Financial Statement Audit report List the 4 types of opinions Identify the governing and standard setting entities for financial accounting and audit oversight. Identify the link between accountants and auditors Identify other types of audits Forensic Internal Governmental Identify other services performed by accountants and auditors