Modern Auditing:
Assurance Services and the Integrity
of Financial Reporting, 8th Edition
William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University
Chapter 2 – Auditors’ Responsibilities and Reports
Chapter 2 Overview
Relationship Between
Accounting and Auditing
Important Fundamental
Concepts
• Verifiability
• Fair Presentation
• Professional Judgment
• Materiality
Independent Auditor
Relationships
• Management
• Board of Directors and Audit Committee
• Internal Auditors
• Stockholders
Study Break
1. It is the responsibility of management to
complete all of the following except:
A. Assess the risk of material misstatement
in the financial statements
B. Measure and record transaction data
C. Classify and summarize recorded data
D. Prepare financial statements per GAAP
A. Assess the risk of material misstatement
in the financial statements
Study Break
2. Items that are considered to be _____,
are significant to financial statement
users.
A. Verifiable
B. Material
C. Fairly Presented
D. Recorded
B. Material
Generally Accepted Auditing
Standards (GAAS)
• General Standards
• Standards of Field Work
• Standards of Reporting
GAAS – General Standards
• Adequate Technical Training and
Proficiency
• Independence in Mental Attitude
• Due Professional Care
GAAS – Standards of Field Work
• Adequate Planning and Proper
Supervision
• Understanding the Entity,
Environment, and Internal Control
• Sufficient Competent Audit Evidence
GAAS – Standards of Reporting
• Financial Statements Presented in
Accordance with GAAP
• Consistency in the Application of GAAP
• Adequacy of Informative Disclosures
• Expression of Opinion
Additional Standards
• Statements on Auditing Standards
– AICPA website : Audit and Attest
Standards
• PCAOB Auditing Standards
– Public Companies Accounting
Oversight Board website
Study Break
3. General Standards include all of
the following except:
A. Adequate Training
B. Independence
C. Understanding the Entity
D. Due Professional Care
C. Understanding the Entity
Study Break
4. These standards pertain specifically to
the conduct of the audit at the entity’s
place of business.
A. General Standards
B. Standards of Field Work
C. Standards of Reporting
D. Statement on Auditing Standards
B. Standards of Field Work
Assurance Provided by an Audit
The Auditor’s Standard Report –
Unqualified Opinion
• Title and Address
• Introductory Paragraph
• Scope Paragraph
• Opinion Paragraph
• Firm’s Signature and Date
Departures from the Standard
Report
• Standard Report with Explanatory
Language
• Qualified Opinion
• Adverse Opinion
• Disclaimer of Opinion
Types of Auditor’s Reports and
Circumstances
Typical Report Profiles
The Auditor’s Standard Report
on Internal Controls
• Title and Address
• Introductory Paragraph
• Scope Paragraph
• Definition Paragraph
The Auditor’s Standard Report
on Internal Controls (cont.)
• Inherent Limitations Paragraph
• Opinion Paragraph
• Explanatory Paragraph
• Firm’s Signature and Date
Defining Criteria for Departures
from the Standard Report
Departures from the Standard
Report on Internal Controls
Study Break
5. All of the following are components of
assurance provided by an audit except:
A. Auditor independence
B. Reasonable assurance
C. Detecting and reporting illegal acts
D. Guaranteed accuracy of financial
statements
D. Guaranteed accuracy of financial
statements
Study Break
6. The standard report includes all of
the following except:
A. Introductory Paragraph
B. Scope Paragraph
C. Explanatory Language Paragraph
D. Opinion Paragraph
C. Explanatory Language Paragraph
Study Break
7. This opinion states that the auditor
does not express and opinion on the
financial statements.
A. Unqualified Opinion
B. Qualified Opinion
C. Adverse Opinion
D. Disclaimer of Opinion
D. Disclaimer of Opinion