Professional
Standards
2-2
Generally Accepted Auditing Standards-General Standards
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Adequate technical training and proficiency
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Independence in mental attitude is to be
maintained
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Due professional care is to be exercised
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2-3
Generally Accepted Auditing Standards-Standards of Field Work
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Work is to be adequately planned and
properly supervised
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Sufficient understanding of internal control is
to be obtained
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Sufficient competent evidential matter is to
be obtained to afford a reasonable basis for
the opinion
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2-4
Generally Accepted Auditing Standards-Standards of Reporting
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State whether the financial statements are presented
in accordance with GAAP
Identify circumstances in which such principles have
not been consistently applied
Informative disclosures are adequate unless
otherwise stated in the report
Report should clearly state the degree of
responsibility being assumed by the auditors by
expressing an opinion or stating that one cannot be
expressed, and the reason therefor
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2-5
Auditor Responsibility for the
Detection of Errors and Fraud
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Obtain information to assess the inherent risks and fraud risks
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Information about the company and its environment
Discussion among audit team members
Inquiries of management and others
Planning analytical procedures, including those involving revenue
Assess the risk of errors and fraud that may cause the financial
statements to contain a material misstatement.
Based on that assessment, plan and perform the audit to obtain
reasonable assurance that material misstatements, whether caused by
errors or fraud, will be detected (including those procedures required
by SAS No. 99.
Exercise due care in planning, performing and evaluating the results of
audit procedures, and the proper degree of professional skepticism to
achieve reasonable assurance that material misstatements due to error
or fraud will be detected.
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2-6
Auditor Responsibility for the
Detection of Illegal Acts
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Those that could have a direct and material effect on
financial statement amounts--same as for errors and
fraud. An audit obtains reasonable assurance of
detecting these types of illegal acts.
Those with an indirect effect on financial statement
amounts:
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McGraw-Hill/Irwin
Be aware of possible occurrence.
If information comes to the auditor’s attention, apply audit
procedures directed at determining whether an illegal act
has occurred. An audit does not provide assurance that
indirect-effect illegal acts will be detected.
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
2-7
The Standard Auditors’ Report
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Title
Addressee
Content
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Introductory Paragraph
Scope Paragraph
Opinion Paragraph
Signature
Date
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2-8
The Standard Auditors’ Report-Introductory Paragraph
We have audited the accompanying balance sheet of
XYZ Company as of December 31, 20XX, and the
related statements of income, retained earnings, and
cash flows for the year then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion
on these financial statements based on our audit.
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2-9
The Standard Auditors’ Report--Scope
Paragraph
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
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2-10
The Standard Auditors’ Report-Opinion Paragraph
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of XYZ
Company as of December 31, 20XX, and the results of its
operations and its cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States
of America.
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2-11
The GAAP Hierarchy
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Authoritative Body Pronouncements
Pronouncements of Bodies Composed of Expert
Accountants, That Are Exposed for Public
Comment
Pronouncements of Bodies of Expert Accountants
That Are Not Exposed for Public Comment
Widely Recognized Practices and
Pronouncements
Other Accounting Literature
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2-12
The Attestation Standards
Attestation Standards
Financial
Forecasts and
Projections
Pro Forma
Financial
Information
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Internal
Control
Compliance
With Laws,
Regulations,
and Contracts
Management’s
Discussion and
Analysis
Applying
Agreed-Upon
Procedures
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2-13
Elements of Quality Control
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Independence, Integrity, and Objectivity
Personnel Management
Acceptance and Continuance of Clients and
Engagements
Engagement Performance
Monitoring
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2-14
Regulation of the Public Accounting
Profession—Public Companies
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Public Company Accounting Oversight Board &
the SEC
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Registration of public accounting firms that audit
public companies
Establish or adopt auditing, quality control, ethics,
independence and other standards for auditors of
public companies
Conduct inspections of registered public accounting
firms
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2-15
Regulation of the Public Accounting
Profession—Nonpublic Companies
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American Institute of Certified Public
Accountants
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Peer review/inspection program
Ethics investigations
State Boards of Accountancy
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Registration of all CPAs and CPA firms
Ethics investigations
McGraw-Hill/Irwin
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2-16
International Audit Report
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Title
Addressee
Content
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Introductory Paragraph
Scope Paragraph--International Auditing Standards
Opinion Paragraph
Signature--Firm, Partner or Both
Date
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
2-17
International Audit ReportIntroductory Paragraph
We have audited the accompanying balance
sheet of ABC Company as of December 31,
20X1, and the related statements of income,
and cash flows for the year then ended. These
financial statements are the responsibility of
the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audit.
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
2-18
International Audit Report-Scope
Paragraph
We conducted our audit in accordance with
International Standards on Auditing. Those Standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the
overall financial statement presentation. We believe
that our audit provides a reasonable basis for our
opinion.
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
2-19
International Audit ReportOpinion Paragraph
In our opinion, the financial statements present
fairly, in all material respects, the financial
position of ABC Company as of December 31,
19X1, and the results of its operations and its
cash flows for the year then ended in
accordance with International Accounting
Standards.
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.