BUS 424 Chapter 5

Error

Due to unintentional misstatements or omissions of amounts or disclosures in the financial statements. Auditors are responsible for detecting material errors

Fraud

Relates to intentional acts that cause a misstatement in the financial statement. Intent to deceive another party

Illegal Acts

Violations of laws or governmental regulations

Auditors have responsibility to detect and report misstatements resulting from illegal acts that have a ______ and ________ effect on the determination of financial statement amounts

Direct; material

What is the auditor's obligation when they conclude an illegal act has or is likely to have occurred?

Assess the impact of the actions on the financial statements including materiality considerations

Illegal acts should be reported to

to those charged with governance such as the audit committee

The auditor should withdraw from engagement if

Client doesn't take remedial action

Fraud Triangle

Incentives/Pressures to commit fraud, Opportunity, rationalization

Misappropriation of Assets

Theft of assets for personal use

Fraud that causes a material misstatement of the financial statements should be of the financial statements should be reported______________

directly to those charged with governance

Introductory Paragraph

Identifies the entity, financial statements being examined, the period covered by the financial statements, and that the statements have been audited

Management's Responsibility

Includes a description of management's responsibility for the preparation and fair presentation of the financial statements in accordance with GAAP including the responsibility for the design, implementation, and maintenance of internal controls necessary

Auditor's Responsibility

Auditor's responsibility to express an opinion based on the financial statement and audit. Includes references to GAAS

Unmodified Opinion

The financial statements present fairly, in all material respects, the financial position of the entity for the years examined in accordance with GAPP