AS No. 14: Audit Evidence. The objective of the auditor is to plan and perform the audit to obtain appropriate audit evidence that is sufficient to support the opinion expressed in the auditor's report.
Implications for the External Auditor.
Many requirements and guidance points are imbedded in these eight risk assessment standards. It is essential for auditors to comply with these standards to ensure a robust audit in accordance with the standards, thus enabling the audit firm to minimize potential deficiencies identified per PCAOB inspections as well as risks associated with potential adverse legal actions. While it is beyond the scope of this article to cover the risk assessment standards in detail, here are some practical implications for the auditor: Financial Statement Disclosures (i.e. footnotes). The risk assessment standards draw attention to the requirements for evaluating (i.e., testing) disclosures. They explicitly require disclosures to be considered for the risk of material misstatement during the planning stages. This makes sense since the footnotes are an integral part of the financial statements and can trigger a restatement due to a material error or omission. However sometimes the footnotes are second fiddle to the statements, both in terms of management and audit focus.
As disclosure requirements expand through Accounting Standard Updates (ASUs), footnotes will likely continue to draw more attention. Consideration of Fraud. There is more focus on auditor's responsibilities for considering the possibility of fraud. This includes an increased emphasis on consideration of potential management bias and risks related to missing or incomplete disclosures. Also, there is more emphasis on detecting fraud using fraud-driven procedures as an integral part of the entire audit process rather than as a discrete segment of the audit process.
Supervision and Review. Just as the auditor expects adequate monitoring and supervision by their clients regarding financial statement preparation, the PCAOB expects plenty of supervisory and review activities by audit firms in support of their audit opinion. These activities must be documented in the working papers and contain adequate consideration and audit responses on a wide variety of risks. There must also be supervisory evidence over the work of specialists, other auditors, internal auditors, and others relied upon to help support the auditor’s opinion.
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Implications for the Auditee
Organizations subject to an external audit do not need to become experts on external audit standards; however it does help to become familiar with the general process and key standards. This is especially true for AS No. 12 as this is a standard requiring the auditor to gain a solid grasp of the company’s operating and control environments. This includes inquiries of the audit committee, or equivalent (or its chair), management, the internal audit function, and others within the company who might reasonably be expected to have information that is important to the identification and assessment of risks of material misstatement. For example, AS No. 12 explicitly mentions the following inquiries that the auditor should ask of the audit committee, or equivalent, or its chair regarding fraud risks:
“1. The audit committee's views about fraud risks in the company.
2.Whether the audit committee has knowledge of fraud, alleged fraud, or suspected fraud affecting the company.
3.Whether the audit committee is aware of tips or complaints regarding the company's financial reporting (including those received through the audit committee's internal whistleblower program, if such program exists) and, if so, the audit committee's responses to such tips and complaints.
4.How the audit committee exercises oversight of the company's assessment of fraud risks and the establishment of controls to address fraud risks.”
Remember that it is the company that owns their financial statements, disclosures, and underlying controls. The auditor owns their audit opinion. As a result, it is the company’s responsibility to have a solid grasp of the risks of fraud and error relating to financial statements. Auditees should never rely on the external auditor to catch fraudulent acts and errors as this is a fundamental responsibility of the company. Indeed, if the auditor concludes that the company does not have their act together on this front, the auditor must consider reporting a material weakness, significant deficiency, qualified opinion, or even a disclaimed report.
AS No. 12 goes on to identify factors relevant in identifying fraud risks. While these are written from the perspective of the auditor, they are all areas owned by the company. As a result, the following (as well as additional significant risks identified by the organization) should be on the agendas of management, disclosure committees, and audit committees:
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Consideration of the Risk of Omitted, Incomplete, or Inaccurate Disclosures. The auditor's evaluation of fraud risk factors should include evaluation of how fraud could be perpetrated or concealed by presenting incomplete or inaccurate disclosures or by omitting disclosures that are necessary for the financial statements to be presented fairly in conformity with the applicable financial reporting framework.
Presumption of Fraud Risk Involving Improper Revenue Recognition. The auditor should presume that there is a fraud risk involving improper revenue recognition and evaluate which types of revenue, revenue transactions, or assertions may give rise to such risks.
Consideration of the Risk of Management Override of Controls. The auditor's identification of fraud risks should include the risk of management override of controls. The bottom line is that companies are well advised to give AS No. 12 a thorough reading so they can better prepare and understand their auditor’s focus points.
Conclusion.
While risk considerations have always been an important part of the audit process, this topic is becoming more explicit through the standards. The PCAOB and state peer review programs are taking notice through a closer attention on how the audit team addresses risks. The risk assessment standards do not identify all possible risk considerations but rather provide for an overarching spirit requiring the auditor to always be on the lookout for fraud and material errors. Management, audit committees, and their auditors must constantly be aware of financial statement risks and how to adequately respond.
Fill the gaps using the words:
Responses, risk assessment, modified, auditors, engagement
1.Although the following perspective is primarily for auditors of public companies, all … and organizations subject to an external audit benefit from better understanding risk standards.
2.Accordingly, the engagement partner is responsible for proper supervision of the work of … team members and for compliance with PCAOB standards, which extends to the work of specialists, other auditors, internal auditors, and others who are involved in testing controls.
3.For auditors of public companies a bit of apprehension is in the air regarding the new … standards effective for the first time in 2011.
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4.When evaluating the results of the audit, the auditor should evaluate whether the accumulated results of auditing procedures and other observations affect the assessment of the fraud risks made throughout the audit and whether the audit procedures need to be ... to respond to those risks.
5.These activities must be documented in the working papers and contain adequate consideration and audit … on a wide variety of risks.
Write down all words connected with economy
Make up your plan to this article
Reproduce the text using your list of the words and your plan
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The Economist, 2000-2013
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5.Matthew Valencia . Storm survivors. Offshore financial centers have taken a battering recently, but they have shown remarkable resilience// The Economist.2013.February, 14. URL: http://www.economist.com/search/apachesolr_search/Stormsurvivors. Offshore-financial-center-shave-taken-batter-in-recently-but-they-have- shown-remarkable-resiling
6.Matt Petronzio. Mobile payments. Digital payments pose a serious threat to banks// The Economist.2012. May, 19. URL: http://www.economist.com/node/21554744
7.Luigi Zingales . Big data. Banks know a lot about their customers. That information may be valuable in more ways than one. // The Economist.2012. May,19.URL: http://www.world-economic.com/articlesw
8.Oxana Chaika. The Economic Consequences of European Separatism//World Economic Journal.2013.March.URL:http://www.worldeconomic.com/articles_wej226.html
9.Rodney Gascoyne . Continuing Accounting, Auditing and Corporate Ethical Problems //The Open Writing Web magazine. 2012. December. URL: http://www.members.shaw.ca/GascoyneR/articles.htm 10. BBC, US economy ekes out growth in fourth quarter//News business.
2013.March, 28. URL: http://www.bbc.co.uk/news/business-21969730
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