Wiley CPAexcel Exam Review 2014 Focus Notes: Auditing and Attestation

Focus on: Engagement Planning, Obtaining an Understanding, and Assessing Risks—Module 2

Financial Statement Assertions

• Management’s responsibility
• Assertions themselves

Transaction Classes	Account Balances	Disclosures
Occurrence	Existence	Occurrence
Rights and obligations	Rights and obligations
Completeness	Completeness	Completeness
Accuracy	Valuation and allocation	Valuation and accuracy
Cutoff
Classification	Classification and understandability

Audit Risk (AR)

AR is risk that material errors or fraud exists resulting in an inappropriate audit report

• Auditor uses judgment in establishing acceptable level of AR
• Lower acceptable level of AR achieved through obtaining more audit evidence

AR consists of inherent risk (IR), control risk (CR), and detection risk (DR)

IR acknowledges that certain items are more susceptible to risk

• May be due to complexity of transactions or calculations, ease of theft, or lack of available objective information
• IR is beyond control of auditor and generally beyond control of entity

CR acknowledges that misstatements may not be prevented or detected by entity’s internal control

• Entity’s internal control may be poorly designed or poorly executed
• CR is beyond control of auditor but within control of entity

The combination of IR and CR is referred to as the “risk of material misstatement”

DR acknowledges that auditor may not detect material misstatement

• Auditor may not properly plan audit procedures
• DR is within control of ...