Audit Responsibilities

and Objectives
Chapter 6

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Learning Objective 1
Explain the objective of
conducting an audit of
financial statements.

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Objective of Conducting an Audit

of Financial Statements

The primary objective of the audit

is to express an opinion on the
financial statements.

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Steps to Develop
Audit Objectives
1

Understand objectives and

responsibilities for the audit.

Divide financial statements

into cycles.

Know management
assertions about accounts.

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Steps to Develop
Audit Objectives
4

Know general audit objectives for

classes of transactions and accounts.

Know specific audit objectives for

classes of transactions and accounts.

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Learning Objective 2
Distinguish managements
responsibilities for preparing
financial statements from the
auditors responsibilities for
verifying those financial statements.
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Responsibilities
Management is responsible
for the financial statements,
and for internal control.
Auditors issue an
opinion on fairness
of the financial statements.

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Learning Objective 3
Explain the auditors
responsibility for discovering
material misstatements.

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Auditors Responsibilities
Material versus immaterial misstatements
Reasonable assurance
Errors versus fraud
Professional skepticism

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Responsibilities for Discovering

Illegal Acts
Direct-effect illegal acts
Indirect-effect illegal acts
Evidence accumulation
when there is no reason
to believe indirect-effect
illegal act exists

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Responsibilities for Discovering

Illegal Acts
Evidence accumulation and
other actions when there is
reason to believe direct- or
indirect-effect illegal acts
may exist
Actions when the auditor
knows of an illegal act
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Learning Objective 4
Classify transactions and account
balances into financial statement
cycles and identify benefits of a cycle
approach to segmenting the audit.
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Transaction Flow Example

Transactions

Journals

Sales

Sales
journal

Cash
receipts

Cash receipts
journal

Acquisition
of goods
and services

Acquisitions
journal

Ledger, Trial Balance, and

Financial Statements
General ledger
and subsidiary
records
General ledger
trial balance
Financial
statements

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Transaction Flow Example

Transactions

Journals

Cash
disbursements

Cash disbursements journal

Payroll
services and
disbursements

Payroll
journal

Allocation and
adjustments

General
journal

Ledger, Trial Balance, and

Financial Statements
General ledger
and subsidiary
records
General ledger
trial balance
Financial
statements

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Relationships Among Transaction

Cycles
General
cash
Capital acquisition
and repayment cycle
Sales and
collection
cycle

Acquisition
and payment
cycle

Payroll and
personnel
cycle

Inventory and
warehousing
cycle
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Learning Objective 5
Describe why the auditor obtains
a combination of assurance by
auditing classes of transactions
and ending balances in accounts.
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Balance and Transactions

Affecting Balances Example
Accounts Receivable (in thousands)
Beginning balance $ 19,454
Sales

Ending balance

144,328

$ 20,197

139,020

Cash
receipts

1,242

Sales returns
and allowances

3,328

Charge-off of
uncollectible
debts

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Learning Objective 6
Distinguish among
the five categories of
management assertions
about financial information.
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Management Assertions
1. Existence or occurrence
2. Completeness
3. Valuation or allocation
4. Rights and obligations
5. Presentation and disclosure

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Learning Objective 7
List the six general transactionrelated audit objectives to the
five management assertions.

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Transaction-Related
Audit Objectives
Existence

Recorded
transactions exist.

Completeness

Existing transactions
are recorded.

Accuracy

Recorded transactions
are stated at the
correct amount.

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Transaction-Related
Audit Objectives
Classification

Transactions are
properly classified.

Timing

Transactions are recorded

on the correct dates.

Posting and
summarization

Transactions are included

in the master files and
are correctly summarized.

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Transaction-Related Audit Objectives

and Management Assertions
Management
Assertions
Existence or occurrence
Completeness
Valuation or allocation
Rights and obligations
Presentation and disclosure

General TransactionRelated Audit Objectives

Existence
Completeness
Accuracy, Classification timing,
Posting and summarization
N/A
N/A

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Learning Objective 8
Link the nine general balancerelated audit objectives to the
five management assertions.

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General Balance-Related
Audit Objectives
Existence

Amounts
included exist.

Completeness

Existing amounts
are included.

Accuracy

Amounts included
are stated at the
correct amounts.

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General Balance-Related
Audit Objectives
Classification

Amounts are
properly classified.

Cutoff

Transactions are recorded

in the proper period.

Detail tie-in

Account balances agree

with master file amounts,
and with the general ledger.

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General Balance-Related
Audit Objectives
Realizable
value

Assets are included at

estimated realizable value.

Rights and
obligations

Assets must be owned.

Presentation
and
disclosure

Account balances and

disclosures are presented
in financial statements.

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Assertions and Balance-Related

Audit Objectives
Management
Assertions
Existence or occurrence
Completeness
Valuation or allocation
Rights and obligations
Presentation and disclosure

General BalanceRelated Audit Objectives

Existence
Completeness
Accuracy, Classification, Cutoff,
Detail tie-in, Realizable value
Rights and obligations
Presentation and disclosure

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Learning Objective 9
Explain the relationship
between audit objectives
and the accumulation
of audit evidence.
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How Audit Objectives

Are Met
Auditors plan the combination
of objectives and evidence by
following an audit process.
An audit process is a methodology
for organizing an audit.

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Four Phases of an Audit

Phase I

Plan and design

an audit approach.

Phase II

Perform tests of
controls and
substantive tests
of transactions.

Phase III

Perform analytical
procedures and
tests of details
of balances.

Phase IV

Complete the
audit and issue
an audit report.

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End of Chapter 6

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&

Assurance
Service
Nine Edition

An Integrated Approach
Printed by

Gusnardi
132 230 690

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