Question

In: Accounting

1. Discuss an auditor’s professional responsibilities 2. Provide explanation of: test of controls substantive test audit...

1. Discuss an auditor’s professional responsibilities

2. Provide explanation of:

test of controls
substantive test
audit risk model
subsequent events
independence
professional skepticism

Solutions

Expert Solution

1) Auditor's professional responsibilities :

The responsibilities of the auditor in relation to the audit of financial statements clearly stating therein that :

a) His responsibility is to form and express an opinion on the financial statements prepared by management.

b) Audit does not relieve management or those charged with governance of their responsibilities;

c) He is not required to design procedures for identifying supplementary matters to be communicated with those charged with governance;

d) Whether an act constitutes non-compliance with laws and regulations is a matter of legal determination, which is ordinarily beyond the auditor's professional competence.

e) Auditor shall determine whether the financial reporting framework to be used by the management for the purpose of preparation of financial statements is acceptable or not.

2) Answer

Test of Controls : Test of controls are designed to evaluate the operating effectiveness of internal controls in preventing or detecting material misstatements resulting from frauds & errors.

Substantive Test : Substantive procedures are the tests designed to obtain evidence as to the accuracy,validity and completeness of the data produced by the accounting system. The following are the substantive procedures that can be followed by the auditor to obtain sufficient appropriate audit evidence.

Tests of details of transaction & Balances - Vouching & Verification

Selecting all items (100% examination)

Selecting Specific Items

Audit Sampling

Audit Risk Model : An auditor has to depend on the books of accounts and other records presented before him.If those are prepared with malafide intentions and manipulations are committed, the auditor may not fully unearth them.

Subsequent Events: Subsequent events can be defined as those "Events occurring between the date of the financial statements and the date of the auditor's report, and facts that become known to the auditor after the date of auditor's report".

Independence : Independence implies that while taking decision or judgement about financial statements, he should not be subordinate to the wishes or direction of any person or to his self-interest.

Professional Skepticism : Professional skepticism can be defined as an attitude of questioning mind.The auditor shall always conduct the audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be misstated.


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