Question

(CO H) Define the key terms below that relate to auditing of government and not-for-profit organizations in your own words. Be sure that you relate the terms to each other in your paragraph. Attestation engagement

Generally Accepted Auditing Standards (GAAS)

Opinion audits

Materiality

Financial audit

Answer 1

Attestation engagement –

Certain organizations do not require an audit of financial statements. So, they get into Attestation engagement. It is an agreement and arrangement in which the reports of the subject matter are investigated by some third party and then reported. It is engaging a CPA to provide services related to subject matter like examination, etc. They engage Generally Accepted Auditing Standards (GAAS) like Attestation, Compliance, quality control, professionalism and various other standards. Materiality is their main consideration. It is reporting on the internal controls used, and the financial statement made by clients.

Generally Accepted Auditing Standards (GAAS) –

These are the standards that are applied to all the audits. The audits should meet these auditing standards to be of good quality. There are 10 standards - three general standards, three fieldwork standards, and four reporting standards. These standards identify the capability of the auditors and help in conduct of audits. These help to trace any misstatement in financial statements.

General Standards - auditor must be properly trained, auditor must have independence in mental attitude, auditor must exercise due professional care

Standards of Field Work – Auditor must do proper planning, auditor must understand the organization in a proper way to obtain sufficient evidence from statements.

Standards of Reporting – State whether the financial statements are in accordance with GAAP, Identify the circumstances where standards have not been followed, Auditor must mention in report if disclosures are not adequate, auditor must mention the degree of his responsibility is conducting an audit report.

Opinion audits –

It is an audit conducted by the auditor without any bias and to the best of his knowledge and profession. An auditor is an accountant who is independent and does not relate to the company in any way. After the financial statements have been reviewed by the auditor, he gives his opinion statement that whether the standards have been followed by the organization or not without hiding any material misstatement. It is a declaration by the auditor for the compliance being met and the evaluation of the financial statements.

Materiality –

Materiality is all the information in the financial statements that are important for the stakeholders. It is affected by the auditor’s perception about the information in the financial statements. Auditor must define materiality in the planning phase according to GAAS and then conduct the audit. If the material things are not properly stated, audit risk occurs.

Financial Audit –

Financial Audit is conducted to check that financial statements are according to the guidelines laid by the standards. It is conducted according to the standards laid in GAAS. IT is checking the financial statements by the auditors. An auditor performs the financial audit by checking the financial statements of the organization.