Question

Financial Auditing

1. Why is the report date so important? What reports are dated the same date as the report date?

2. What is the auditor's responsibility for fraud in the audit of a client's financial statements? What should the auditor do if the auditor's work uncovers embezzlement by a client's chief executive?

3. What steps under SAS 99 does an audit team have to perform to comply with the provisions of GAAS?

Answer 1

1)

The date of the audit report is important because

1) The date of the auditor’s report gives clarity to the user of the auditor’s report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date.

2) The auditor bills time to the client up to and including the audit report date and the statement to the client should reflect this date.

3) PSAs require all audits to be performed on a timely(regular) basis.

4) This date coincides with the date of the financial statements.

2)

Following are the Auditor’s responsibilities here:

1. Obtain reasonable assurance that the financial statements are free from material misstatements
2. Maintain professional skepticism throughout the audit
3. Should know that Risk of non-detection of management fraud is greater than of employee fraud
4. Must be aware of the Risk of non-detection of fraudulent material misstatement is higher than the misstatement due to error.

Specifically, the fraud clarification indicates that auditors have a responsibility to detect material financial statement fraud and that auditors must devote effort and time to risk assessment of material misstatements, including those associated with the fraud. If the embezzlement is in concern from the chief executive the auditor should consider the material impact as well as the susceptibility of which to cause other frauds related to it.

3)

Under SAS No. 99, you will gather and consider much more information to assess fraud risks than you have in the past. Under SAS No. 82 (the superseded standard), it was assumed that traditional audit planning and internal control procedures would be sufficient to identify all the information.

a) A required brainstorming session among the audit team members to discuss the potential for material misstatement due to fraud.

b) An increased emphasis on inquiry as an audit procedure that increases the likelihood of fraud detection.

c) Expanded use of analytical procedures to gather information used to identify risks of material misstatement due to fraud.

d) The consideration of other information, such as client acceptance and continuance procedures, during the information-gathering phase.