Question

1. What are the auditor's responsibilities regarding fraud? Regarding error?

2. What are accounting estimates? How are accounting estimates audited?

3. What is audit documentation? What are the purposes of audit documentation?

4. Give examples of factors that affect the form and content of audit documentation.

Answer 1

1) Management has the Primary responsibility for the prevention and detection of fraud and not the auditor. Management should take all necessary steps for fraud prevention and deterrence through implementing policies and controls.

Auditors Responsibilities :

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

2) Accounting estimate is an approximation (estimation ) of the amount to be debited or credited on items for which no precise means of measurement are available. They are based on specialized knowledge and judgment derived from experience and training

The auditor is responsible for evaluating the reasonableness of accounting estimates made by management in the context of the financial statements taken as a whole. As estimates are based on subjective as well as objective factors, it may be difficult for management to establish controls over them.

3) Audit documentation refers to the records or documentation of procedures that auditors performed, the audit evidence that they obtained and the conclusion that makes by them based on the evidence obtained. Audit documentation is sometimes called audit working paper or working paper.

Purposes of audit documentation

• It provides evidence of the auditor's basis for a conclusion about the achievement of the overall objective.
• It assists audit team members to plan and perform their audit work in the engagement.
• It provides evidence showing that audit work was properly planned and performed in accordance with ISAs and other legal and regulatory requirements.

4) The form and contect of audit documentation depend on factors such as:

• The size and complexity of the entity.
• The identified risks of material misstatement
• The nature of the audit procedures to be performed
• The audit methodology and tools