Question

A) Discuss the concept of "reasonable assurance" and the degree of confidence that financial statement users should have in the financial statements.

B) What are the responsibilities of the independent auditor in the audit of financial statements? Discuss thoroughly, but in this part, do not include fraud in the discussion.

C) What are the independent auditor's responsibilities for the detection of fraud involving misappropriation of assets and fraudulent financial reporting? Discuss fully, including your assessment of whether the auditor's responsibility for the detection of fraud is appropriate

Answer 1

A. Reasonable assurance – isan assurance given by auditors that the financial statements are free from material misstatements.The degree of confidence that financial statement users should have in the financial statements isvery low because auditors may sometimes fail to detect material misstatement

B. 1. The auditors are responsible for the detecting material misstatements. 2. The auditors express opiniono on the financial statements and can make suggestions about the form and content of the statement. 3. The auditors are also responsible to conduct an audit of the financial statements in accordance with auditing standards and report the findings of the audit in the auditor’s report. 4. Auditors are also responsible for reasonable assurance.

C. If the auditor finds misstatements on the financial statements, they have to determine ifthey are due to either an error or a fraud. It is known that it is more difficult to detectfraud than errors because the accused ties the best to conceal the fraud. It doesn’t matterif it’s to detect fraud, the auditor still has to plan and perform the audit, which is theirresponsibility. Auditors have a great responsibility to evaluate factors that indicate orsuspect that fraud may be happening. Another responsibility that auditors have is toexpose situations during the audit that may cause suspicions of fraudulent financialreporting. By assessing control risk and understanding the entity’s internal control theyare assessing on material misappropriation. The principal means of detectingmisappropriation of assets and thwarting is appropriate internal control.