Question

You are a newly hired associate auditor for Praxo & Hanks, CPAs, a professional services firm that provides financial audits, integrated audits, and tax work for a variety of private and public company clients in the mid-Atlantic region of the U.S. Your first week with the firm was spent in a training program for audit staff, which was led by two of the firm’s audit managers. The first day of the training program focused on understanding the responsibilities of auditors and the nature and objectives of the services provided to audit clients. Answer the following based on what you should have learned in the first day of training.

Required:

(a) Distinguish between the assertions made by management in presenting financial statements and reporting on ICFR, and the statements made within an auditor’s report.

(b) How do management’s assertions relate to audit evidence?

Answer 1

a)Management makes assertions about economic events and actions that affect the company , claiming that all theses events are recorded chronologically and properly documented and presesnted in the financial statements.Management also makes assertions about the effectiveness of internal controls underlying in the company's financial reporting processes.On the other hand , the auditor's report is an independent assessment of management's assertions. Auditors must be able to evaluate management's assertion in order to verify the claims made by the management. If auditor is satisified with management's reasoning and documents supporting the financial assertions a clean report is issued

b)The audit process focuses on objectively obtaining and evaluating evidence about management assertions.Auditors determine what information is necessary to properly account for an economic event or action , then they investigate the matter by evaluating relevant evidence to determine whether managements are being met.Auditors must collect evidence from internal sources like company's documents an records and take third party verifications whereerver felt necessary.The evidence collected must specifically relate to management;s assertions about elements of financial information/statements and internal control