Auditing Chapter #2

The regulatory environment for auditors and audit firms has become
much more complex with the passage of the Sarbanes-Oxley Act. The
Sarbanes-Oxley Act created the Public Company Accounting Oversight
Board (PCAOB) and charge that body with the responsability for
developing and enforcing profesional standards for integreated audits of
public companies.
Currently, the AICPA standards do not differ substantially from the
standards for audits of public companies because the PCAOB adopted
the AICPA stantards in existence at April 16,2003, as its interim
standards.
The general standards are personal in nature that they deal with auditor
training and proficiency, auditor independece, and the need for due
profesional care. These standards apply to all parts of the audit,
including fieldwork and reporting.
The three standards of fieldwork related to planning the audit, obtaining
an understanding of the client and its environment, and obtaining
suficiente appropriate audit evidence. Audit planning involves
developing an overall strategy relating to collecting and evaluating the
evidence to obtained.
Adequate planning is essential to a satisfactory audit. The auditors must
obtain an understanding with the client as to the nature and scope of the
audit. Most of the fieldwork of an audit is carried out by staff members
with limited profesional experience.
The auditors have a responsability to plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. Reasonable assurance is achieved when
audit risk, the risk that the auditor may unknowingly fail to appropriately
modify the opinin on financial statements that are materially misstated,
is at an appropriately low level. Financial statements may be misstated
due to various causes, incluiding errors, fraud, and certain ilegal acts.
Auditing standards define errors as unintentional misstatements or
omissions of amounts or disclosures in the financial statements.
Auditor cannot issue an unqualified opinin on financial statements that
contain material deficiences. The term material may be defined as
sufficiently important to influence decisions made by reasonable users
of financial statements.

If financial statements are to present fairly, in all material respects, the

financial position and operating results of a company, there must be
adequate disclosure of all essential information. A financial statement
may be misleading if it does not give a complete picture.
The form of auditors report discussed in this chapter is called a standard
unqualified report. It includes an unqualified opinin indicating that the
audit was adequate in scope and that the financial statements present
fairly the financial position, results of operations, and cash flow in
comformity with generally accepted accounting principles. Under these
circumstances, the auditors are taking no exceptions and inserting no
qualifications in the report.
The international audit report has an expanded description of
managements responsibility for the financial statements and internal
control. It also containts an enhanced explanation of the audit process,
which includes a description of the auditors responsability for internal
control. The auditors also have certain reporting options. In some
countries auditors have other reporting responsabilities, such as a
responsability to report certain matters that come to the auditors
attention.