What Is Auditing? (intro chapter) Flashcards
why do audits exist?
most companies benefit
how do companies benefit from audits?
attracts investors, receives lower interest rates from creditors
fraud negatively impacts who?
investors, employees, public trust, and creditors (aka banks)
how are those negatively impacted by fraud protected?
by federal securities laws
what item do we audit?
10 k item 8
what do we assume about financial statements?
they are “CORRECT”
what are the PCAOB financial statement assertions acronym?
PERCV
P in PERCV
presentation and discloser
E in PERCV
existence and occurrence
R in PERCV
rights and obligations
C in PERCV
completeness
V in PERCV
valuation and allocation
existence and occurrence B/S questions
existence? are they real? do the assets and liabilities exist?
existence and occurrence I/S questions
occurrence? are they real? did the revenues and expenses occur?
completeness for B/S and I/S
all transactions and accounts are included. is everything included? is something improperly excluded?
valuation and accuracy for B/S and I/S
all components have been included at the appropriate amounts. are amounts accurately valued? are amounts allocated properly? (ex non-current vs current)
rights and obligation for B/S
rights = assets
obligations = liabilities
for rights and obligations, rights = __?
assets
for rights and obligations, obligation = __?
liabilities
presentation and discloser for B/S and I/S
all components are properly disclosed the financial statements and/or the notes
who is management at a public company?
CEO and CFO
what is an independent audits goal?
to provide “reasonable assurance” that the F/S are free from material misstates
audits lend ___ to financial statements by…
credibility, lowering information risk
what is information risk?
risk that information is materially misstated (due to fraud or error)
