Objectives of Independent Audit and Basic Elements of Auditor’s Report

Relationship of Public Accounting Firm vs. Internal Auditing Staff

Q1 A.Spacecraft, Inc., is a large corporation that is audited regularly by a public accounting firm but also maintains an internal auditing staff. Explain briefly how the relationship of the public accounting firm to Spacecraft differs from the relationship of the internal auditing staff to Spacecraft.

B.Feller the sole owner of a small hardware business, has been told that the business should have its financial statements audited by an independent CPA. Feller, having some bookkeeping experience, has personally prepared the company’s financial statements and does not understand why such statements should be audited by a CPA. Feller discussed the matter with Farber, a CPA, and asked Farber to explain why an audit is considered important.

Describe the objectives of an independent audit refer to above case.

Q2: A.Pike Company has had an annual audit performed by the same firm of certified public accountants for many years. The financial statements and copies of the audit report are distributed to stockholders each year shortly after completion of the audit. Who is primarily responsible for the fairness of these financial statements? Explain.

B.The firm of Johns, Apple & co, CPAs, is the auditor of Alpha Corporation, a nonpublic company. The president of Alpha, Karen Lester, has been putting pressure on Sara, the audit partner, to accept a questionable accounting principle. She has even threatened to take steps to replace the CPA firm if he does not acquiesce. Does this situation impair the CPA firm’s independence? Explain your answer.

C.West & Co., CPA, completed an audit of Star Manufacturing Company and issued a standard audit report. What does this tell us about the extent of the auditing procedures included in the audit?

Q3: A.Audit working papers are the property of the auditors, who may distort the papers, sell them, or give them to third part. Is this statement true or false? Justify with your explanation.

B.List several rules to be observed in the preparation of working papers that reflect current professional practice.

C.Analytical procedures are extremely useful through the audit process. Explain how analytical procedures are useful in the risk assessment stage of audit ad the substantive procedure stage of audit.

Q4: “Our responsibility is to express an opinion on these ?nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the ?nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ?nancial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the ?nancial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the ?nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the ?nancial statements. We believe that the audit evidence we have obtained is suf?cient and appropriate to provide a basis for our opinion.

‘Opinion’, In our opinion the ?nancial statements present fairly, in all material respects, the ?nancial position of the Company as at 31 December 2020 and its ?nancial performance and its cash ?ows for the year then ended in accordance with International Financial Reporting Standards”.

a.What are the basic elements of auditor’s report? Explain briefly.

b.What do you understand from the above one section of auditor’s report?

c.What conclusion or result you can extract from the above paragraph about the company financial statement representations?