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1、6-1 Chapter 6 Audit Responsibilities and Objectives Chapter 6 is important because students have difficulty visualizing the relationship between giving an opinion on financial statements and determining specific audit objectives for each component of the statements.We believe this chapter is an esse
2、ntial one to help students understand the audit process.In teaching this chapter,we cover the following topics:Chapter Opening Vignette “Riding the Tiger:Indian Computer Company Engages in Billion Dollar Fraud”The recent fraud at Satyam is one of the most significant frauds involving non-U.S.compani
3、es.It is an excellent case for consideration of audit evidence and fraud.It highlights incentives for companies to manipulate revenue,the risks when auditors do not properly obtain and evaluate evidence,even when that evidence is considered to be reliable,as is usually the case with confirmations.Ob
4、jective of Conducting an Audit of Financial Statements(page 142)We bring different annual reports or Form 10-Ks to class for each student and ask the students to state the objective of an audit as it relates to the annual report.Given the study of audit reports,this takes little time.Managements Res
5、ponsibilities(page 143)We dont spend a lot of time on this section,except to briefly discuss the fact that management,and not the auditor,is responsible for adopting sound accounting policies,maintaining adequate internal control,and making fair representations in the financial statements.It may be
6、useful to highlight the discussion by the management of International Business Machines Corporation(IBM)in their“Report of Management”in Figure 6-2 on page 143.(See Figure 6-2;shown on Slide 6-11)Auditors Responsibilities(page 144)We begin discussion of auditors responsibilities by referring to the
7、excerpt from auditing standards on page 144.While the standards do not state that the auditor is responsible for finding all instances of material errors and fraud,it requires the auditor to plan and perform the audit to obtain reasonable assurance that material errors and fraud will be found.Proble
8、m 6-23 is useful for comparing the auditors responsibilities with managements responsibilities,and Problem 6-24 can be used to discuss the concept of“reasonable assurance.”6-2 Next,it is helpful to distinguish between errors and fraud.Review Question 6-3 can be used here.Overhead OH-6-1 is also help
9、ful.(See OH-6-1)After introducing fraud,the two types of fraud can be discussed:fraudulent financial reporting and misappropriation of assets.Review Question 6-4 can be used to emphasize the likely significance of each type of fraud.Finally,we briefly discuss the auditors responsibility for discover
10、ing noncompliance with laws and regulations.We distinguish between noncompliance with a direct effect on the financial statements and acts of noncompliance with indirect effects,and discuss the auditors responsibility for discovering and reporting noncompliance.Financial Statement Cycles(page 149)We
11、 use the financial statements in the annual reports or Form 10-Ks students have in their possession for the session to discuss dividing the statements into manageable segments.Looking at the financials,it becomes obvious that it is difficult to audit without more detailed information.The relationshi
12、p between financial statements and the general ledger and the importance of the general ledger can be shown with OH-6-2.(See OH-6-2)Next,we spend some time defining the cycles and explaining their role in the audit process.We use OH-6-3,Figure 6-3(page 149),and Figure 6-5(page 153)to discuss cycles.
13、(See OH-6-3)(See Figures 6-3 and 6-5;shown on Slides 6-20 and 6-21)We use Problem 6-26 to practice relating accounts to cycles.Setting Audit Objectives(page 153)We put considerable emphasis on transaction-related audit objectives and balance-related audit objectives,both in this chapter and subseque
14、nt chapters.A good way to introduce setting audit objectives is to review Figure 6-1(page 142).(See Figure 6-1)Management Assertions(page 154)We use Table 6-2(page 155)to present the three categories of management assertions.Problem 6-27 is useful for students to identify the management assertions i
15、n each category of assertions.(See Table 6-2)6-3 Transaction-Related Audit Objectives(page 157)It is useful to cover each general transaction-related audit objective in detail.We suggest using OH-6-4 during this discussion.Table 6-3(page 158)can be used to illustrate specific transaction-related aud
16、it objectives for each general transaction-related audit objective.(See OH-6-4)(See Table 6-3;shown on Slide 6-31)Problem 6-29 is useful to relate general transaction-related audit objectives to management assertions and specific transaction-related audit objectives.Balance-Related Audit Objectives(
17、page 159)We use OH-6-5 as a frame of reference to discuss the general balance-related audit objectives.Table 6-4(page 161)can be used to illustrate specific balance-related audit objectives for each general balance-related audit objective.(See OH-6-5)(See Table 6-4;shown on Slide 6-36)Problem 6-28 o
18、r Problem 6-30 can be used to address specific balance-related objectives.Presentation and Disclosure-Related Audit Objectives(page 162)Next,we discuss the presentation and disclosure-related audit objectives.Table 6-5(page 162)can be used to illustrate specific presentation and disclosure-related a
19、udit objectives for each general presentation and disclosure-related audit objective.(See Table 6-5)After discussing the three categories of audit objectives,Problem 6-31 is useful to relate specific audit objectives to general balance-related,transaction-related,and presentation and disclosure-rela
20、ted audit objectives.How Audit Objectives are Met(page 162)It is useful to finish the chapter by briefly discussing how audit objectives are met.Display Figure 6-7(page 163)and discuss it briefly.We refer back to Figure 6-7 in later chapters.(See Figure 6-7;shown on Slide 6-41)Problem 6-32 can be us
21、ed to related specific audit activities to phases of the audit process.CHAPTER 6 CROSS-REFERENCE OF LEARNING OBJECTIVES AND PROBLEM MATERIAL LEARNING OBJECTIVES REVIEW QUESTIONS MULTIPLE CHOICE QUESTIONS DISCUSSION QUESTIONS AND PROBLEMS CASES 6-1 Explain the objective of conducting an audit of fina
22、ncial statements and an audit of internal controls.6-1 6-20 6-24 6-2 Distinguish managements responsibility for the financial statements and internal control from the auditors responsibility for verifying the financial statements and effectiveness of internal control.6-2 6-23 6-3 Explain the auditor
23、s responsibility for discovering material misstatements due to fraud or error,and the need to maintain professional skepticism when conducting the audit.6-2,6-3,6-4,6-5,6-6,6-7 6-21 6-23,6-24,6-25 6-4 Classify transactions and account balances into financial statement cycles and identify benefits of
24、 a cycle approach to segmenting the audit.6-8,6-9,6-10 6-26 6-5 Describe why the auditor obtains a combination of assurance by auditing classes of transactions and ending balances in accounts,including presentation and disclosure.6-10,6-12 6-6 Distinguish among the three categories of management ass
25、ertions about financial information.6-11,6-12,6-16,6-17,6-18 6-22 6-27,6-28,6-29 6-7 Link the six general transaction-related audit objectives to management assertions for classes of transactions.6-13,6-15 6-29 6-8 Link the eight general balance-related audit objectives to management assertions for
26、account balances.6-14,6-15,6-16,6-17 6-28,6-30,6-31 6-9 Link the four presentation and disclosure-related audit objectives to management assertions for presentation and disclosure.6-15,6-18 6-10 Explain the relationship between audit objectives and the accumulation of audit evidence.6-19 6-32 6-4 OH
27、-6-1 THREE EQUALLY MATERIAL ERRORS OR FRAUDS 1.Unintentional use of inventory method not in accordance with GAAP.2.Employee does not record cash sales in cash register and keeps the cash.3.Management withholds information from auditor about a lawsuit for a patent infringement and does not include it
28、 as a footnote.Which are errors and which are frauds?Should auditors have equal responsibilities for discovering each one?OH-6-2 RELATIONSHIP OF FINANCIAL STATEMENTS TO ACCOUNT BALANCES Financial Statements General Ledger Trial Balance General Ledger OH-6-3 CYCLES USED IN TEXT Sales and collection A
29、cquisition and payment Payroll and personnel Inventory and warehousing Capital acquisition and repayment OH-6-4 GENERAL TRANSACTION-RELATED AUDIT OBJECTIVES Occurrence Completeness Accuracy Posting and Summarization Classification Timing OH-6-5 GENERAL BALANCE-RELATED AUDIT OBJECTIVES Existence Completeness Accuracy Classification Cutoff Detail Tie-in Realizable Value Rights and Obligations