Auditing Essay

Submitted By aml4
Words: 1410
Pages: 6

Solutions to Problems

2-24

Brief Description of Generally Accepted Auditing Standards

Sally Jones' Actions Resulting in Failure to Comply with Generally Accepted Auditing Standards

General Standards:

1. The auditor must have adequate technical training and proficiency to perform the audit.

1. It was inappropriate for Jones to hire the two students to conduct the audit. The examination must be conducted by persons with proper education and experience in the field of auditing. Although a junior assistant has not completed his formal education, he may help in the conduct of the examination as long as there is proper supervision and review.

2. The auditor must maintain independence in mental attitude in all matters relating to the audit.

2. To satisfy the second general standard, Jones must be without bias with respect to the client under audit. Jones has an obligation for fairness to the owners, management, and creditors who may rely on the report. Because of the financial interest in whether the bank loan is granted to Boucher, Jones is not independent in either fact or appearance with respect to the assignment undertaken.

3. The auditor must exercise due professional care in the performance of the audit and the preparation of the report.

3. This standard requires Jones to plan and perform the audit with due care, which imposes on Jones and everyone in Jones's organization a responsibility to observe the standards of fieldwork and reporting. Exercise of due care requires critical review at every level of supervision of the work done and the judgments exercised by those assisting in the examination. Jones did not review the work or the judgments of the assistants and clearly failed to adhere to this standard.

Standards of Fieldwork:

1. The auditor must adequately plan the work and must properly supervise any assistants.

1. This standard recognizes that early appointment of the auditor has advantages for the auditor and the client. Jones accepted the engagement without considering the availability of competent staff. In addition, Jones failed to supervise the assistants. The work performed was not adequately planned.

2. The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.

2. Jones did not study the client or its environment, including internal control, nor did the assistants. There appears to have been no audit examination at all. The work performed was more an accounting service than it was an auditing service.

3. The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.

3. Jones acquired little evidence that would support the fairness of the financial statements. Jones merely checked the mathematical accuracy of the records and summarized the accounts. Several standard audit procedures and techniques were neglected.

Standards of Reporting:

1. The auditor must state in the auditor’s report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP).

1. Jones's report made no reference to generally accepted accounting principles. Because Jones did not conduct a proper examination, the report should state that no opinion can be expressed as to the fair presentation of the financial statements in accordance with GAAP.

2. The auditor must identify in the auditor’s report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.

2. Jones's improper examination would not enable her to determine whether accounting principles have…