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“The cpa exam focuses mainly on this one nright here called a financial statement audit. Audit. What is a financial statement audit. That s where you go out to the and nyou pick up management s financial statements.
Now these are management s statements in other words management is responsible nfor. The presentation management is responsible for the content our job as an auditor should we decide to naccept. It is to obtain sufficient appropriate audit evidence enough good audit evidence nso. We can give an opinion on management s representations.
So that is our goal as an auditor. We re called an external independent. Objective we have to be independent objective unbiased. Nneutralyou can t own stock in the company or you can t do that audit because you re nnot independent.
So a financial statement audit is basically nan examination or an audit for the purpose of giving an objective opinion as to the fairness. Nof financial. Statement presentations. So let s break that down what is a financial statement audit.
It s an examination or an audit. So it s an audit. It is an audit for the purpose of giving an nobjective opinion. You re giving an objective unbiased neutral nclear mental attitude opinion because when you go out and pick upwhose statements nare these management s when you pick up management s statements.
Nyou are giving an opinion on all this brown stuff right how appropriate so our opinion covers only this brown. Stuff the fun. Stuffthis is called other information. This is the stuff that management puts in nthere.
We have a responsibility to look it over nread it make sure it s reasonable. But our opinion really covers this because our whole npurpose of this is to give this audit opinion. Which says in our opinion. The statements nreferred to above presents fairly in all material.
Respects to the financial position of x. Co nas of 12 31. X1. The results of its operations are in conformity nwith us gaap.
So we re giving an opinion on gaap are these statements presented fairly in conformity nwith united states generally accepted accounting principles so in order to do an audit. It s an examination. Nor an audit for the purpose of giving what we call an objective unbiased neutral opinion. We re giving an opinion because these statements nare not ours they re management s and when you give an nopinion.
It doesn t say it s perfect. It says. It present fairly based on materiality and nhere s basically what it looks like what it basically says we re dealing with nthe concept called reasonable assurance. So let s say you look at the company s transactions they.
Have 0 to 100 or 0 to. 100 . We re going to go out determine some level nof. What we call materiality materiality.
Just means how important or how nsignificant. The amount is in relation to the whole picture now as far as materiality a question they nlike on the cpa exam is who determines materiality auditors judgment. We decide how much work is enough because nit s our opinion. Everything above that level of materiality nis called the scope of our audit or the character of our examination also the second paragraph in an unqualified nopinion is called the.
Scope paragraph. Hmmso that talks about the stuff. We looked. Nat.
Everything below that we blow off as immaterial nimmaterial immaterial. So you give it one of these you blow. It noff and say so for example. Why would you not look at nthis 3 item because the cost outweighs the benefit.
It s immaterial that s one of the basic elements for financial naccounting. Too what makes information useful relevant reliability what is the overriding constraint materiality cost benefit so same thing here an auditthis 3 item is immaterial because nif. The statements taken as a whole are presented fairly in all mature respect that s fine so even if there s a 3 item that s offwrong nit s not going to presentor it s not going to negate the entire financial statements. So that s what we re really looking at to nsee whether or not we have this now in looking at reasonable assurance.
That s nreasonable that s absolute. You don t need absolute assurance. You need nwhat. Reasonable assurance based on materiality nbased on the cost.
Benefit principal. Also while you re out. There auditing. You re nsupposed to act with something called professional skepticism and professional skepticism.
Means nyou. re. A skeptic. You question and doubt everything that s one of the things you have to do and after the enron sarbanafter the enron narthur andersen mess.
They came up with all these new rules called sarbanes. Oxley. Which ncreated this group called the peek a boo the pcaob public company accounting oversight nboard and what it basically said is when you go do an audit come from the perspective nwhere. You assume the client may not be honest.
That s called professional skepticism. You question about everything so when you go out to do an audit your job nis to go out and obtain sufficient appropriate audit evidence you e going to ask questions how do i know this how do i know that i need sufficient appropriate audit. Evidence nyou need professional skepticism. The problem is you carry that same skepticism nhome with you you get home after work.
I need sufficient appropriate audit. Evidence nto corroborate. The fact that you so on so. That s called professional skepticism.
You question and doubt everything that s what you re doing as a professional nskeptic that s part of what you need to do as you re nout. There actually auditing. The information as you are actually auditing these financial nstatements and again these are management s financial statements. So a financial statement audit is an examination.
Nor audit for the person giving an objective unbiased opinion as to the fairness. What financial statement presentations presentations to whom to creditors and investors investors want to know if i put money in nthe company will i get my investment back will i get dividends will it appreciate creditors if i loan you money ill. I get nmy principal back will i get my interest. So that s what we re looking at the key is study.
Hard don t get discouraged wooo. A little michael jackson walk come on down. I ve been teaching almost 20 years after i nleft deloitte and touche. I ve done this for many many years helped nthousands and thousands of people accomplish.
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