Modern Auditing:

Assurance Services and the Integrity

of Financial Reporting, 8th Edition

William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University

Chapter 2 – Auditors’ Responsibilities and Reports

Chapter 2 Overview
 Relationship Between
Accounting and Auditing
 Important Fundamental
Concepts
• Verifiability

• Fair Presentation

• Professional Judgment

• Materiality
 Independent Auditor
Relationships
• Management

• Board of Directors and Audit Committee

• Internal Auditors

• Stockholders
 Study Break
1. It is the responsibility of management to
complete all of the following except:
A. Assess the risk of material misstatement
in the financial statements
B. Measure and record transaction data
C. Classify and summarize recorded data
D. Prepare financial statements per GAAP

A. Assess the risk of material misstatement

in the financial statements
 Study Break
2. Items that are considered to be _____,
are significant to financial statement
users.
A. Verifiable
B. Material
C. Fairly Presented
D. Recorded

B. Material
 Generally Accepted Auditing
Standards (GAAS)
• General Standards

• Standards of Field Work

• Standards of Reporting
 GAAS – General Standards
• Adequate Technical Training and
Proficiency

• Independence in Mental Attitude

• Due Professional Care

 GAAS – Standards of Field Work

• Adequate Planning and Proper

Supervision

• Understanding the Entity,

Environment, and Internal Control

• Sufficient Competent Audit Evidence

 GAAS – Standards of Reporting

• Financial Statements Presented in

Accordance with GAAP

• Consistency in the Application of GAAP

• Adequacy of Informative Disclosures

• Expression of Opinion
 Additional Standards
• Statements on Auditing Standards
– AICPA website : Audit and Attest
Standards

• PCAOB Auditing Standards

– Public Companies Accounting
Oversight Board website
 Study Break
3. General Standards include all of
the following except:
A. Adequate Training
B. Independence
C. Understanding the Entity
D. Due Professional Care

C. Understanding the Entity

 Study Break
4. These standards pertain specifically to
the conduct of the audit at the entity’s
place of business.
A. General Standards
B. Standards of Field Work
C. Standards of Reporting
D. Statement on Auditing Standards

B. Standards of Field Work

Assurance Provided by an Audit
The Auditor’s Standard Report –
Unqualified Opinion
• Title and Address

• Introductory Paragraph

• Scope Paragraph

• Opinion Paragraph

• Firm’s Signature and Date

 Departures from the Standard
Report
• Standard Report with Explanatory
Language

• Qualified Opinion

• Adverse Opinion

• Disclaimer of Opinion
Types of Auditor’s Reports and
Circumstances
Typical Report Profiles
 The Auditor’s Standard Report
on Internal Controls
• Title and Address

• Introductory Paragraph

• Scope Paragraph

• Definition Paragraph
 The Auditor’s Standard Report
on Internal Controls (cont.)
• Inherent Limitations Paragraph

• Opinion Paragraph

• Explanatory Paragraph

• Firm’s Signature and Date

Defining Criteria for Departures
from the Standard Report
Departures from the Standard
Report on Internal Controls
 Study Break
5. All of the following are components of
assurance provided by an audit except:
A. Auditor independence
B. Reasonable assurance
C. Detecting and reporting illegal acts
D. Guaranteed accuracy of financial
statements

D. Guaranteed accuracy of financial

statements
 Study Break
6. The standard report includes all of
the following except:
A. Introductory Paragraph
B. Scope Paragraph
C. Explanatory Language Paragraph
D. Opinion Paragraph

C. Explanatory Language Paragraph

 Study Break
7. This opinion states that the auditor
does not express and opinion on the
financial statements.
A. Unqualified Opinion
B. Qualified Opinion
C. Adverse Opinion
D. Disclaimer of Opinion

D. Disclaimer of Opinion