REVIEW QUESTIONS
6-1 (OBJECTIVE 6-1) State the objective of the audit of financial statements. In general terms, how do auditors meet that objective?
6-2 (OBJECTIVE 6-2) Describe management’s responsibility for the financial statements. Do
you believe the CEO and CFO of a public company perceive an even greater responsibility as a result of the Sarbanes–Oxley Act requirement to certify the financial statements submitted to the SEC?
6-3 (OBJECTIVE 6-3) Distinguish between the terms errors and fraud. What is the auditor’s responsibility for finding each?
6-4 (OBJECTIVE 6-3) Distinguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.
6-5 (OBJECTIVE 6-3) List two major characteristics that are useful in predicting the likeli- hood of fraudulent financial reporting in an audit. For each of the characteristics, state two things that the auditor can do to evaluate its significance in the engagement.
6-6 (OBJECTIVE 6-3) Explain the auditor’s responsibility to consider compliance with laws and regulations. How does this responsibility differ for laws and regulations that have a direct effect on the financial statements compared to other laws and regulations that do not have a direct effect?
6-7 (OBJECTIVE 6-3) What is the auditor’s responsibility when noncompliance with laws or regulations is identified or suspected?
6-8 (OBJECTIVE 6-4) What are the six elements of professional skepticism? Describe two of those six elements.
6-9 (OBJECTIVE 6-5) What are the five elements of an effective professional judgment process?
6-10 (OBJECTIVE 6-5) Describe two of the more common judgment traps and biases.
6-11 (OBJECTIVE 6-6) Identify the cycle to which each of the following general ledger ac- counts will ordinarily be assigned: sales, accounts payable, retained earnings, accounts receivable, inventory, and repairs and maintenance.
6-12 (OBJECTIVES 6-6, 6-7) Why are sales, sales returns and allowances, bad debts, cash discounts, accounts receivable, and allowance for uncollectible accounts all included in the same cycle?
13 (OBJECTIVES 6-7, 6-8) Distinguish between the general audit objectives and management assertions. Why are the general audit objectives more useful to auditors?
6-14 (OBJECTIVE 6-8) Identify the two broad categories of management assertions.
6-15 (OBJECTIVE 6-9) An acquisition of a fixed-asset repair by a construction company is re-
corded on the wrong date. Which transaction-related audit objective has been violated?
Which transaction-related audit objective has been violated if the acquisition had been
capitalized as a fixed asset rather than expensed?
6-16 (OBJECTIVE 6-10) Distinguish between the existence and completeness balance-related
audit objectives. State the effect on the financial statements (overstatement or understatement) of a violation of each in the audit of accounts receivable.
6-17 (OBJECTIVES 6-9, 6-10) What are specific audit objectives? Explain their relationship to
the general audit objectives.
AUDIT RESPONSIBILITIES AND OBJECTIVES
6-18 (OBJECTIVES 6-8, 6-10) Identify the management assertion and general balance-related
audit objective for the specific balance-related audit objective: All recorded fixed assets
exist at the balance sheet date.
6-19 (OBJECTIVES 6-8, 6-10) Identify the management assertion and general balance-related
audit objective for the specific balance-related audit objective: Read the fixed asset foot-
note disclosure to determine that the types of fixed assets, depreciation methods, and use-
ful lives are clearly disclosed.
6-20 (OBJECTIVE 6-11) Identify the four phases of the audit. What is the relationship of the
four phases to the objective of the audit of financial statements?
