The auditor's evaluation of audit results should include evaluation of the following:
The results of the analytical procedures performed during the overall review of the financial statements.
Misstatements found during the audit, including uncorrected misstatements.
The qualitative aspects of the company's accounting practices.
Conditions identified during the audit that relate to fraud risk.
The presentation of the financial statements, including disclosures.
The sufficiency and appropriateness of the audit evidence obtained.
The auditor must evaluate the audit evidence gathered to determine whether the financial statements are free of material misstatement due to error or fraud.
Misstatements can be corrected using adjusting journal entries. Adjusting journal entries may affect any account that appears in the financial statements. These questions often require basic knowledge of journal entries. (For example, revenue related to Year 2 should not be included in Year 1 revenue.) Some methods the examiners may use to test adjusting entries can be found below (this is not meant to be a comprehensive list, however).
Which of the following circumstances most likely would cause an auditor to suspect that material misstatements exist in a client's financial statements?
The assumptions used in developing the prior year's accounting estimates have changed.
Differences between reconciliations of control accounts and subsidiary records are not investigated.
Negative confirmation requests yield fewer responses than in the prior year's audit.
Management consults with another CPA firm about complex accounting matters.
According to PCAOB standards, which one of the following statements does not reflect a qualitative standard that should be considered when evaluating the materiality of an uncorrected misstatement?
An auditor finds several errors in the financial statements that the client prefers not to correct. The auditor determines that the errors are not material in the aggregate. Which of the following actions by the auditor is most appropriate?