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How does the auditor evaluate the results of audit procedures?

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How does the auditor evaluate the results of audit procedures? What types of qualitative factors will the auditor consider when encountering an error? How will the results affect the audit conclusion?
Submitted: 4 years ago.
Category: Single Problem
Expert:  Neo replied 4 years ago.
Good day!

I am very sorry. I do not think I can help on this one. I'll opt out to let other expert see this.

I do apologize.

Customer: replied 4 years ago.
Should I repost the question so that someone else can answer?
Expert:  Neo replied 4 years ago.

No; this remains open for them to answer.

Expert:  Dave CPA replied 4 years ago.
Hello,

Let me try and help.

How does the auditor evaluate the results of audit procedures?

In forming an opinion on whether the financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework, the auditor should take into account all relevant audit evidence, regardless of whether it appears to corroborate or to contradict the assertions in the financial statements.

In the audit of financial statements, the auditor's evaluation of audit results should include evaluation of the following:

- The results of analytical procedures performed in the overall review of the financial statements ("overall review");
- Misstatements accumulated during the audit, including, in particular, uncorrected misstatements;
- The qualitative aspects of the company's accounting practices;
- Conditions identified during the audit that relate to the assessment of the risk of material misstatement due to fraud ("fraud risk");
- The presentation of the financial statements, including the disclosures; and
- The sufficiency and appropriateness of the audit evidence obtained.

What types of qualitative factors will the auditor consider when encountering an error?

When evaluating whether the financial statements as a whole are free of material misstatement, the auditor should evaluate the qualitative aspects of the company's accounting practices, including potential bias in management's judgments about the amounts and disclosures in the financial statements.

The following are examples of forms of management bias:

- The selective correction of misstatements brought to management's attention during the audit (e.g., correcting misstatements that have the effect of increasing reported earnings but not correcting misstatements that have the effect of decreasing reported earnings).

- The identification by management of additional adjusting entries that offset misstatements accumulated by the auditor. If such adjusting entries are identified, the auditor should perform procedures to determine why the underlying misstatements were not identified previously and evaluate the implications on the integrity of management and the auditor's risk assessments, including fraud risk assessments. The auditor also should perform additional procedures as necessary to address the risk of further undetected misstatement.

- Bias in the selection and application of accounting principles.

- Bias in accounting estimates.

How will the results affect the audit conclusion?

If the auditor identifies bias in management's judgments about the amounts and disclosures in the financial statements, the auditor should evaluate whether the effect of that bias, together with the effect of uncorrected misstatements, results in material misstatement of the financial statements. Also, the auditor should evaluate whether the auditor's risk assessments, including, in particular, the assessment of fraud risks, and the related audit responses remain appropriate.

Please let me know if you have any questions.

Below I have copied the auditing standard that this information pertains to from the Public Company Accounting Oversight Board.

http://pcaobus.org/Standards/Auditing/Pages/Auditing_Standard_14.aspx
Dave CPA, Accountant
Category: Single Problem
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Experience: Sound knowledge base in accounting and finance.
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