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Wednesday, October 10, 2018 10:34 PM

• The seven principles are organized around four primary themes—


○ (1) purpose/premise;
○ (2) responsibilities;
○ (3) performance; and
○ (4) reporting
○ (as a memory aid, remember: PR-PR).

Purpose of an Audit and Premise Upon Which an Audit Is Conducted in accordance


with GAAS

A.) Purpose/Premise
1. The Purpose of an audit is to provide F/S users with an opinion by the auditor
on whether the F/S are presented fairly, in all material respects, in accordance
with the applicable financial reporting framework.
a. (An auditor's opinion enhances the degree of confidence that intended
users can place in the financial statements.)

2. An audit is conducted on the Premise that management, has the responsibility:


a. For the preparation and fair presentation of the F/S;
i. this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of
F/S
b. To provide the auditor with all information relevant to the preparation
and fair presentation of the F/S.

B.) Responsibilities: (characteristics the auditor brings to the engagement)


1. Auditors are Responsible for:
a. having appropriate competence and capabilities to perform the audit;
b. complying with relevant ethical requirements; and
c. maintaining professional skepticism and exercising professional judgment,
throughout the planning and performance of the audit.
a. having appropriate competence and capabilities to perform the audit;
b. complying with relevant ethical requirements; and
c. maintaining professional skepticism and exercising professional judgment,
throughout the planning and performance of the audit.

C.) Performance: (fieldwork standards governing the auditor's evidence-gathering


activities)
1. To express an opinion, the auditor obtains reasonable assurance about whether
the F/S as a whole are free from material misstatement, whether due to fraud
or error.

2. To obtain reasonable assurance, which is a high, but not absolute, level of


assurance, the auditor
a. Plans the work and properly supervises any assistants.
b. Determines and applies appropriate materiality level or levels throughout
the audit.
c. Identifies and assesses risks of material misstatement, based on an
understanding of the entity and its environment, including the entity's
internal control.
d. Obtains sufficient appropriate audit evidence about whether material
misstatements exist.

3. The auditor can only obtain reasonable assurance, and not absolute assurance,
that the F/S are free from material misstatement because of inherent
limitations which arise from:
a. The nature of financial reporting.
b. The nature of audit procedures.
c. The need for the audit to be conducted within a reasonable period of time
and so as to achieve a balance between benefit and cost.

D.) Reporting
1. Based on an evaluation of the audit evidence obtained, the auditor expresses, in
the form of a written report, an opinion in accordance with the auditor's
findings, or states that an opinion cannot be expressed.
a. The opinion states whether the F/S are presented fairly, in all material
respects, in accordance with the applicable financial reporting framework.