Eliot Rey, the owner of a publicly held technology company, asked Mary Messup, C

Question

Eliot Rey, the owner of a publicly held technology company, asked Mary Messup, CPA, to conduct an audit of the company's records. The financial statements to be audited covered a two-year period. The statements needed to be ready to submit to the SEC by September 30, 2017. Rey also needed to provide the audited financial statements to their bank as part of a large loan application. Messup immediately accepted the engagement and agreed to provide an auditor's report within one month. Rey agreed to pay Messup her normal audit fee plus a percentage of the loan if it was approved. Messup hired two Sac State accounting graduates (both graduated in May 2017) to conduct the audit. She spent several hours going over what they needed to do. She told the new hires not to spend any time reviewing the client's system of internal control but to concentrate on checking the mathematical accuracy of the general ledger and summarizing the data in the accounting records that supported Rey's financial statements. The new hires followed Messup' instructions. They competed the audit procedures in two days. They did notice that the company failed to include the terms of a large note payable in the footnotes, but they were nervous about talking to Mr. Rey about that. They did talk to Mr. Rey about the fact that although 25% of the accounts receivable were over 120 days old, there was no allowance for doubtful accounts included. Mr. Rey said they shouldn't be concerned about that. They made a note of his response in the workpapers. They turned over the workpapers to Messup along with the financial statements prepared by the client. Messup gave an unmodified (clean) opinion on the financials. REQUIRED: For each of the auditing principles listed, identify the action(s) taken (or not taken) by Messup or her assistants that support(s) their compliance with the requirement. 1. Auditors must be technically competent. 2. Auditors must c with professional ethics. 3. Auditors must use professional judgment and maintairn I skepticism. 4. Auditors must plan work and superse assistants.

Explanation / Answer

1.Auditor must be technically competent

The auditor must able to understand the the softwres used by the client.So that then only he can found out any irregulaties that were going.Due to moderen Technology the importance of adopting to changes has been increasing.As a result Auditor can use CAAT tools in oreder to audit the software which is popularly called as EDP audit

2.Auditor must maintain Professional Ethics:

Auditor has to maintain his Professionalism throughout the audit.Because many of the users are confidently relying on the onopinion provided by the auditor on financial staements.So as a part of professional he has to avoid things such as collusion with Client,Disclosing clients informatin to third party etc.

3.Professional judgement and skeptism

Audit involves performing audit procedure to obtain sufficient and appropriate audit evidence.The auditor proffessionl judgement should be applied in which procedures to be performed.to be able to make appropriate judgement auditor has to rely on his integrity,objectivity and professinal skeptism.Therefore skeptiscism can be be seen as one of the corner stones of professional judgement

4.auditor must plan and supervise assistents:

The auditor must plan the audit in order to complete the audit on time.Before the starting of audit auditor has to prepare the audit plan containing the areas to be verifies and documentation procedures.and at the same time he has to supervise his assistance regardig the execution of the plan.he can supervise by reviewing the workdone by them.

5.Auditors must determine materialtely level

As we might aware that it is not possible to check each and every transaction in an audit.So because of that auditor maydecided to for the Sampling.Also in that materiality should also be considerd.auditor has to fix tolarable materiality level.it means that up to that level if any mistatements are found thaey are treated as negligible.For the important transactions materiality level should be low.

6.Auditors must able to understant the entity

The first and foremost thing the auditor has to do before startinf of the audit was understanding the entity enviorment.without any awareness regarding the entity enviorment he cant express his opinion and more importantly he cannble to find out extent of risk involved in it.

7.sufficient and appropriate audit evidence

As per auditing standards,auditor has responsibility is to obtain sufficient and appropriate audit evidence.it means that he has to prove that financial statements are free from material misstatements.

8.

the auditor responsibility is to express opinion that fiancial statements are free from material misstatements and are prepared in accordance with the financial reporting framework and those charged with governance

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