Page 444 - Introduction to Business

418 PART 4 Accounting

Sheila Fraser, the Canadian Auditor
General, prepares to testify regard-
ing a national sponsorship scandal
amounting to 100 million Canadian
dollars.

audits, these assertions are representations made in the financial statements relat-
ing to the auditee’s income, expenses, assets, and liabilities. Audit procedures
for financial statement audits include reconciling bank accounts, obtaining
confirmations of accounts receivable from customers of the company, and physi-
cally counting inventory. For a financial statement audit, these procedures are
applied with the objective of ensuring
• The existence of assets and liabilities and occurrence of income and expenses
• The completeness of the financial statements (all assets, liabilities, income,
and expenses are accounted for)
• Proper valuation of assets, liabilities, income, and expenses
• That the auditee owns the assets and is obligated to the extent of the liabilities
shown
• That all financial statement items are properly presented and all disclosure
regulations have been followed
In internal control audits, the assertions being made by the firm being audited
pertain to the proper operation of controls. In compliance audits, the firm being
audited is asserting that certain rules, regulations, laws, or contractual agreements
have been complied with.

Audit Evidence

Evidence obtained as a result of applying audit procedures must then be evaluated
so that the auditor can determine whether the assertions being made by the audi-
tee conform to established criteria. For publicly held corporations, established
criteria refer to generally accepted accounting principles that are issued by the
Financial Accounting Standards Board (FASB). For audits of government entities,
pronouncements of the Governmental Accounting Standards Board (GASB) consti-
tute established criteria. Ascertaining the degree of correspondence between asser-
tions being made by the auditee and established criteria requires the auditor to
exercise professional judgment, which usually takes years to acquire.

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