Auditing - Financial Statements | Breezy CPA

Learn what an audit is, why it’s needed, how the audit process works, including management responsibility, internal controls over financial reporting, and the role of the PCAOB and external auditors.

Explore the audit process for a publicly traded company, from planning and risk assessment to testing internal controls and reporting GAAP-compliant financial statements.

Discover how corporate governance defines the hierarchy from employees to the board, detailing roles of the CEO, CFO, internal audit, and the audit, nominating, and compensation committees.

Learn how auditors decide to accept an engagement by assessing audit ability, management integrity, and prior auditor input, then formalize terms in an engagement letter with the audit committee.

Explore generally accepted auditing standards (GAAS), including general standards, field work, and reporting, covering independence, training, evidence, internal controls, planning, and how auditors form opinions on financial statements.

Plan the audit by developing an overall strategy to address material misstatement risks, set objectives, and schedule procedures, while supervising assistants and securing an engagement letter.

Clarify audit risk by defining its components—control risk, inherent risk, and detection risk—and use test of details and analytical procedures to assess material misstatements during planning and testing.

Auditors assess fraud and errors that cause material misstatements, focusing on management responsibility, risk factors, and the fraud triangle—motivation, opportunity, rationalization—while applying professional skepticism.

Audit firms implement quality controls to ensure independence and integrity in auditing financial statements, covering independence rules for covered members, non-audit services, working papers ownership, and employment with clients.

Explain the SEC's authority under the Securities Act of 1934 and the Sarbanes-Oxley Act, and describe the Public Company Accounting Oversight Board's role in auditing, independence, and fee disclosures.

Learn how internal controls guide auditors in evaluating control effectiveness for issuers and non-issuers, including the five components: control environment, risk assessment, control activities, information and communication, and monitoring.

Learn how auditors obtain an understanding of the internal control structure, assess risk of material misstatement, and plan tests of controls and substantive procedures.

Explore operating cycles—revenue, spending, personnel and payroll, investing and financing, and production and conversion cycle—and how internal controls and assertions use flow charts, tracing, and vouching to assess effectiveness.

Understand internal control reporting across engagements, including non-issuer audits, attestation engagements, and issuer integrated audits. Identify material weaknesses and significant deficiencies, and note the 60-day communication deadline.

Auditors examine management's assertions across transactions, balances, and disclosures, using risk assessment, controls testing, and substantive procedures such as tracing and vouching to verify amounts like accounts receivable and inventory.

Obtain sufficient and appropriate audit evidence to form an opinion on financial statements, managing audit risk with professional judgment and corroborating evidence from accounting records.