Walter Wolf Case

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Question: EP 5-5 Part A. Before beginning any audit testing, it is highly important to conduct pre-audit risk management activities. These activities are conducted to determine the potential risk of audit failure. Auditors want to ensure that there is not a high risk of their failure before agreeing to perform an audit for a client. To determine whether to accept the audit engagement in the first place, it’s important for Walter Wolf to determine any risks that he could encounter due to this audit. The main risks that face auditors is the potential of material misstatement or omission in financial statements. If there is a high risk of Walter Wolf missing material information due to the accounting procedures followed by…show more content…
Overall, Walter should aim to follow all of the aforementioned procedures in order to ensure he is wholly prepared to start his audit. Part B. The five main management assertions, as listed by CAS 315, include the following: existence, completeness, ownership, valuation, and…show more content…
For example, if any account is understated, this would be an issue of the financial statements not being complete—not containing all material amounts. Therefore, the objective of an auditor would be to gather evidence in order to ensure that all of the accounts contain complete amounts. Ownership pertains to the claim by management that has legal rights to all of items included in their financial statements. For example, an auditor should aim to ensure that all assets listed in an entity’s financial statements actually belong to the entity. Thus, the auditor should aim to gather evidence that proves the entity has the rights to the assets. The concept of the ownership assertion relates to liability, expense and revenue accounts as well. The assertion of valuation is the claim by management that all dollar amounts recorded in their financial statements are correctly calculated, and that they have allocated all dollar amounts properly. In addition, management claims that they use appropriate measurement bases that are used in accordance with GAAP. The objective of an auditor, in relation to this assertion would be to determine that the measurements being used – fair value, present value, historic cost – are used in accordance to the standards set by GAAP. In addition, auditors should find evidence, from invoices; bank receipts; market
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