 In this presentation, we will discuss the underlying principles of an audit, including the purpose. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Purpose and Promise of an Audit, Responsibilities of the Auditor, Performance of the Audit and Reporting. We're going to start off with the purpose and promise of an audit. The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly in all material respects in accordance with applicable financial reporting framework. So we'll recall it's in order to give our opinion on the fairness of the financial statements being reported in accordance with some certain type of framework. An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements and that of course means that if we are intending to invest in say a company or do business with a company, give a loan to the company, we are more likely to do so if we have an independent auditor who assigned off and said, yes, these things that you're depending on, these financial statements are indeed correct or materially correct according to the audit that we have provided and therefore you can rely on them and therefore will be more likely to have business transactions. An audit in accordance with generally accepted audit standards is conducted on the promise that management and where appropriate those charged with governance have responsibility. So this is going to be the management responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. So remember it's management's responsibility to say, hey, I assert that this is indeed the case. It's the auditor's responsibility then to have an opinion as to whether that is true or not. This includes the design implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. So note that that means that we have to have the internal control set up because if we're talking about these large type of companies, the management is also in charge for setting up those internal controls because without them, we would not be able to either audit or possibly even do or put together the financial statements in accordance with the appropriate framework that they need to be put together within. To provide the auditor with all information such as records, documentation and other materials that are relevant to the preparation and fair presentation of the financial statements, any additional information that the auditor made request from management and where appropriate those charged with governance and unrestricted access to those within the entity from whom the auditor determines it's necessary to obtain audit evidence. So in essence, we're saying, hey, management responsible for allowing the resources to be accessed for the auditor in order to conduct the audit. If we go to the responsibility of the auditor, auditors are responsible for having appropriate competence and capabilities to perform the audit, complying with relevant ethical requirements and maintaining professional skepticism and exercising professional judgment throughout the planning and performance of the audit. Then we have the performance of the audit to express an opinion. The auditor operates reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, to attain reasonable assurance, which is a high but not absolute level of assurance. The auditor, so note, we have reasonable assurance, not absolute assurance. It's always going to be a test question that's going to come up anytime you see any absolutes in a test question, probably not going to be a correct answer. Determines the work and properly supervises any assistance, determines the determines and applies appropriate materiality levels or levels throughout the audit. We'll talk more about applying materiality type levels as we go through the process. Identifies and assesses risks of material misstatement, whether due to fraud or error based on an understanding of the entity and its environment, including the entities internal controls, obtain sufficient appropriate audit evidence about whether material misstatements exist through designing and implementing appropriate responsibilities to the assessed risks. The auditor is unable to obtain absolute assurance that the financial statements are free from material misstatement because of inherent limitations which arise from the nature of financial reporting, the nature of audit procedures and 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. And then we have reporting 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. So that's going to be obviously the report. The report will be in essence issuing the opinion, whether that opinion be clean, whether it be a qualified type of opinion or other type of opinion. The opinion states whether the financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework, that of course being our objective from the get go from the start.