Auditing Notes

Topics: Auditing, Audit, Certified Public Accountant Pages: 8 (1160 words) Published: December 6, 2013
Chapter 1

Assurance Services
The broad range of information enhancement services that are provided by CPAs There are two types:
-Increase reliability of information
-Putting information into a form or context that facilitates decision making

Types of Services
Assurance Services
-Attestation Services
Example: Audits of Financial Statements, Examinations of Internal Control -Other Assurance Services
Example: CPA ElderCare Prime Plus Services
Non Assurance Services
-Tax Services
-Management Consulting Services
-Other

Attestation Services
-to attest to information means to provide assurance as to its reliability -Attest Engagement: A practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter or that is the responsibility of another party (e.g management)

Attest Function-Diagram

Suitable Criteria
-standards established or developed by groups of experts
-Example: Internal control audit- standards established by a committee of experts on internal control -Example: Financial statement audit- standards are GAAP. For a financial statement audit suitable criteria are referred to as the “applicable financial reporting framework”

Forms of Attestation-Diagram

Audit of Financial Statements-Diagram

Financial Statement Audit
-Auditors gather evidence and provide a high level of assurance that the financial statements follow GAAP, or some other appropriate basis of accounting -Audit involves searching and verifying accounting records and examining other documents -Evidence necessary to ussue an audit report that states auditors;’ opinion

Audit Evidence
Evidence focuses on whether financial statements are presented in accordance with GAAP Examples
-Balance sheet contains all liabilities
-Income statement
-sales really occurred
-sales have been recorded at appropriate amounts
-recorded costs and expenses are applicable to period
-all expenses have been recognized
-Financial statement amounts
-accurate, properly classified and summarized
-notes are informative and complete

What creates the demand for Audits?
-Audits lend credibility to information by reducing information risk, the risk that information is materially misstated -Financial statement misstatements arise due to—
-accidental errors
-lack of knowledge of accounting principles
-unintentional bias
-deliberate falsification
-Audits do not directly address business risk, the risk that a company will not be able to meet its financial obligations due to economic conditions or poor management decisions

History of Attest Function

Accounting Profession’s Credibility Crisis
200- the panel on audit effectiveness made a variety of suggestions to improve audits 2001-enron bankruptcy
2002-world com fraud
2002- Sarbanes oxley act
2003- public company accounting oversight board began operations

Financial Audits
Audit of the financial statements of an entity
-covers the balance sheet and related statements of income, retained earnings, and cash flows -goal is to determine if prepared in conformity with GAAP
-Performed by CPAs
-Users include management, investors, bankers, creditors, financial analysts, government agencies

Other Types of Audits
Compliance Audits
-example: IRS audit of income tax return
Operational Audits
-example: effectiveness of operations of receiving department of a manufacturing company Integrated Audits
-example: assurance on both the financial statements and effectiveness of internal control over financial reporting Internal Auditors
Government Accountability Office Auditors
Tax Auditors

Internal Auditors
Employed by a company as an employee
They often
-perform operational and compliance audits
-address internal control
-report to the audit committee of the board of directors and to the president The Institute of Internal Auditors is the international organization of internal auditors...
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