Types of Audit

Topics: Auditing Pages: 18 (1652 words) Published: September 20, 2015
ACG 4632
Introduction to Financial Statement
Auditing
Spring 2015 Section 422
Instructor: Devin Williams, CPA

Chapter 2
The Financial
Statement
Auditing Environment

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Types of Auditors






External auditors
Internal Auditors
Governmental Auditors
Forensic Auditors
Information Technology

2-4

Types of Audit, Attest, and Assurance
Services
Audit Services:
Internal Control Audits, Compliance Audits, Operational
Audits, Forensic Audits

Attest Services:
Reporting on nature and quantity of inventory stored in a
company’s warehouse so that the company can obtain a
bank loan

Assurance Services:
Auditing is a specialized form of assurance service

Nonaudit Services:

Tax Preparation and Planning Services, Management
Advisory Services, Compilation and Review Services

2-5

Many Types of Services


Audits (external)



Attestations




SOC 1 (former SAS 70)
(http://www.aicpa.org/interestareas/frc/assuranceadvisoryservice s/pages/aicpasoc1report.aspx)

Non-audit Services


Limitations for audit clients per SOX
(http://www.sec.gov/rules/final/33-8183.htm)
– Bookkeeping, information systems design / implementation, internal audit, etc.



Limitations for audit clients per the EU
(http://www.pwc.com/gx/en/auditservices/publications/assets/pwc-fact-sheet3-eu-audit-reformsnas-june2014.pdf)

Non-audit Services


Let’s look at a firm’s website to see what services they provide


http://www2.deloitte.com/us/en.html



MSFT

Public Accounting Firms
Public accounting firms range in size from a single proprietor to thousands of owners (or “partners”) and thousands of
professional and administrative staff employees.

Big 4

Mid-Tier

PwC

Grant Thornton

EY

BDO Seidman

Deloitte

Regional

Local

RSM McGladrey

KPMG
2-8

Audit Teams
12-15 yrs

5-8 yrs.

3-4 yrs.

2-9

A Time of Challenge and Change

1990

2000

During the economic boom of the late
1990s and the early 2000s, accounting
firms aggressively sought opportunities
to market a variety of high-margin
nonaudit services to their auditees.
2-10

An Explosion of Scandals
• http://en.wikipedia.org/wiki/Accounting_sc
andals
Brokerage
Firms

Corporate
Giants
Stock
Exchanges

Mutual Fund
Managers

Public
Accounting
Firms
2-11

Era of Regulation






Sarbanes-Oxley Act of 2002


Public Company Accounting Oversight Board



Auditor to report to the audit committee



Bans many non-audit services



Rotation of audit partners every 5 years



Integrated audits

NYSE and NASDAQ (2003)


Majority of directors must be independent



Independent audit committees

Dodd-Frank Act (2010)


PCAOB can inspect foreign audit firms that practice in US or have US clients



Permanently exempted non-accelerated filers from internal control audits

Society’s Expectations and the
Auditor’s Responsibilities

LO# 5

The auditor has a responsibility to plan and
perform the audit to obtain reasonable
assurance about whether the financial
statements are free of material
misstatement, whether caused by error or
fraud.
Because of the nature of audit evidence and the
characteristics of fraud, the auditor is able to obtain
reasonable, but not absolute, assurance that material
misstatements are detected.

Who has ultimate responsibility for the
financial statements?
2-13

LO# 6

Context of Financial Statement Auditing
The primary context with which an auditor is concerned is the industry or business of his or her auditee. In other words, the context provided by the entity’s business impacts the auditor...
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