Download - Audit Chapter 1 Slides
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Chapter 1
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Describe auditing.
Distinguish between auditing and accounting.
Explain the importance of auditing in reducing information risk.
List the causes of information risk, and explain how this risk can be reduced.
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Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.
Differentiate the three main types of audits.
Identify the primary types of auditors.
Describe the requirements for becoming a CPA.
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Describe auditing.
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Auditing is the accumulation and evaluationof evidence about information to determineand report on the degree of correspondencebetween the information and established criteria.
Auditing should be done by a competent,independent person.
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To do an audit, there must be information in averifiable form and some standards (criteria)by which the auditor can evaluate the information.
FASB IASBCriteria
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Evidence is any information used by the auditorto determine whether the information beingaudited is stated in accordance with theestablished criteria.
Transaction data
Client Testimony
Written andelectronic
Communications with outsiders
Observations
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Competence Judgment and Experience
Independence
Evaluation of Evidence
Proper Conclusion
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To the Board of Directors and Stockholders ofABC Corporation and SubsidiariesAnywhere, USA
We have audited the accompanying consolidated balance sheets of ABC Corporation and Subsidiaries (the “Company”) as of December 31, 2010 and December 31, 2009, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ABC Corporation and Subsidiaries as of December 31, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2011, expressed an unqualified opinion on the Company’s internal control over financial reporting.
INTERNATIONAL CPA FIRM LLPAnywhere, USAFebruary 28, 2011
The final step communicates the findings to users.
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Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Distinguish between auditingand accounting.
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Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making.
Auditing is determining whetherrecorded information properlyreflects the economic events thatoccurred during the accounting period.
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Explain the importance of auditing
in reducing information risk.
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Demand Driver Information risk
Auditing can have a significant effecton information risk.
What is meant by “Information risk”?
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List the causes of information risk, and explain how this
risk can be reduced.
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Remoteness of information
Biases and motives of the provider
Voluminous data
Complex exchange transactions
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User verifies information
User shares information risk with management
Audited financial statements are provided
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Auditor
ClientExternalUsers
Client or auditcommittee hires
auditor
Auditor issuesreport relied
upon by users to reduce information risk
Provides capital
Client provides financial statements to users
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Describe assurance services and distinguish audit services from other assurance and non-assurance services
provided by CPAs.
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An independent professional service
Can be performed by CPAs or by a variety of other professionals
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A type of assurance service
CPA reports on the reliability of an assertion
That is the made by another party.
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1. Audit
2. Internal Control over
Financial Reporting
Historical Financial
Statements
5. Other
3. Review3. Review
4. Information 4. Information TechnologyTechnology
Five Categories
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WebTrust and SysTrust also meet the criteria of attestation service
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Most of the other assurance services that CPAsprovide do not meet the formal definitionof attestation services.
The CPA is not required to issue a written report.
The assurance does not have to be about thereliability of another party’s assertion aboutcompliance with specified criteria.
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Global interest has triggered a surge in reports.
95% of the Global Fortune 250 released environmental, social, and governance data.
Presented in standalone reports or integrated into annual financial reports.
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Assess risks of accumulation, distribution,and storage of digital information…
including
assessing security risks and relatedcontrols over data and other informationstored electronically, including theadequacy of backup and off-site storage.
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Controls over and risks related to investments
Compliance with entertainment royalty agreements
ISO 9000 certifications
Corporate responsibility and sustainability
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Differentiate the three main types of audits.
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Operational
Compliance
Financial Statement
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ExampleEvaluate computerized payroll systemfor efficiency and effectiveness
InformationNumber of records processed, costs ofthe department, and number of errors
EstablishedCriteria
Company standards for efficiency andeffectiveness in payroll department
AvailableEvidence
Error reports, payroll records, andpayroll processing costs
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ExampleDetermine whether bank requirementsfor loan continuation have been met
Information Company records
EstablishedCriteria
AvailableEvidence
Loan agreement provisions
Financial statements andcalculations by the auditor
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Example
Information
EstablishedCriteria
AvailableEvidence
Annual audit of Boeing’s financialstatements
Boeing's financial statements
Generally accepted accountingprinciples
Documents, records, and outsidesources of evidence
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Extensible Business Reporting Language
Enables sorting and comparing of financial data
Public companies required to provide interactivefinancial statement data
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Identify the primary types of auditors.
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Certified public accounting firms
Governmental accountability office auditors
Internal Revenue agents
Internal auditors
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Describe the requirementsfor becoming a CPA.
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Educational requirement
Uniform CPA examination requirement
Experience requirement
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Auditing and
Attestation
Business Environment
and Concepts
Financial Accounting
And Reporting
Regulation
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Copyright
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