Auditing & Assurance Services, 6e Chapter 01 Learning Objectives Definition of Auditing

Auditing & Assurance Services, 6e Chapter 01 Learning Objectives Definition of Auditing www.phwiki.com

Auditing & Assurance Services, 6e Chapter 01 Learning Objectives Definition of Auditing

Simpson, Jason, Meteorologist has reference to this Academic Journal, PHwiki organized this Journal Auditing & Assurance Services, 6e Chapter 01 Auditing in addition to Assurance Services “Our system of capital as long as mation relies upon the confidence of millions of savers to invest in companies. The auditor’s opinion is critical to that trust.” – James R. Doty, Chairman Public Company Accounting Oversight Board (PCAOB) 1- Learning Objectives Define in as long as mation risk in addition to explain how the financial statement auditing process helps to reduce this risk, thereby reducing the cost of capital as long as a company. Define in addition to contrast financial statement auditing, attestation, in addition to assurance services. Describe in addition to define the assertions that management makes about the recognition, measurement, presentation, in addition to disclosure of the financial statements in addition to explain why auditors use them as the focal point of the audit. Define professional skepticism in addition to explain its key characteristics. Describe the organization of public accounting firms in addition to identify the various services that they offer. Describe the audits in addition to auditors in governmental, internal, in addition to operational auditing. List in addition to explain the requirements as long as becoming a certified public accountant (CPA) in addition to other certifications available to an accounting professional. 1-

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User Dem in addition to as long as Reliable In as long as mation Today’s in as long as mation More complex Dem in addition to ed by remote users Dem in addition to ed in a more timely manner Has far reaching consequences In as long as mation risk The risk that the in as long as mation disseminated by a company will be materially false or misleading. Users dem in addition to an independent third party assessment of the in as long as mation Business risk The risk that an entity will fail to meet its stated business objectives 1- Definition of Auditing Auditing is a systematic process of objectively obtaining in addition to evaluating evidence regarding assertions about economic actions in addition to events to ascertain the degree of correspondence between the assertions in addition to established criteria in addition to communicating the results to interested users. Financial Statements (including footnotes) GAAP Auditor’s Report/ Other Reports Persons who rely on the financial reports Creditors Investors Source: American Accounting Association Committee on Basic Auditing Concepts. 1973. A Statement of Basic Auditing Concepts, American Accounting Association (Sarasota, FL). 1- Exhibit 1.1: Overview of Financial Statement Auditing 1-

Attestation Engagements An attestation engagement – a practitioner is assesses in addition to reports on “subject matter or an assertion about the subject matter that is the responsibility of another party.” Some financial attestation engagements (other than audits) Financial as long as ecasts in addition to projections Examination of Management’s Discussion & Analysis Pro as long as ma financial in as long as mation Some non-financial attestation engagements Effectiveness of internal control systems Compliance with environmental regulations Sustainability reporting engagements 1- Exhibit 1.2: Sustainability Report as long as UPS 1- Assurance Services Assurance services are independent professional services that improve the quality of in as long as mation, or its context, as long as decision makers. Examples XBRL Reporting In as long as mation risk assessment Customer satisfaction surveys. Internal audit outsourcing 1-

Exhibit 1.4: The Relationships Among Auditing, Attestation, in addition to Assurance Engagements Assurance Services Attestation Services Auditing 1- Sarbanes-Oxley Act of 2002 Management’s Responsibility For Financial Reporting One of its most important provisions clearly indicates that the management team is responsible as long as the financial reporting process in addition to the financial statements. In fact, Section 302 of the Act states that the key company officials must certify the financial statements. That is, the company CEO in addition to CFO must sign a statement indicating: They have read the financial statements. They are not aware of any false or misleading statements (or any key omitted disclosures). They believe that the financial statements present an accurate picture of the company’s financial condition. Source: U.S. Congress, Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat/ 745 (2002). 1- Management’s Financial Statement Assertions (PCAOB) Existence or occurrence – Assets in addition to liabilities included in the accounts exist in addition to recorded transactions are valid in addition to have actually occurred. Rights in addition to obligations- Entity has a legal claim on all assets in addition to revenues reported in addition to has a legal responsibility as long as all liabilities in addition to expenses Completeness – All balances in addition to transactions have been recorded in the financial statements Valuation or allocation – Assets, liabilities in addition to recorded transactions have been valued in accordance with GAAP Presentation in addition to disclosure – All accounts are presented in the appropriate place in addition to all in as long as mation required has been disclosed in the statements in addition to footnotes. 1-

Management’s Financial Statement Assertions (ASB) Assertions about Events in addition to Transactions Occurrence – Events giving rise to transactions are valid in addition to have taken place Completeness in addition to Cutoff – All transactions have been recorded in addition to are recorded in the appropriate period Accuracy – Transactions are recorded at the correct amount Classification – Transactions have been posted to the proper account 1- Management’s Financial Statement Assertions (ASB) Assertions about Account Balances Existence – Balances include only assets in addition to liabilities that exist Rights in addition to obligations – Entity has legal claim on all assets in addition to revenues reported in addition to has a legal responsibility as long as all liabilities in addition to expenses Completeness – Balances include all items that should be included in accordance with GAAP Accuracy in addition to valuation –Balances are reported at the proper amount in accordance with GAAP 1- Management’s Financial Statement Assertions (ASB) Assertions about Presentation in addition to Disclosures Occurrence in addition to rights in addition to obligations – items presented have occurred in addition to are either owned by or represent the responsibility of the entity Completeness – the proper disclosures have all been made by the entity Classification in addition to underst in addition to ability – accounts in the disclosures have been appropriately grouped in addition to users can comprehend the disclosures Accuracy in addition to valuation – the amounts in the disclosures have been properly measured in addition to are valued in accordance with GAAP 1-

Exhibit 1.6: Assertions in addition to their Relationships to the Financial Statements 1- Professional Skepticism Refers to an auditor’s questioning mindset towards representations made by management in addition to evidential matter gathered Inquiry alone is never enough. The auditor must obtain sufficient corroborative evidence. Unusual financial trends need investigation Documents are always checked as long as authenticity or possible alteration Ask questions, get answers, then verify the answers. Must be skeptical because a potential conflict of interest always exists between the auditor in addition to the client. Management wants to portray the company in addition to its operations in the best possible light. Auditors want to make sure that this portrayal is fair in addition to accurate. 1- A Professional Judgment Process Clarify the issues in addition to objectives Consider the possible alternatives Gather in addition to evaluate the relevant evidence Reach an audit conclusion Carefully document rationale as long as the professional judgment reached Source: “Elevating Professional Judgment in Accounting in addition to Auditing: The KPMG Professional Judgment Framework” (Montvale, NJ: KMPG, 2011). 1-

The Public Accounting Profession Assurance services Financial Statement Audit engagements Assurance engagements Attestation engagements Compilations Reviews Tax services Consulting in addition to Advisory services 1- Exhibit 1.7: Public Accounting Firm Organization 1- Organization of the Profession “Big Four” Accounting Firms Deloitte, EY, KPMG, PwC National Grant Thornton, BDO, McGladrey Local/Regional Melton & Melton (Houston) Plante Moran (Michigan/Illinois/Wisconsin) Goodman & Company (Virginia) Sole Proprietor 1-

Exhibit 1.8: Revenues as long as the Big Four CPA Firms 1- Prohibited Professional Services In summary, Sarbanes-Oxley prohibits professional service firms from per as long as ming any client services as long as audit clients in which the auditors may find themselves making management decisions or auditing their own firm’s work. Specifically, Sarbanes-Oxley prohibits professional service firms from providing any of the following services to an audit client: bookkeeping in addition to related services design or implementation of financial in as long as mation systems appraisal or valuation services actuarial services internal audit outsourcing management or human resources services investment or broker/dealer services legal in addition to expert services (unrelated to the audit) Professional service firms may provide client tax services (with some restrictions) in addition to other non-prohibited services to audit clients if the company’s audit committee has approved them in advance. 1- Types of Audits in addition to Auditors Financial (External Auditors/CPAs) Ensure that financial statements are reliable Operational (Internal in addition to Governmental Auditors/CIAs) Improve operational economy Improve operational efficiency Compliance (Internal in addition to Governmental Auditors) Ensure compliance with company in addition to /or governmental rules in addition to regulations Forensic (Fraud Auditors/CFEs) Designed to investigate a crime in addition to will often involve gathering evidence designed to convict a fraudster 1-

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Become Certified! Education Examination Experience State Certificate in addition to License Skills sets in addition to your education 1- The CPA Exam Significantly Revised in 2011 Computerized 14 Hours – Four parts Auditing in addition to Attestation (AUD) Financial Accounting in addition to Reporting (FAR) Regulation (REG) Business Environment in addition to Concepts (BEC) Multiple Choice Questions in addition to Task-Based Simulations 1-

Simpson, Jason Meteorologist

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