aud15_ppt_01_ge [compatibility mode].pdf
DESCRIPTION
audit 1TRANSCRIPT
1
1
Chapter 1
Copyright © 2014 Pearson Education
The Assurance Services Market
Describe auditing.
Distinguish between auditing and accounting.
E l i th i t f diti i
Copyright © 2014 Pearson Education1-2
Explain the importance of auditing in reducing information risk.
List the causes of information risk, and explain how this risk can be reduced.
Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.
Differentiate the three main types of
Copyright © 2014 Pearson Education1-3
Differentiate the three main types of audits.
Identify the primary types of auditors.
Describe the requirements for becoming a CPA.
1
Copyright © 2014 Pearson Education
Describe auditing.
1-4
Nature of AuditingNature of Auditing
Auditing is the accumulation and evaluationof evidence about information to determineand report on the degree of correspondencebetween the information and established criteria.
Copyright © 2014 Pearson Education1-5
Auditing should be done by a competent,independent person.
To do an audit, there must be information in averifiable form and some standards (criteria)by which the auditor can evaluate the information.
Copyright © 2014 Pearson Education1-6
FASB IASBCriteria
2
2
Evidence is any information used by the auditorto determine whether the information beingaudited is stated in accordance with the
t bli h d it i
Copyright © 2014 Pearson Education1-7
established criteria.
Transaction data
ClientTestimony
Written andelectronic
Communications with outsiders
Observations
Competence Judgment and Experience
Independence
Copyright © 2014 Pearson Education1-8
Evaluation of Evidence
Proper Conclusion
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 theamounts 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.
Copyright © 2014 Pearson Education1-9
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.
Copyright © 2014 Pearson Education1-10
2
Copyright © 2014 Pearson Education
Distinguish between auditingand accounting.
1-11
Accounting is the recording, classifying,and summarizing of economic eventsfor the purpose of providing financial
Copyright © 2014 Pearson Education1-12
information used in decision making.
Auditing is determining whetherrecorded information properlyreflects the economic events thatoccurred during the accounting period.
3
3
3
Copyright © 2014 Pearson Education
Explain the importance of auditing
in reducing information risk.1-13
Demand Driver Information risk
Copyright © 2014 Pearson Education1-14
Auditing can have a significant effecton information risk.
What is meant by “Information risk”?
4
Copyright © 2014 Pearson Education
List the causes of information risk, and explain how this
risk can be reduced.
1-15
Remoteness of information
Biases and motives of the provider
Copyright © 2014 Pearson Education1-16
Voluminous data
Complex exchange transactions
User verifies information
User shares information risk with management
Copyright © 2014 Pearson Education1-17
Audited financial statements are provided
AuditorClient or audit
committee hiresauditor
Auditor issuesreport relied
upon by users to reduce information risk
Copyright © 2014 Pearson Education1-18
Client ExternalUsers
information risk
Provides capital
Client provides financial statements to users
4
4
5
Copyright © 2014 Pearson Education
Describe assurance services and distinguish audit services from other assurance and non-assurance services
provided by CPAs.
1-19
An independent professional service
Copyright © 2014 Pearson Education1-20
Can be performed by CPAs or by a variety of other professionals
A type of assurance service
CPA reports on the reliability of an assertion
Copyright © 2014 Pearson Education1-21
That is the made by another party.
1. AuditHistorical Fi i l
3. Review3. Review
Five Categories
Copyright © 2014 Pearson Education1-22
2. Internal Control over
Financial Reporting
Financial Statements
5. Other 4. Information 4. Information TechnologyTechnology
WebTrust and SysTrust also meet the criteria of attestation service
Copyright © 2014 Pearson Education1-23
Most of the other assurance services that CPAsprovide do not meet the formal definitionof attestation services.
Copyright © 2014 Pearson Education1-24
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.
5
5
Global interest has triggered a surge in reports.
Copyright © 2014 Pearson Education1-25
95% of the Global Fortune 250 released environmental, social, and governance data.
Presented in standalone reports or integrated into annual financial reports.
Assess risks of accumulation, distribution,and storage of digital information…
Copyright © 2014 Pearson Education1-26
including
assessing security risks and relatedcontrols over data and other informationstored electronically, including theadequacy of backup and off-site storage.
Controls over and risks related to investments
Compliance with entertainment royalty agreements
Copyright © 2014 Pearson Education1-27
ISO 9000 certifications
Corporate responsibility and sustainability
Copyright © 2014 Pearson Education1-28
6
Copyright © 2014 Pearson Education
Differentiate the three main types of audits.
1-29
Operational
Compliance
Copyright © 2014 Pearson Education1-30
Financial Statement
6
6
Example Evaluate computerized payroll systemfor efficiency and effectiveness
Information Number of records processed, costs of
Copyright © 2014 Pearson Education311‐31
Information p ,the department, and number of errors
EstablishedCriteria
Company standards for efficiency andeffectiveness in payroll department
AvailableEvidence
Error reports, payroll records, andpayroll processing costs
Example Determine whether bank requirementsfor loan continuation have been met
Information Company records
Copyright © 2014 Pearson Education3232
Information Company records
EstablishedCriteria
AvailableEvidence
Loan agreement provisions
Financial statements andcalculations by the auditor
Example
Information
Annual audit of Boeing’s financialstatements
Boeing's financial statements
Copyright © 2014 Pearson Education1-33
Information
EstablishedCriteria
AvailableEvidence
Boeing's financial statements
Generally accepted accountingprinciples
Documents, records, and outsidesources of evidence
Extensible Business Reporting Language
Copyright © 2014 Pearson Education1-34
Enables sorting and comparing of financial data
Public companies required to provide interactivefinancial statement data
7
Copyright © 2014 Pearson Education
Identify the primary types of auditors.
1-35
Certified public accounting firms
Governmental accountability office auditors
Copyright © 2014 Pearson Education1-36
Internal Revenue agents
Internal auditors
7
7
8
Copyright © 2014 Pearson Education
Describe the requirementsfor becoming a CPA.
1-37
Educational requirement
Uniform CPA examination requirement
Copyright © 2014 Pearson Education1-38
Experience requirement
Auditing and
Attestation
Financial Accounting
And Reporting
Copyright © 2014 Pearson Education1-39
ttestat o
Business Environment
and Concepts
Reporting
Regulation
Copyright © 2014 Pearson Education1-40
Copyright © 2014 Pearson Education41
Copyright
Copyright © 2014 Pearson Education42
All rights reserved. No part of this publication may be reproduced,stored in a retrieval system, or transmitted, in any form or by anymeans, electronic, mechanical, photocopying, recording, orotherwise, without the prior written permission of the publisher.Printed in the United States of America.