Some Math..

Quizzes/Curve Exam 1 Exam 2 Exam 3 Final

66.81 90 81 82 80



Total = 399.81 = 79.962% = C
Why should I care about auditing?
Chapter 1
The Demand for Auditing and
Assurance Services

I have no use for bodyguards, but I have very specific
use for two highly trained certified public accountants.

- Elvis Presley
Definition of Auditing
Auditing is a systematic process of
objectively obtaining and
evaluating evidence regarding
assertions about economic actions
and events to ascertain the degree
of correspondence between the
assertions and established criteria
and 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).
Overview of Financial Statement Auditing
Accounting v. Auditing?
Accounting:



Auditing:
Which of the following is the primary
distinction between auditors and
accountants?
a) Auditors are required to be CPAs
b) Auditors have more in-depth knowledge of
accounting than accountants in order to
verify or supervise their work
c) Most accountants are CMAs
d) All of the above
e) None of the above

User Demand for Reliable Information
Information risk
the risk (probability) that the information (mainly
financial) disseminated by a company will be materially
false or misleading.
users demand an independent third party assessment of
the information

Causes
More complex
More voluminous
Demanded by remote users
Biases or motives

The primary purpose of auditing is to
eliminate business risk?

TRUE


FALSE
Solution?
Professional Skepticism
Professional skepticism - auditors questioning, evaluative, attitude
toward evidence
Managements assertions without sufficient corroboration.
Financial trends need investigation
Documents are checked for authenticity or alteration
Ask questions, get answers, then verify the answers.


A potential conflict of interest always exists between the auditor and
the client.
Management wants to portray the company and its operations in the best
possible light.
Auditors want to portray the company and its operations fairly.

Because an audit in accordance with generally
accepted auditing standards is influenced by the
possibility of material misstatements, the auditor
should conduct the audit with an attitude of
a) Objective judgment
b) Conservative advocacy
c) Professional responsiveness
d) Professional skepticism
Assurance Services
Assurance services are independent professional
services that improve the quality of information, or its
context, for decision makers.

Examples
Consumer reports
Compliance with entertainment royalty agreements
CPA WebTrust
Process/System assessment
Quality control standards compliance
Attestation Engagements
An attestation engagement - a practitioner assesses and reports on
subject matter or an assertion about the subject matter that is the
responsibility of another party.
-Audit of financial statements
-Audit of internal control over financial reporting
-Reviews of financial statements
-Attestation services on information technology
-Other attestation services

Some financial attestation engagements (other than audits)
Supplementary financial statistics
Pro forma financial information
Financial forecasts and projections
Some non-financial attestation engagements
Compliance with contractual requirements
Effectiveness of internal control systems
Inventory quantities and locations
The Relationships Among Auditing,
Attestation, and Assurance Engagements
Assurance Services
Any Information
Attestation Services
Primarily Financial Information
Auditing
Financial Statements
Which of the following would not be
considered an assurance service?
a) Mystery shopping reports
b) NBA draft lottery operations audit
c) Audit of financial Statements
d) Tax services
e) Both a and b
f) All of the above
Which of the following is considered
an attestation engagement?
a) Review of financial statements
b) Tax return preparation
c) Audit of financial statements
d) Bookkeeping services
e) Only a and c
f) All of the above (a-d)
Sarbanes-Oxley Act of 2002
In response to several accounting related corporate scandals Congress
passed the Sarbanes-Oxley Act

The Acts major provisions include:
Requirement of CEO/CFO certification of financial statements
(302)

Requirement of auditor examination of company internal controls
(404)

Creation of the Public Company Accounting Oversight Board
(PCAOB) to serve as an auditing profession watchdog.

Prohibition of certain client services by firms conducting a clients
audit.
Sarbanes-Oxley:
Managements Responsibility For Financial
Reporting

One of its most important provisions (Section 302) states that the
key company officials must certify the financial statements.
The company CEO and CFO must sign a statement indicating:

1. They have read the financial statements.

2. They are not aware of any false or misleading statements (or
any key omitted disclosures).

3. They believe that the financial statements present an accurate
picture of the companys financial condition.


The Public Company Accounting Oversight Board
(PCAOB) uses the term internal control over
financial reporting to describe a process that does
not include which of the following procedures?
a) Procedures performed by the auditor
b) Procedures that pertain to the maintenance of reasonably detailed
records that accurately and fairly reflect the transactions and
disposition of the companys assets
c) Procedures that provide reasonable assurance that company
receipts and expenditures are made only in accordance with
company management and direct authorization
d) Procedures that provide reasonable assurance regarding timely
detection of unauthorized disposition of company assets
A CPA firm must do which of the following before it
can participate in the preparation of a company
registered with the Securities and Exchange
Commission (SEC)?

a) Join the SEC Practice Section of the
AICPA
b) Register with the Public Company
Accounting Oversight Board
c) Register with the Financial Accounting
Standards Board
d) Register with the SEC pursuant to
Securities Exchange Act of 1934
Sarbanes-Oxley Section 302 sets
forth rules regarding auditor
independence

TRUE


FALSE
Section 302 of the Sarbanes-Oxley Act require a companys
management to make quarterly certifications with respect to
the companys internal control over financial reporting. Which
of the following are true with regard to these certifications?
I. The auditor should perform procedures to provide a high level of
assurance that the controls are operating effectively.
II. If the auditor communicates to the appropriate level of management
that the auditor believes that modification to the disclosures about
changes in internal control over financial reporting are necessary for
the certifications to be accurate, but management does not respond
appropriately, the auditor should inform the audit committee
a) I only
b) II only
c) Both I and II
d) Neither I nor II
Types of Audits and Auditors
Financial (External Auditors/CPAs)
Ensure that financial statements are in accordance with specified
criteria.

Operational (Internal and Governmental Auditors)
Improve operational economy
Improve operational efficiency

Compliance (Internal and Governmental Auditors)
Ensure compliance with company and/or governmental rules and
regulations

Most audits are a combination of financial, operational, and
compliance audits.
Fill-in-the-blank
A ________ audit is conducted to determine
whether the financial statements are stated in
accordance with specified criteria.
Match the auditor with the type of audit
I. Operational audit
II. Compliance audit
III. Financial statement
audit
A. Internal Revenue
Agent
B. Government
Accountability Office
Auditor
C. Independent Auditor
D. Internal Auditor

Become Certified!
Education


Examination


Experience
The CPA Exam
Computerized

Four parts
Auditing and attestation4 hours
Financial accounting and reporting4 hours
Regulation3 hours
Business environment3 hours

Skill setsresearch, communication, analysis,
judgment and understanding