Modern

Modern Auditing:
Auditing:
Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
of
of Financial Reporting, 8th Edition
Financial Reporting, 8 th
Edition

William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University

Chapter 1 Auditing and the Public Accounting

Profession Integrity of Financial Reporting
Chapter
Chapter 1
1 Overview
Overview
 Auditing
Auditing Defined
Defined
Systematic process

Objectively obtaining and evaluating evidence

Assertions about economic actions and

events

Degree of correspondence
 Auditing
Auditing Defined
Defined (cont.)
(cont.)
Established criteria

Communicating the results

Interested users
Comparative
Comparative Summary
Summary of
of Types
Types
of
of Audits
Audits
 Types
Types of
of Auditors
Auditors
Independent Auditors

Internal Auditors

Government Auditors
 Assurance
Assurance Services
Services Defined
Defined
Independence

Professional services

Quality of information

Decision maker
 Example
Example Assurance
Assurance Services
Services
Audit Engagements

Attest Services
Examination
Review Engagement
Agreed-upon Procedures Engagement

Accounting Services

Compilation Services
 Levels
Levels of
of Assurance
Assurance
Reasonable Assurance

Negative Assurance

Agreed-upon Procedures

Compilation Without Assurance

Universe
Universe of
of Assurance
Assurance Services
Services
The
The Accountants
Accountants Value
Value Chain
Chain
 Study
Study Break
Break
1. This type of audit involves obtaining and
evaluating evidence about the efficiency
and effectiveness of an entitys operating
activities.
A. Financial Statement Audit
B. Compliance Audit
C. Operational Audit
D. Internal Control Audit

C. Operational Audit
 Study
Study Break
Break
2. These auditors are typically CPAs
who render professional auditing
services to clients.
A. Independent Auditors
B. Internal Auditors
C. Government Auditors
D. IRS Auditors

A. Independent Auditors
 The
The Roots
Roots of
of Auditing
Auditing
British influence and migration

Stock market crash

Legislation of the 1930s

Important changes in the 1940s

 The
The Roots
Roots of
of Auditing
Auditing
Scrutiny of 1980s lead to changes

Increasing amount of consulting in

1990s

Growing numbers of earnings

restatements

Sarbanes-Oxley Act of 2002

 Need
Need for
for Financial
Financial Statement
Statement
Audits
Audits
Conflict of Interest

Consequence

Complexity

Remoteness
 Economic
Economic Benefits
Benefits of
of an
an Audit
Audit

Access to Capital Markets

Lower Cost of Capital

Deterrent to Inefficiency and Fraud

Control and Operational Improvements

 Limitations
Limitations of
of aa Financial
Financial
Statement
Statement Audit
Audit
Economic Limitations
Reasonable Cost
Reasonable Length of Time

Accounting Framework Limitations

Alternative Accounting Principles
Accounting Estimates
 Study
Study Break
Break
3. Which of the following is not an
economic benefit of a financial
statement audit?
A. Access to Capital Markets
B. Lower Cost of Capital
C. Control and Operational Improvements
D. Maintain Fair Competition

D. Maintain Fair Competition

 Study
Study Break
Break
4. Which of the following is not an
inherent limitation of a financial
statement audit?
A. Reasonable Cost
B. Unlimited Timeframe
C. Alternative Accounting Principles
D. Accounting Estimates

B. Unlimited Timeframe
 Organizations
Organizations Associated
Associated with
with
the
the Public
Public Accounting
Accounting Profession
Profession
 Regulatory
Regulatory Framework
Framework for
for
Ensuring
Ensuring High-Quality
High-Quality Services
Services
Standard Setting

Firm Regulation

Inspection and Peer Review

Government Regulation
Standard-Setting
Standard-Setting Organizations
Organizations
in
in the
the United
United States
States
 Study
Study Break
Break
5. Which organization is considered to
be a private sector organization?
A. State Boards of Accountancy
B. Securities and Exchange Commission
C. AICPA
D. IRS

C. AICPA
 Study
Study Break
Break
6. This component of regulatory framework
includes the inspection of audits by the
PCAOB staff and peers in other accounting
firms.
A. Standard setting
B. Firm regulation
C. Inspection and peer review
D. Government regulation

C. Inspection and peer review