Arens14e Ch01 Ppt Ge

5/20/2018 Arens14e Ch01 Ppt Ge

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2012 Pearson Education,Auditing 14/e,Arens/Elder/Beasley 1 - 1

The Assurance Services

Market

Chapter 1


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Adelphia

Enron

Tyco

WorldCom

Sarbanes-Oxley Act

The Act established the Public Company

Accounting Oversight Board.

It also requires auditors to report on the

effectiveness of internal control over

financial reporting.


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Learning Objective 1

Describe auditing.


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Nature of Auditing

Audi t ingis the accumulation and evaluation

of evidence about information to determine

and report on the degree of correspondencebetween the information and established criteria.

Auditing should be done by a competent,

independent person.


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Information and EstablishedCriteria

To do anaudit, there must be information in a

verif iable formand somestandards(cri ter ia)

by which the auditor can evaluate the information.

IASBFASBCriteria


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Accumulating Evidence andEvaluating Evidence

Evidenceis any information used by the auditor

to determine whether the information being

audited is stated in accordance with theestablished criteria.

Client inquiry

Written andelectronic

Communications

with outsiders

Observations

Transaction

data


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Competent, Independent Person

Judgment and

Experience

Evaluation

of Evidence

Competence

Proper

Conclusion

Independence


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To the Board of Directors and Stockholders ofABC Corporation and SubsidiariesAnywhere, USAWe have audited the accompanying consolidated balance sheets of ABC Corporation and Subsidiaries (the Company) as of December 31, 2010 and December31, 2009, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended December31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement scheduleare the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedulebased on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide 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 ofDecember 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 December31, 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 forththerein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control

over financial reporting as of December 31, 2010, based on the criteria established in Internal Control

Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated February 28, 2011, expressed an unqualified opinion on the Companys internalcontrol over financial reporting.INTERNATIONAL CPA FIRM LLP

Anywhere, USAFebruary 28, 2011

The final step communicates the findings to users.

Audit Report


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Audit of a Tax Return Example


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Distinguish between auditing

and accounting.


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Distinguish BetweenAuditing and Accounting

Account ingis the recording, classifying,

and summarizing of economic events

for the purpose of providing financialinformation used in decision making.

Audi t ingis determining whether

recorded information properlyreflects the economic events that

occurred during the accounting period.


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Explain the importance of auditing

in reducing information risk.


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Economic Demandfor Auditing

Demand Driver Information risk

Auditing can have a significant effect

on information risk.

What is meant by Information risk?


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List the causes of information risk, andexplain how this risk may be reduced.


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Causes of Information Risk

Remoteness of information

Biases and motives of the provider

Voluminous data

Complex exchange transactions


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Reducing Information Risk

User verifies information

User shares information risk with management

Audited financial statements are provided


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Relationships Among Auditors,Client, and External Users

Auditor

ClientExternal

Users

Client or audit

committee hires

auditor

Auditor issues

report relied

upon by users to reduceinformation risk

Provides capital

Client provides financial

statements to users


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Describe assurance services and distinguishaudit services from other assurance and

non-assurance services provided by CPAs.


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Assurance Services

An independent professional service

Can be performed by CPAs or by a variety

of other professionals


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Attestation Services

A type of assurance service

CPA reports on the reliability of an assertion

That is the responsibility of another party.


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Attestation Services

HistoricalFinancial

Statements

1. Audit 3. Review

2. InternalControl over

Financial

Reporting

4. Information

Technology5. Other


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Attestation Services onInformation Technology

WebTrustand SysTrustalso meet the

criteria of attestation service


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Other Assurance Services

Most of the other assurance services that CPAs

provide do not meet the formal definition

of attestation services.

The CPA is not required to issue a written report.

The assurance does not have to be about thereliability of another partys assertion about

compliance with specified criteria.


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Green Initiatives Bring AssuranceOpportunities, Competition

Global interest has triggered a surge in reports.

80% 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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Other Assurance ServicesExamples

Assess risks of accumulation, distribution,

and storage of digital information

assessing security risks and related

controls over data and other information

stored electronically, including the

adequacy of backup and off-site storage.

including


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Other Assurance ServicesExamples

Compliance with trading policies and procedures

Compliance with entertainment royalty agreements

ISO 900 certification

Environmental audit


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2012 Pearson Education,Auditing 14/e,Arens/Elder/Beasley

Assurance, Attestation, andNonassurance Services


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Differentiate the three main types of audits.


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Types of Audits

Operational

Compliance

Financial Statement


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Operational Audit

ExampleEvaluate computerized payroll system

for efficiency and effectiveness

Information Number of records processed, costs ofthe department, and number of errors

Established

Criteria

Company standards for efficiency and

effectiveness in payroll department

Available

Evidence

Error reports, payroll records, and

payroll processing costs


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Compliance Audit

ExampleDetermine whether bank requirements

for loan continuation have been met

Information Company records

Established

Criteria

Loan agreement provisions

Available

Evidence

Financial statements and

calculations by the auditor


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Audit of Historical FinancialStatements

ExampleAnnual audit of Boeings financial

statements

Information Boeing's financial statements

Established

Criteria

Generally accepted accounting

principles

Available

Evidence

Documents, records, and outside

sources of evidence


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XBRL Electronic Data to ImproveFinancial Reporting

Extensible Business Reporting Language

Enables sorting and comparing of financial data

Public companies required to provide interactive

financial statement data


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Identify the primary types of auditors.


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Types of Auditors

Internal auditors

Independent certified public accounting firms

Internal Revenue agents

Governmental general accounting office auditors


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Describe the requirements

for becoming a CPA.


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Three Requirements forBecoming a CPA

Educational requirement

Uniform CPA examination requirement

Experience requirement


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CPA Examination Sections

Auditing

and

Attestation

Financial

Accounting

And

Reporting

BusinessEnvironment

and

Concepts

Regulation


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CBT-e: The CPA Exam Gets aMakeover

New content and skill specification outline

revisions.

Exam structure changes and weighting of

individual exam components.

Coverage of international auditing and financial

reporting standards.


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Three Requirements for Becominga CPA


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2012 P Ed ti A diti 14/ A /Eld /B l 1 41

End of Chapter 1