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Ch. 17Auditing and Evaluating the AIS
OUTLINETypes of audits
Audit Clarity Project
Generally accepted auditing standards
Financial statement audit steps
Learning objectives
1. Describe the various kinds of audits you might encounter in your accounting career.
2. Explain the purpose of the Audit Clarity Project and summarize its essential components.
3. Explain ten generally accepted auditing standards & their role in a financial statement audit.
4. Discuss the basic steps associated with a financial statement audit.
5. Explain the connection between auditing and accounting information systems.
AIS - Ch. 17 (http://ppt.cc/mJFq) 3
Types of audits (1/2)
Financial auditExpress an opinion on the fairness of a companys AIS/financial statements
Unmodified (clean) report () Qualified report () Adverse report () Disclaimer ()
Operational auditDetermine if a companys business processes & policies make sense
Systems auditAscertain whether information technology is producing expected results
AIS - Ch. 17 (http://ppt.cc/mJFq) 4
Types of audits (2/2)
Compliance auditExamine the AIS and financial statements of Government and not-for-profit organizations (GNFPs) entities
Management auditDetermines the way management decisions are supported.The way of Better Thinking.
Investigative auditInvestigates the AIS and related data to determine if fraud has occurred, or say fraud audit. (Fig. 17.1)
International auditApplies and combines one or more of the other types in international contexts
AIS - Ch. 17 (http://ppt.cc/mJFq) 5
Commonalities between types of audits
Checking existing conditions against some predetermined standard.
Questioning, firmly but professionally, managers and employees of the organization being audited.
Maintaining an independent attitude and appropriate professional distance from the client.
AIS - Ch. 17 (http://ppt.cc/mJFq) 6
Audit Clarity Project (ACP)
The ACPs goals were to make audit standards easier to read and to converge them with International Audit
Standards (IAS).Four main change areas to financial
statement audit standardsFormatTerminologyAdditional requirementsAudit report
AIS - Ch. 17 (http://ppt.cc/mJFq) 7
Format of Audit Clarity Project standards
AIS - Ch. 17 (http://ppt.cc/mJFq) 8
Introduction
Objective
DefinitionsRequirements
Guidance and explanatory
material
Terminology of Audit Clarity Project
Applicable financial reporting frameworkUS GAAPIFRS
Emphasis of matter paragraphCalls attention to something in the statements and / or the disclosures
AIS - Ch. 17 (http://ppt.cc/mJFq) 9
Additional requirementsof Audit Clarity Project
Ensure appropriateness of applicable financial reporting framework if other than US GAAP
Obtain agreement from management regarding their responsibilities for financial statements & internal control
Adhere to quality control standards throughout the audit
AIS - Ch. 17 (http://ppt.cc/mJFq) 10
Elements of the unmodified auditors report
AIS - Ch. 17 (http://ppt.cc/mJFq) 11
Element Explanation
Title Must include the phrase independent auditors report
Addressee May be the board of directors, management or other parties
Introductory paragraph Must identify the organization, the financial statements audited and related information
Managements responsibilities Financial statements and internal controls
Auditors responsibilities Performing an audit according to generally accepted auditing standards (GAAS)
Auditors opinion States that, in the auditors opinion, the statements are fairly presented
Signature, address and date Audit firms information
AIS - Ch. 17 (http://ppt.cc/mJFq) 12
Generally Accepted Auditing Standards
AIS - Ch. 17 (http://ppt.cc/mJFq) 13
Financial statement audit steps
AIS - Ch. 17 (http://ppt.cc/mJFq) 14
Audit steps
1. Managements integrityEthical behaviorAct in the best interests of the organization
2. Managements credentialsTechnically competent?Financially competent?
3. Internal control systemAssess the organizations risk exposures
4. Compliance testingExamining a sample of transactions and verifying
5. Audit report
AIS - Ch. 17 (http://ppt.cc/mJFq) 15
Assertions in the report
Existence or occurrenceRights and obligationsValuation and allocationCompletenessPresentation and disclosure
AIS - Ch. 17 (http://ppt.cc/mJFq) 16
AIS and auditing
Design and implementation of AISDeveloping and exercising professional judgementDecision-making with Better Thinking
Internal control and auditingUnderstand the risk exposures and the types of
controls to reduce risksUnderstand an organizations environment
Internal and external environment Information technology skills
Graphical trend analysis Statistical testsDatabase queries
AIS - Ch. 17 (http://ppt.cc/mJFq) 17
Q&A
AIS - Ch. 17 (http://ppt.cc/mJFq) 18