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Chapter 17

Auditing and Evaluating the AIS

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Outline

• Learning objectives

• Types of audits

• Audit Clarity Project

• Generally accepted auditing standards

• Financial statement audit steps

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Learning objectives1. 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.

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Types of audits

• Financial auditExpress an opinion on the fairness of a company’s financial statements

• Operational auditDetermine if a company’s business processes & policies “make sense”

• Systems auditAscertain whether information technology is producing expected results

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Types of audits

• Compliance auditExamine the AIS and financial statements of GNFP entities

• Management auditDetermines the way management decisions are supported

• Investigative auditInvestigates the AIS and related data to determine if fraud has occurred

• International auditApplies and combines one or more of the other types in international contexts

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Audit Clarity Project

Four main change areas to financial statement audit standards

– Format

– Terminology

– Additional requirements

– Audit report

The ACP’s goals

were to make audit

standards easier to

read and to

converge them with

international audit

standards.

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Audit Clarity Project

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Audit Clarity Project

• Terminology– Applicable financial

reporting framework• US GAAP• IFRS

– Emphasis of matter paragraph

Calls attention to something in the statements and / or the disclosures

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Audit Clarity Project

• Additional requirements– 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

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Audit Clarity Project

Table 17.1Elements of the unmodified auditor’s report 

Element Explanation

Title Must include the phrase “independent auditor’s 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

Management’s responsibilities Financial statements and internal controls

Auditor’s responsibilities Performing an audit according to generally accepted auditing standards (GAAS)

Auditor’s opinion States that, in the auditor’s opinion, the statements are fairly presented

Signature, address and date Audit firm’s information

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Generally Accepted Auditing Standards

Figure 17.3

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Financial statement audit stepsFigure 17.4

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