Lesson 1 An Introduction To Auditing
Lesson 1 An Introduction To Auditing
Lesson 1 An Introduction To Auditing
Lesson 1
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Learning Objectives
1. Recognize an integrated audit and a financial statement audit report. 2. Describe the overall purpose and value of an audit, and identify the differences among an integrated audit, and audit of internal control, an audit of internal control over financial reporting, and a financial statement audit. 3. Define and contrast the responsibilities and expectations of different parties affected by the audit. 4. Learn the roles and interaction of the governing and standardsetting bodies and other entities that affect auditing. 5. Understand the link between independent auditors and accountants who provide other professional services.
An Introduction to Auditing
An Integrated Audit
Exhibit 1-1
Financial statement audit Integrated audit What it means when an auditor issues an unqualified or clean audit report on the financial statements
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To enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework
1. Auditing is a systematic process 2. An audit involves obtaining and evaluating evidence about assertions regarding economic actions & events 3. An audit is conducted objectively 4. Auditors ascertain the degree of correspondence between assertions & established criteria 5. Auditors communicate the audit results to various interested parties
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To be an accountant, it is necessary to have accounting knowledge. Understand business transactions Know what information to capture Know controls needed for activity and information Be able to report it for various purposes Be able to record it according to accounting standards To be an auditor, it is also it is necessary to know audit processes and audit reporting
Management
Authors financial statements
Auditor
Authors audit report
By giving an opinion on financial statement fairness, the auditor is indirectly reporting on managements assertions.
Beneficiaries of Audits
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Management produces financial statements Auditor gathers and evaluates evidence Many forms of evidence; anything the auditor uses Auditor uses established standards to compare evidence to the financial statements Looks for correspondence between what is presented and the underlying evidence Uses processes described/required in auditing standards. Auditor issues report
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Value of an Audit
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Value of an Audit
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To society: capital markets benefit To owners and prospective owners: remote ownership, complex transactions, investment decisions To corporate governance, the Board of Directors and audit committee: representing shareholders interests To management running the company with good information cost of and access to capital operating efficiency and effectiveness credibility of performance indicators properly accounting for complex transactions
Constituents: society, owners and prospective owners, corporate governance, management All of these constituents need good information. Even nonpublic companies elect to have audits, although they are not required to do so by any law or regulation.
Types of Audit
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Types of auditors
1. External auditor
conducted by an independent CPA to determine whether FS of an entity are fairly presented in accordance with GAAP Involves a review of an organizations procedures to determine whether it has adhered to specific procedures, rules or regulations A study of a specific unit of an organization for the purpose of measuring its performance. Objective is to assess performance, identify areas for improvements & make recommendations to improve performance
Independent CPAs who offer their professional services to different clients on a contractual basis An entitys own employee who investigate & appraise the effectiveness & efficiency of operations and internal controls Government employees whose main concern is to determine wheter persons or entities comply with government rules & procedures
2. Compliance audit
2. Internal auditor
3. Operational audit
3. Government auditors
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Government auditors
Internal auditors
SOX required: The SEC to set up an auditing governance organization Management of public companies to provide an audited report
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Types of Audit Services: Integrated audits for larger public companies Financial statement audits for nonaccelerated filer public and non-public companies Reviews of interim financial statements for public companies Reviews and compilations for non-public companies
Partners Managers
Seniors
Staff Assistant
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Responsibilities on an Engagement
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PartnerOverall responsibility is to assure that that audit is performed in accordance with professional standards. ManagerSupervise overall engagement. SeniorsIn charge auditor on a daily basis Staff assistantsWork under the immediate supervision of the senior
consulting
CPA Services