auditing chapter 1
TRANSCRIPT
Modern Auditing:Assurance Services and the Integrity of Financial Reporting, 8th EditionWilliam C. BoyntonCalifornia Polytechnic State University at San Luis Obispo
Raymond N. JohnsonPortland State University
Chapter 1 Auditing and the Public Accounting Profession Integrity of Financial Reporting
Chapter 1 Overview
Auditing Defined Systematic process Objectively obtaining and evaluating evidence
Assertions about economic actions and events Degree of correspondence
Auditing Defined (cont.) Established criteria
Communicating the results
Interested users
Comparative Summary of Types of Audits
Types of Auditors Independent Auditors
Internal Auditors
Government Auditors
Assurance Services Defined Independence Professional services Quality of information Decision maker
Example Assurance Services Audit Engagements Attest Services Examination Review Engagement Agreed-upon Procedures Engagement
Accounting Services Compilation Services
Levels of Assurance Reasonable Assurance Negative Assurance Agreed-upon Procedures Compilation Without Assurance
Universe of Assurance Services
The Accountants Value Chain
Study Break1. 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 Break2. 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 Roots of Auditing British influence and migration Stock market crash Legislation of the 1930s Important changes in the 1940s
The Roots of Auditing Scrutiny of 1980s lead to changes Increasing amount of consulting in 1990s Growing numbers of earnings restatements Sarbanes-Oxley Act of 2002
Need for Financial Statement Audits Conflict of Interest Consequence Complexity Remoteness
Economic Benefits of an Audit Access to Capital Markets Lower Cost of Capital Deterrent to Inefficiency and Fraud
Control and Operational Improvements
Limitations of a Financial Statement Audit Economic Limitations Reasonable Cost Reasonable Length of Time
Accounting Framework Limitations Alternative Accounting Principles Accounting Estimates
Study Break3. 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 Break4. 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 Associated with the Public Accounting Profession
Regulatory Framework for Ensuring High-Quality Services Standard Setting Firm Regulation Inspection and Peer Review Government Regulation
Standard-Setting Organizations in the United States
Study Break5. 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 Break6. 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