Transcript ACC 3303: AUDITING

ACC 3303: AUDITING
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Assurance Services ??
Need for Assurance ?
Illustration using an Audit Engagement as an example
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Assurance Services ??
Definition (ISA 100 Assurance Engagements)
An engagement where a professional accountant
evaluates or measures a subject matter that is the
responsibility of another party against suitable
criteria, and expresses an opinion which provides
the indented user with a level of assurance about
the subject matter.
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Assurance Services ??
Levels of Assurance
1. Absolute Assurance
2. High-level of Assurance
3. Moderate Assurance
4. No Assurance
Examples ?
The graphical illustration
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Audit Engagements
Definition (SLAuS – Glossary of Terms)
The objective of an audit of financial statements is
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.
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Audit Engagements
Definition of ‘Audit’
A systematic process of objectively obtaining and
evaluating evidence regarding assertions about
economic actions and events to ascertain the
degree of correspondence between these
assertions
and
established
criteria
and
communicating the results to the interested
users.
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Audit Engagements
Accounting & Auditing - Difference
Accounting: Generation of financial information
which is the responsibility of the management
Auditing: Process that evaluates this information
against a criteria
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Audit Engagements
Types of Audits (by objective)
1. Financial Statement Audits
2. Compliance Audits (of laws and regulations)
3. Operational Audits (Operational Efficiency,
Effectiveness and Economy of operations)
Type of Audits (by affiliation – relationship)
1. External Auditors
2. Internal Auditors
3. Government Auditors
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Audit Engagements
Theoretical Framework
Postulates (basic ground rules)
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Financial data/ information are verifiable
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No long term conflict between mgt and auditors
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Internal control structures reduce fraud & errors
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SLAS leads to fair presentation
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True in past is true for future
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FS are free of unusual irregularities (e.g. Fraud)
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Auditors are independent in expressing their opinion
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Auditor is professionally obligated
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Audit Engagements
Why FS are Audited ?
- Potential conflict (Mgrs and Users)
- Information is critical in decision making
- Expertise is important in preparing and verifying
information
- Users are not allowed directly to access
information
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Audit Engagements
Limitations ?
- Sampling technique
- Most of audit evidence is not conclusive but
persuasive
- Limitations of acc and internal control systems
- Human weaknesses as fatigue, carelessness
- An exercise of postmortem
- Auditing is judgmental
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Nature of Auditing
Auditing is the accumulation and evaluation
of evidence about information to determine
and report on the degree of correspondence
between the information and established criteria.
Auditing should be done by a competent,
independent person.
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Information and Established
Criteria
To do an audit, there must be information in a
verifiable form and some standards (criteria)
by which the auditor can evaluate the information.
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Accumulating Evidence and
Evaluating Evidence
Evidence is any information used by the auditor
to determine whether the information being
audited is stated in accordance with the
established criteria.
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Competent, Independent
Person
The auditor must be qualified to understand the
criteria used and must be competent to know
the types and amount of evidence to accumulate
to reach the proper conclusion after the
evidence has been examined.
The competence of the individual performing
the audit is of little value if he or she is biased
in the accumulation and evaluation of evidence.
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Reporting
The final stage in the auditing process is preparing
the Audit Report, which is the communication
of the auditor’s findings to users.
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Distinguish Between
Auditing and Accounting
Accounting is the recording, classifying,
and summarizing of economic events
for the purpose of providing financial
information used in decision making.
Auditing is determining whether
recorded information properly
reflects 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 Demand
for Auditing
Information risk reflects the possibility that
the information upon which the business
risk decision was made was inaccurate.
Auditing can have a significant effect
on information risk.
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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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AUDITING, ATTEST, AND
ASSURANCE SERVICES
DEFINED
• AUDITING (broadly defined) is a
systematic process of objectively
obtaining and evaluating evidence
regarding assertions about economic
actions and events to ascertain the
degree of correspondence between
those assertions and established criteria
and communicating the results to
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interested parties.
AUDITING, ATTEST, AND
ASSURANCE SERVICES
DEFINED
• ATTEST services occur when a practitioner is
engaged to issue or does issue a report on
subject matter, or an assertion about subject
matter, that is the responsibility of another
party.
• ASSURANCE services are independent
professional services that improve the quality
of information, or its context, for decision
makers.
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THE RELATIONSHIP AMONG
AUDITING, ATTEST, AND
ASSURANCE SERVICES
Auditing
Attestation
Assurance
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Assurance Services
Assurance services are professional
services that improve the quality of
information for decision makers.
Assurance services can be
performed by CPAs or by
a variety of other professionals.
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Attestation Services
An attestation service is a type of assurance
service in which the firm issues a
report about the reliability of an assertion
that is the responsibility of another party.
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Attestation Services
1. Audit of historical financial statements
2. Effectiveness of internal control over
financial reporting
3. Review of historical financial statements
4. Other attestation services
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Relationships Among Auditors,
Client, and External Users
Client or audit
committee hires
auditor
Client
Auditor
Auditor issues
report relied
upon by users
External
Users
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Assurance, Attestation, and
Nonassurance Services
ASSURANCE SERVICES
ATTESTATION SERVICES
Audits
Reviews
Internal Control
over Financial Reporting
Other Attestation Services
(e.g., WebTrust, SysTrust)
Certain
Management
Consulting
Other Assurance Services
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Assurance, Attestation, and
Nonassurance Services
NONASSURANCE SERVICES
Other Management
Consulting
Certain
Management
Consulting
Accounting and
Bookkeeping
Tax
Services
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Types of Audits
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Operational Audit
Example
Evaluate computerized payroll system
for efficiency and effectiveness
Information
Number of records processed, costs of
the 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
Example
Determine 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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Financial Statement Audit
Example
Annual audit of Boeing’s
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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