Assurance Services and the
CPA Profession
Chapter 1
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Learning Objective 1
Describe assurance services
and distinguish audit services
from other assurance and
nonassurance services
provided by CPAs.
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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 CPA firm issues a
report about the reliability of an assertion
that is the responsibility of another party.
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Other Assurance Services
Most other assurance services do not meet the
formal definition of attestation services.
The CPA must be independent.
The CPA must provide assurance.
The CPA is not required to provide a written report.
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Assurance Services on
Information Technology
There is an increased demand for assurance
about computer controls surrounding
information transacted electronically
and the security of the information
related to the transactions.
– assurance over Web site controls
– assurance about information system reliability
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Assurance Services on
Information Technology
WebTrust is an attestation service, and the
WebTrust seal is a symbolic representation
of the CPA’s report on management’s
assertions about its disclosure of
electronic commerce practices.
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Assurance Services on
Information Technology
SysTrust is an attest-type engagement
to evaluate and test system reliability in
areas such as security and data integrity.
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Assurance Services on
Other Types of Information
CPA Performance View
CPA ElderCare Services
CPA Risk Advisory Services
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Assurance, Attestation, and
Nonassurance Services
ASSURANCE SERVICES
ATTESTATION SERVICES
Audits
Reviews
Other Attestation Services
(e.g., WebTrust, SysTrust)
Certain
Management
Consulting
Other Assurance Services
(e.g., CPA Performance View)
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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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Learning Objective 2
Explain the causes of
information risk and the
importance of auditing in
reducing this 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
1. Remoteness of information
2. Biases and motives of the provider
3. Voluminous data
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Reducing Information Risk
1. User verifies information
2. User shares information risk with management
3. Audited financial statements are provided
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Learning Objective 3
Describe auditing
and distinguish between
auditing and accounting.
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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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Accumulating 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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Audit of a Tax Return – Example
Competent,
independent
person
Internal
revenue
agent
Accumulates and
evaluates evidence
Examines cancelled
checks and other
supporting records
Information
Federal tax
returns filed
by taxpayer
Report on results
Determines
correspondence
Report on tax
deficiencies
Established criteria
Internal Revenue
Code and all
interpretations
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Distinction 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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Learning Objective 4
Differentiate the three
main types of audits.
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Types of Audits
Operational Audit
Efficiency
Effectiveness
Compliance Audit
Financial Statement Audit
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Operational Audit
Evaluate computerized payroll system
Example
for efficiency and effectiveness
Number of records processed, cost of
Information
the department, and number of errors
Established Company standards for efficiency and
effectiveness in payroll department
Criteria
Error reports, payroll records, and
Available
payroll processing costs
Evidence
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Compliance Audit
Determine whether bank requirements
Example
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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Learning Objective 5
Identify the primary
types of auditors.
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Types of Auditors
Certified Public Accounting Firms
General Accounting Office Auditors
Internal Revenue Agents
Internal Auditors
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Learning Objective 6
Discuss how e-commerce
and the Internet affect
CPA firm operations.
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E-Commerce and
CPA Firm Operations
CPA firms are using the Internet
to market their services.
They also use the Internet to connect
their global professional staff.
Sender’s
Sender’s
mail
mail
server
server
Receiver’s
Receiver’s
mail
mail
server
server
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Learning Objective 7
Describe the requirements
for becoming a CPA.
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Three Requirements
for Becoming a CPA
Educational
Passing the CPA Exam
Experience
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Learning Objective 8
Describe the AICPA and
its role in setting standards.
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AICPA
The AICPA sets professional requirements
for CPAs, conducts research, and publishes
materials on many different subjects related
to accounting, auditing, attestation and
assurance services, management
consulting services, and taxes.
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Vision for the Future
The AICPA has established the CPA Vision Project
to provide a core purpose and a vision for the CPA
profession in the year 2011 and beyond.
The core purpose of the CPA Vision Project is
“CPAs…making sense of a changing
and complex world.”
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Vision for the Future
The future success of the CPA profession
relies a great deal on public perceptions
of CPAs’ abilities and roles.
CPAs must become market driven and
not dependent on regulations to keep
them in business.
The market demands less audit and
accounting and more value-adding
consulting services.
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Vision for the Future
Specialization is critical for the
future of the CPA profession.
The market demands that CPAs be
conversant in global business
practices and strategies.
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Establishing Standards
and Rules
The AICPA is empowered to set standards
(guidelines) and rules that all members and
other practicing CPAs must follow.
The requirements are set by
committees made up of AICPA members.
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Establishing Standards
and Rules
1. Auditing Standards
2. Compilation and Review Standards
3. Other Attestation Standards
4. Code of Professional Conduct
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Learning Objective 9
Use generally accepted
auditing standards as a
basis for further study.
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General Standards
1. The audit is to be performed by a person or
persons having adequate technical training
and proficiency as an auditor.
2. In all matters relating to the assignment,
an independence in mental attitude is to
be maintained by the auditor or auditors.
3. Due professional care is to be exercised in
the planning and performance of the audit
and the preparation of the report.
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Standards of Field Work
1. The work is to be adequately planned and
assistants, if any, are to be properly
supervised.
2. A sufficient understanding of internal
control is to be obtained to plan the audit
and to determine the nature, timing, and
extent of tests to be performed.
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Standards of Field Work
3. Sufficient competent evidential matter is to
be obtained through inspection, observation,
inquiries, and confirmations to afford a
reasonable basis for an opinion regarding
the financial statements under audit.
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Standards of Reporting
1. The report shall state whether the financial
statements are presented in accordance with
generally accepted accounting principles.
2. The report shall identify those circumstances
in which such principles have not been
consistently observed in the current period
in relation to the preceding period.
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Standards of Reporting
3. Informative disclosures in the financial
statements are to be regarded as reasonably
adequate unless otherwise stated in the report.
4. The report shall contain an expression of
opinion regarding the financial statements,
taken as a whole.
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Summary of
General Standards
Generally Accepted Auditing Standards
General
Field Work
1. Adequate training 1. Proper planning
and proficiency
and supervision
2. Independence in 2. Internal control
mental attitude
understanding
3. Due professional 3. Sufficient
care
competent
evidence
Reporting
1. Statements prepared in
accordance with GAAP
2. Circumstances when
GAAP not followed
3. Adequacy of disclosures
4. Expression of opinion
on financial statements
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Learning Objective 10
Identify quality control
standards and practices
within the accounting
profession.
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Elements of Quality Control
Independence, integrity, and objectivity
Personnel management
Acceptance and continuation of clients
and engagements
Engagement performance
Monitoring
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Relationships
Quality control
standards
Generally accepted
auditing standards
Division of
CPA firms
Peer
review
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Learning Objective 11
Summarize the role of the
Securities and Exchange
Commission in accounting
and auditing.
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Securities and Exchange
Commission
The overall purpose of the
Securities and Exchange Commission (SEC)
is to assist in providing investors
with reliable information upon
which to make investment decisions.
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CPAs Encouraged to Conduct
Themselves at a High Level
CPA
examination
GAAS and
interpretations
Conduct of CPA firm personnel
Continuing education
requirements
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CPAs Encouraged to Conduct
Themselves at a High Level
Peer
review
SEC
Conduct of CPA firm personnel
Quality control
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CPAs Encouraged to Conduct
Themselves at a High Level
Legal
liability
Division of
CPA firms
Conduct of CPA firm personnel
Code of Professional
Conduct
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End of Chapter 1
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