Modern Auditing:
Assurance Services and the Integrity
of Financial Reporting, 8th Edition
William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland 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 Accountant’s Value Chain
The Roots of Auditing
• British influence and migration
• Stock market crash
• Legislation of the 1930’s
• Important changes in the 1940’s
The Roots of Auditing
• Scrutiny of 1980’s lead to changes
• Increasing amount of consulting in
1990’s
• 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
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