Week 1: Auditing and Assurance Services
Chapter 01
“Our system of capital formation relies upon the confidence of
millions of savers to invest in companies.
The auditor’s opinion is critical to that trust."
-- James R. Doty, Chairman
Public Company Accounting Oversight Board (PCAOB)
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Accounting vs Auditing
• Accountants
– Record, classify and summarize economic events
for the purpose of providing financial information
used in decision making
• Auditors
– Determine whether recorded information properly
reflects the economic events that occurred during
the accounting period
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
2
Information Risk vs Business Risk
• Information risk
– The risk that the information disseminated by a
company will be materially false or misleading.
– Users demand an independent third party
assessment of the information
• Business risk
– The risk that an entity will fail to meet its stated
business objectives
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Information Risk
Causes:
• Remoteness of information
• Biases and motives of the provider
• More complex information
• Voluminous data
Challenges:
• Demanded in a more timely manner
• Has far reaching consequences
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Definition of Auditing
Financial Statements
(including footnotes)
Persons who rely on
the financial reports
Auditing is a systematic process of
objectively obtaining and
evaluating evidence regarding
assertions about economic actions
and events to ascertain the degree
of correspondence between the
assertions and established criteria
GAAP
and communicating the results to
Auditor's Report/
interested users.
Other Reports
•Creditors
•Investors
Source: American Accounting Association Committee on Basic Auditing Concepts. 1973. A Statement of Basic Auditing
Concepts, American Accounting Association (Sarasota, FL).
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Exhibit 1.1: Overview of Financial Statement Auditing
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Exhibit 1.3: The Relationships Among Auditing,
Attestation, and Assurance Engagements
Assurance Services
Any Information
Attestation Services
Primarily Financial Information
Auditing
Historical financial
Statements
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Types of Audits and Auditors
• Financial (External Auditors/CPAs)
• Ensure that financial statements are reliable
• Operational (Internal and Governmental
Auditors/CIAs)
• Improve operational effectiveness
• Improve operational efficiency
• Compliance (Internal and Governmental Auditors)
• Ensure compliance with company and/or governmental
rules and regulations
• Forensic (Fraud Auditors/CFEs)
• Designed to investigate a crime and will often involve
gathering evidence designed to convict a fraudster
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Attestation Engagements
• An attestation engagement - a practitioner is
assesses and reports on “subject matter or an
assertion about the subject matter that is the
responsibility of another party.”
• Some financial attestation engagements (other than
audits)
• Financial forecasts and projections
• Examination of Management’s Discussion & Analysis
• Pro forma financial information
• Some non-financial attestation engagements
• Effectiveness of internal control systems
• Compliance with environmental regulations
• Verifying inventory quantities and locations
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Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
Financial Forecasts and Projections
ISAE 4400
• Prospective Financial Information (PFI)
– Financial information representing the financial position,
results of operations, and cash flows for some period of time
in the future.
• Types of PFI
– Financial projection: PFI based on the occurrence of one
or more hypothetical events that change existing business
structure
– Financial forecast: PFI based on expected conditions
and courses of action (e.g., no new distribution center).
•
•
The company may be negotiating directly with a single user who has
requested prospective financial information for use in economic
decisions.
– This is referred to as limited use.
– Any PFI can be used for limited purposes.
The company may be preparing prospective financial statements that it
intends to present to a large number of users, none of whom it is
negotiating with at the current time.
– This type of situation is referred to as general use.
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Attestation Engagements
• Report on subject matter or assertion
about subject matter.
• Responsibility of another party
• Responsible party—acknowledge
responsibility
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Types of Attestation Engagements—Levels of Assurance
• Examination
– Similar to an audit
– High level of assurance
• Review
– Moderate level of assurance
– Not allowed on certain engagements
• Agreed upon procedures
– Assurance depends on procedures
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Differences Between Reasonable Assurance Engagements
and Limited Assurance Engagements
Type of
engagement
Reasonable
assurance
engagement
Objective
Evidence-gathering procedures
The
assurance
report
A reduction in
assurance
engagement risk
to an acceptably
low level in the
circumstances
of the
engagement, as
the basis for a
positive form of
expression of
the practitioner’s
conclusion
Sufficient appropriate evidence is obtained
as part of a systematic engagement
process that includes:
•Obtaining an understanding of the
engagement circumstances;
•Assessing risks;
•Responding to assessed risks;
•Performing further procedures using a
combination of inspection, observation,
confirmation, recalculation,
reperformance, analytical procedures and
inquiry. Such further procedures involve
substantive procedures, including , where
applicable, obtaining corroborating
information, and depending on the nature
of the subject matter, tests of the operating
effectiveness of controls; and
• Evaluating the evidence obtained
Description of
the
engagement
circumstances,
and a positive
form of
expression of
the conclusion
Source: www.ifac.org
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Differences Between Reasonable Assurance Engagements
and Limited Assurance Engagements
Type of
engagement
Limited
assurance
engagement
Objective
Evidence-gathering
procedures
A reduction in
assurance
engagement risk
to a level that is
acceptable in the
circumstances of
the engagement
but where that risk
is greater than for
a reasonable
assurance
engagement, as
the basis for a
negative form of
expression of the
practitioner’s
conclusion
Sufficient appropriate
evidence is obtained as
part of a systematic
engagement process
that includes obtaining
an understanding of the
subject matter and
other engagement
circumstances, but in
which procedures are
deliberately limited
relative to a reasonable
assurance engagement
The assurance
report
Description of
the engagement
circumstances,
and a negative
form of
expression of
the conclusion
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Source: www.ifac.org
Review of Interim Financial
Information
• Financial information that covers a period ending on a
date other than the entity’s fiscal year end.
• SEC companies are required to have a review of the
interim financial information filed with the SEC.
• Need to gain sufficient knowledge of the entity’s
business and internal control.
• May have a report on interim financial information
– Separate from the audited financial statements.
– Presented as a supplement to audited financial statements.
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Assurance Services
• Assurance services are independent professional
services that improve the quality of information, or its
context, for decision makers.
• Examples
• Sustainability and other types of “Green” Reporting
• Information risk assessment
• Internal audit outsourcing
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Agreed-Upon Procedures Engagements
ISAE 4400
• Consists of performing procedures normally
associated with an audit or special engagement
– Inventory observation
– Confirmation of receivables
– Summarize customer comment cards
• Scope less than in an audit (responsibility of
user)
• Accountant reports procedures and findings
– No opinion or negative assurance provided
• Must restrict distribution of report to users who
established scope of engagement
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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The Public Accounting Profession
• Assurance services
• Financial statement audit engagements
• Attestation engagements
• Assurance engagements
• Tax services
• Consulting and Advisory services
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Exhibit 1.6: Public Accounting Firm Organization
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Organization of the Profession
• “Big Four” Accounting Firms
– Deloitte, EY, KPMG, PwC
• National
– Grant Thornton, BDO
• Local/Regional
• Sole Proprietor
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Become Certified!
• Education
• Examination
• Experience
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Standards
• Statements on Standards for Attestation
Engagements (SSAEs)
• Similar to fundamental auditing principles
– Practitioner’s knowledge about subject matter
– Suitable criteria
– Evaluation of internal control not required
– Restricted distribution
Prepared by Louwers et al. 2012
Edited by Assistant Prof. Kanyarat Sanoran, Ph.D.
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Source: www.ifac.org
AUDITS OF HISTORICAL FINANCIAL INFORMATION
200–299 GENERAL PRINCIPLES AND RESPONSIBILITIES
TSA 200
TSA 210
Overall Objectives of the Independent Auditor and the
Conduct
of an Audit in Accordance with Thai Standards on Auditing
Agreeing the Terms of Audit Engagements
TSA 220
Quality Control for an Audit of Financial Statements
TSA 230
Audit Documentation
TSA 240
The Auditor’s Responsibilities Relating to Fraud in an Audit
of Financial Statements
Consideration of Laws and Regulations in an Audit of
Financial Statements
Communication with Those Charged with Governance
TSA 250
TSA 260
TSA 265
Communicating Deficiencies in Internal Control to Those
Charged with Governance and Management
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Source: www.fap.or.th
300–499 RISK ASSESSMENT AND RESPONSE TO ASSESSED RISKS
TSA 300
Planning an Audit of Financial Statements
TSA 315 (Revised)
Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and Its
Environment
TSA 320
Materiality in Planning and Performing an Audit TSA 330,
The Auditor’s Responses to Assessed Risks
TSA 402
Audit Considerations Relating to an Entity Using a Service
Organization
TSA 450
Evaluation of Misstatements Identified during the Audit
Source: www.fap.or.th
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500–599 AUDIT EVIDENCE
TSA 500
TSA 501
Audit Evidence
Audit Evidence—Specific Considerations for Selected
Items
TSA 505
TSA 510
External Confirmations
Initial Audit Engagements—Opening Balances
TSA 520
Analytical Procedures
TSA 530
Audit Sampling
TSA 540
Auditing Accounting Estimates, Including Fair Value
Accounting Estimates, and Related Disclosures
TSA 550
TSA 560
TSA 570
TSA 580
Related Parties
Subsequent Events
Going Concern
Written Representations
Source: www.fap.or.th
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600–699 USING THE WORK OF OTHERS
TSA 610 (Revised 2013)
Special Considerations—Audits of Group Financial Statements (Including
the Work of Component Auditors) TSA 610 (Revised), Using the Work of
Internal Auditors
Using the Work of Internal Auditors Conforming Amendments to Other TSAs
TSA 620
Using the Work of an Auditor’s Expert
TSA 600
700–799 USING THE WORK OF OTHERS
TSA 700
TSA 705
TSA 706
TSA 710
TSA 720
Forming an Opinion and Reporting on Financial Statements
Modifications to the Opinion in the Independent Auditor’s Report
Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report
Comparative Information—Corresponding Figures and Comparative
Financial Statements
The Auditor’s Responsibilities Relating to Other Information in Documents
Containing Audited Financial Statements
800–899 SPECIALIZED AREAS
TSA 800
TSA 805
TSA 810
Special Considerations—Audits of Financial Statements Prepared in
Accordance with Special Purpose Frameworks
Special Considerations—Audits of Single Financial Statements and Specific
Elements, Accounts or Items of a Financial Statement
Engagements to Report on Summary Financial Statements
Source: www.fap.or.th
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2000–2699 THAI STANDARDS ON REVIEW ENGAGEMENTS (ISRES)
2400
Engagements to Review Financial Statements (Previously TSA
910)
Review of Interim Financial Information Performed by the
Independent Auditor of the Entity
2410
3000–3699 THAI STANDARDS ON ASSURANCE ENGAGEMENTS (TSAES)
3000–3399
3000
Applicable To All Assurance Engagements
3400–3699
3400
Subject Specific Standards
3402
3410
3420
Assurance Engagements Other than Audits or Reviews of
Historical Financial Information
The Examination Of Prospective Financial Information (Previously
TSA 810)
Assurance Reports on Controls at a Service Organization
Assurance Engagements on Greenhouse Gas Statements
Assurance Engagements to Report on the Compilation of Pro
Forma Financial Information Included in a Prospectus
Source: www.fap.or.th
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RELATED SERVICE
4000–4699 THAI STANDARDS ON RELATED SERVICES (ISRSS)
4400
Engagements to Perform Agreed-Upon Procedures Regarding
Financial Information (Previously TSA 920)
4410
Engagements to Compile Financial Information
FRAMEWORK
Framework
Thai Framework for Assurance Engagements
AUDITING PRACTICE NOTES
IAPN 1000
Special Considerations in Auditing Financial Instruments
REVISED STANDARDS
Source: www.fap.or.th
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