CH 1
Audit and
Assurance services
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.
To do an audit, there must be information
in a verifiable form and some standards
(criteria) by which the auditor can
evaluate the information.
 Criteria : GAAP or IFRS.

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.
Types of evidence : (ch.7)
• Electronic and documentary data about
transactions.
• Written communication with outsiders.
• Observations by the auditor.
• Oral testimony of the auditee(client).

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.

To be independent Internal Auditors
should report to the board of directors or
top management .
Audit Report
The final stage in the auditing process is
preparing the Audit Report, which is
the
communication of the auditor’s findings
to users.
• CH3
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.
•

The auditor must possess expertise in the
accumulation and interpretation of audit
evidence.
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.
• Consequently the owners ability to
obtain capital at a reasonable cost.
causes of information
risk
•
•
•
•
Remoteness of information
Biases and motives of the provider
Voluminous data
Complex exchange transactions
reducing information risk
User verifies information
User shares information risk with
management
• Audited financial statements are
provided
•
•
Assurance Services
•
An assurance service is an independent
professional service that improves the quality of
information for decision makers.
•
They improve the reliability and relevance of
information .
•
Valued because the provider is independent and
unbiased.
•
Can be performed by CPA’s or by a variety of
other professionals.
Examples : consumer report, online reliability.
•
Attestation Services
is a type of assurance service in which the
CPA firm issues a report about the reliability
of an assertion
that is made of another party.
Types of Attestation services :
Audit of historical financial statements.
2. Audit of internal control over financial reporting.
3. Review of historical financial statements.
4. Attestation services on information technology.
5. Other Attestation services that may be applied to
a broad range of subject matter.
•
1.
Audit of historical financial statements
• Management asserts that the statements
are fairly presented.
• The Auditor issues a written report
expressing an opinion about whether the
financial statements are fairly stated in
accordance with the applicable accounting
standards.
• Most common assurance services provided
by CPA’s.
• External users rely on those financial
statements to make business decisions,
they Auditors report is an indication of the
statements reliability.
Audit of internal control over financial
reporting
•
Management asserts that internal controls have
been developed following well established criteria .
•
Auditors attest the effectiveness of internal control
over financial reporting.
Review of historical financial
statements
Management asserts that the statements
are fairly presented(as in Audits).
• The CPA provides only moderate level of
assurance compared to high level for
audits.
• Lower fees (less evidence ).
• Usually non-public companies.
•
Attestation services on information
technology
Management makes various assertions about the
reliability and security of electronic information.
• Examples : Web Trust services.
•
Other Attestation services that may be
applied to a broad range of subject
matter
•
Extensions of historical audits.
•
Example : when a bank money to a company ,
the loan agreement may require the company to
engage a CPA to provide assurance about the
company’s compliance with the provisions of the
loan.
Other Assurance Services
•
•
Is not required to issue a written report.
Example : mystery shopping.
Nonassurance Services Provided by
CPAs
1. Accounting and bookkeeping services
2. Tax services
3. Management consulting services
ATTESTATION SERVICES
Audits
Reviews
Internal Control
over Financial Reporting
Other Attestation Services
(e.g., WebTrust, SysTrust)
Other Assurance Services
Other Management
Consulting
Accounting and
Bookkeeping
Tax
Services
Types of Audit
1.
2.
3.
Operational : evaluates the efficiency and
effectiveness of any part of an organization’s
operating procedures and methods.
Compliance audit : determines whether the
auditee is following specific procedures,rules,or
regulations set by some higher authority.(Review
wage rates for compliance with minimum wage
laws).
Financial statement audit.
Three Requirements for
Becoming a CPA
•
•
•
Educational requirement
Uniform CPA examination requirement
Experience requirement