Slide 1

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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
Study Break
1. This type of audit involves obtaining and
evaluating evidence about the efficiency
and effectiveness of an entity’s operating
activities.
A. Financial Statement Audit
B. Compliance Audit
C. Operational Audit
D. Internal Control Audit
C. Operational Audit
Study Break
2. These auditors are typically CPA’s
who render professional auditing
services to clients.
A. Independent Auditors
B. Internal Auditors
C. Government Auditors
D. IRS Auditors
A. Independent Auditors
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
Study Break
3. Which of the following is not an
economic benefit of a financial
statement audit?
A. Access to Capital Markets
B. Lower Cost of Capital
C. Control and Operational Improvements
D. Maintain Fair Competition
D. Maintain Fair Competition
Study Break
4. Which of the following is not an
inherent limitation of a financial
statement audit?
A. Reasonable Cost
B. Unlimited Timeframe
C. Alternative Accounting Principles
D. Accounting Estimates
B. Unlimited Timeframe
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
Study Break
5. Which organization is considered to
be a private sector organization?
A. State Boards of Accountancy
B. Securities and Exchange Commission
C. AICPA
D. IRS
C. AICPA
Study Break
6. This component of regulatory framework
includes the inspection of audits by the
PCAOB staff and peers in other accounting
firms.
A. Standard setting
B. Firm regulation
C. Inspection and peer review
D. Government regulation
C. Inspection and peer review
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