1、1-1The Demand for Audit and Other Assurance ServicesChapter 1Sarbanes-Oxley ActThe Act established the Public CompanyAccounting Oversight Board.It also requires auditors to attest tomanagement reports on the effectivenessof internal control over financial reporting.Describe auditing.Nature of Auditi
2、ngAuditing is the accumulation and evaluationof evidence about information to determineand report on the degree of correspondencebetween the information and established criteria.Auditing should be done by a competent,independent person.Information and Established CriteriaTo do an audit,there must be
3、 information in averifiable form and some standards(criteria)by which the auditor can evaluate the information.Accumulating Evidence and Evaluating EvidenceEvidence is any information used by the auditorto determine whether the information beingaudited is stated in accordance with theestablished cri
4、teria.Competent,Independent PersonThe auditor must be qualified to understand thecriteria used and must be competent to knowthe types and amount of evidence to accumulateto reach the proper conclusion after theevidence has been examined.The competence of the individual performingthe audit is of litt
5、le value if he or she is biasedin the accumulation and evaluation of evidence.Audit ReportThe final stage in the auditing process ispreparing the Audit Report,which is thecommunication of the auditors findings to users.Audit of a Tax Return ExampleCompetent,independentpersonExamines cancelledchecks
6、and othersupporting recordsAccumulates andevaluates evidenceDeterminescorrespondenceInformationInternal RevenueCode and allinterpretationsEstablished criteriaReport on taxdeficienciesReport on resultsLearning Objective 2Distinguish between auditingand accounting.Distinguish BetweenAuditing and Accou
7、ntingAccounting is the recording,classifying,and summarizing of economic eventsfor the purpose of providing financialinformation used in decision making.Auditing is determining whetherrecorded information properlyreflects the economic events thatoccurred during the accounting period.Learning Objecti
8、ve 3Explain the importance of auditingin reducing information risk.Economic Demandfor AuditingInformation risk reflects the possibility thatthe information upon which the businessrisk decision was made was inaccurate.Auditing can have a significant effecton information risk.List the causes of inform
9、ationrisk,and explain how this riskmay be reduced.Remoteness of information Biases and motives of the provider Voluminous data Complex exchange transactionsReducing Information Risk User verifies information User shares information risk with management Audited financial statements are providedLearni
10、ng Objective 5Describe assurance servicesand distinguish audit servicesfrom other assurance andnonassurance servicesprovided by CPAs.Assurance ServicesAn assurance service is an independentprofessional service that improves thequality of information for decision makers.Assurance services can be perf
11、ormed byCPAs or by a variety of other professionals.Attestation ServicesAn attestation service is a type of assuranceservice in which the CPA firm issues areport about the reliability of an assertionthat is the responsibility of another party.Attestation Services1.Audit of historical financial state
12、ments2.Attestation of internal control over financial reporting3.Review of historical financial statements4.Attestation services on information technology5.Other attestation servicesRelationships Among Auditors,Client,and External UsersClientClient or auditcommittee hiresauditorAuditor issuesreport
13、reliedupon by usersOther Assurance ServicesMost of the other assurance services that CPAsprovide do not meet the formal definitionof attestation services.The CPA is not required to issue a written report.The assurance does not have to be about thereliability of another partys assertion aboutcomplian
14、ce with specified criteria.AICPA Assurance ServicesThe AICPA formed the Special Committeeon Assurance Services(SCAS).Attestation Services on Information TechnologyWebTrust is an attestation service,and theWebTrust seal is a symbolic representationof the CPAs report on managementsassertions about its
15、 disclosure ofelectronic commerce practices.Attestation Services on Information TechnologySysTrust is an attest-type engagementto evaluate and test system reliability inareas such as security and data integrity.Principles for WebTrust and SysTrust Services1.Online privacy2.Security3.Processing integ
16、rity4.Availability5.Confidentiality6.Certification authorities(WebTrust only)Nonassurance Services Provided by CPAs1.Accounting and bookkeeping services2.Tax services3.Management consulting servicesOther Assurance Services ExamplesControls over and risks related to investments,including policies rel
17、ated to derivativesassessing the processes in a companysinvestment practices to identify risks and todetermine the effectiveness of those processes.Other Assurance Services ExamplesMystery shoppingperforming anonymous shopping to assesssales personnel dealing with customers andprocedures they follow
18、.Other Assurance Services ExamplesAssess risks of accumulation,distribution,and storage of digital informationassessing security risks and relatedcontrols over data and other informationstored electronically,including theadequacy of backup and off-site storage.Other Assurance Services ExamplesFraud
19、and illegal acts risk assessmentdeveloping fraud risk profiles and assessing theadequacy of company systems and policies inpreventing and detecting fraud and illegal acts.Other Assurance Services Examples Compliance with trading policies and procedures Compliance with entertainment royalty agreement
20、s ISO 900 certification Environmental auditAssurance,Attestation,and Nonassurance ServicesOther Assurance ServicesCertainManagementConsultingOther Attestation Services(e.g.,WebTrust,SysTrust)ATTESTATION SERVICESAuditsReviewsInternal Controlover Financial ReportingASSURANCE SERVICESAssurance,Attestat
21、ion,and Nonassurance ServicesCertainManagementConsultingOther ManagementConsultingTaxServicesAccounting andBookkeepingLearning Objective 6Differentiate the three maintypes of audits.Types of Audits Operational Compliance Financial StatementOperational AuditExampleEvaluate computerized payroll system
22、for efficiency and effectivenessInformationNumber of records processed,costs ofthe department,and number of errorsEstablishedCriteriaCompany standards for efficiency andeffectiveness in payroll departmentAvailableEvidenceError reports,payroll records,andpayroll processing costsCompliance AuditExampl
23、eDetermine whether bank requirementsfor loan continuation have been metInformationCompany recordsEstablishedCriteriaLoan agreement provisionsAvailableEvidenceFinancial statements andcalculations by the auditorAudit of Historical Financial StatementsExampleAnnual audit of Boeings financialstatementsI
24、nformationBoeings financial statementsEstablishedCriteriaGenerally accepted accountingprinciplesAvailableEvidenceDocuments,records,and outsidesources of evidenceLearning Objective 7Identify the primary typesof auditors.Types of Auditors Internal auditors Independent certified public accounting firms
25、 Internal Revenue agents Governmental general accounting office auditorsLearning Objective 8Describe the requirementsfor becoming a CPA.Three Requirements forBecoming a CPA Educational requirement Uniform CPA examination requirement Experience requirementCPA Examination Sections Auditing and Attestation Financial Accounting and Reporting Regulation Business Environments and Concepts1-45End of Chapter 1
