Auditing Notes

In: Business and Management

Submitted By julietcharlie103
Words 553
Pages 3
Course objectives understanding of the history, legal and professional framework within which an audit of financial information and systems takes place appreciation of the necessary audit techniques, judgement and practical skills as applied to both manual and computer-based systems awareness of current developments in the auditing profession, both in the UK and internationally

What is an audit?
Definition
“A systematic process of objectively gathering and evaluating evidence in order to ascertain whether assertions about economic actions and events made by individuals or organisations correspond with established criteria and communicating the results of the examination to users of the reports in which the assertions are made.” (American Accounting Association, Statement of Basic Auditing Concepts)
Auditing gathers and evaluates evidence with respect to the information created by directors and accountants. It is an evaluation process
Auditor reports on the fairness of the report on use of resources and discharge of duty by the directors after critically examining the assertions it contains against; available evidence and establishing criteria for presenting the report
Types of audit
External audits: primarily for the benefit of shareholders and market efficiency
Financial statement audits: examination of financial statements prepared by an entity’s directors for the benefit of shareholders and others
Compliance audits: to determine whether an individual or entity has acted in accordance with regulations
Internal audits: primarily for the benefit of management
Operational audits: evaluation of an entities operations for the purpose of improving the efficiency and/or effectiveness of the entity
Objectives of Financial Statement Audit
Responds to changes in socio-economic environment
Audit techniques change to meet changing objectives
Economic…...

Similar Documents

Auditing

...March 2012 This Auditing and Assurance Bulletin has been prepared by Auditing and Assurance staff. It has not been issued under the authority of the Auditing and Assurance Standards Board (AASB). This Auditing and Assurance Bulletin is intended to help raise practitioners’ awareness in a timely manner of significant new or emerging issues or other noteworthy circumstances related to engagements addressed by the AASB pronouncements. It is also meant to direct practitioners to relevant requirements, application and other explanatory material in the CICA Handbook – Assurance. auditing and assurance FOR PUBLIC ACCOUNTANTS PERFORMING AUDIT AND REVIEW ENGAGEMENTS BULLETIN Staff contact Chi Ho Ng, CA, CPA(IL), MBA Principal Auditing and Assurance Standards Department 277 Wellington Street West Toronto, ON M5V 3H2 Tel: (416) 204-3443 E-mail: chiho.ng@cica.ca Fax : (416) 204-3408 Auditing Considerations in an Uncertain Economic Environment Uncertainties in the current economic environment There is a possibility that the Canadian economy may weaken in the near term. This has been noted in various sources, including the economic forecast for Canada issued by the Organization for Economic Co-operation and Development. Heightened risks from renewed financial-market turmoil linked to the European sovereign debt crisis and high levels of household indebtedness are eroding consumer confidence. In January 2009, staff of the Auditing and Assurance Standards Board (AASB)......

Words: 7297 - Pages: 30

Auditing

...Audit and Assurance Services Chapter 1 1 Learning Objectives 1. What is auditing?  Distinguish between auditing and accounting.  Importance of auditing in reducing information risk. 2. Distinguish audit services from other assurance and non-assurance services provided by CPAs. 3. Three main types of audits. 4. How to become a CPA?  Identify the primary types of auditors. 2  What is auditing? Evaluating 3 Nature of Auditing 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. 4 Audit Reporting -- (Expressing Opinions) The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users. 5 Information and Established Criteria To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information. 6 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. Transaction data Client inquiry Written and electronic Communications with outsiders Observations 7 Competent, Independent Person The auditor must be......

Words: 2208 - Pages: 9

Auditing

...Auditor’s Responsibility for Assessing Going Concern In auditing, going concern is identified as an entity’s capability to continue operating as a business entity. It is the auditor’s responsibility to evaluate the company’s financial statements to assess whether or not the going concern assumption is appropriate. An entity is obligated to include a disclosure in the footnotes of the financial statement stating if there is substantial doubt of the company to continue as a going concern. According to the Public Company Accounting Oversight Board, AU 341 describes the requirements for the auditor’s evaluation of an entity’s going concern. This standard states that an auditor’s responsibility is to evaluate if there is substantial doubt about an entity’s capability to carry on as a going concern for the next year. The period of substantial doubt is not to exceed twelve months. This evaluation is based upon any evidence that he or she has accumulated during the normal course of the audit. If there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time not to exceed one year, the auditor should review management’s plan to remedy the problems. If the substantial doubt goes unresolved, the auditor should add an explanatory paragraph to the audit report. In the event that an auditor receives a request to reissue his or her evaluation of going concern and remove the explanatory paragraph, one can refer to the......

Words: 5831 - Pages: 24

Auditing

...to be a detective nor is he to approach his work with suspicion or with foregone conclusion that there is something wrong. For example Kingston Cotton Mill Co, Manager has been overstating inventory values for years to show increased profit. Auditors relied on a certificate signed by manager as valuation for stock figures. Company failed to pay debts and discrepancies were noted in stock values. Auditors were subsequently sued. Therefore from this we can conclude that the auditor was not performing his or her profession. Also auditors must compile by the code of ethics, as being auditors they serve the public on their own responsibility requires a set of rules and regulations to discipline their profession. As promulgated by auditors, auditing must adopt code of ethics which states the principles and expectations governing the behavior of individuals and organization in conducting audit. Moreover the auditors are expected to display code of ethics which will provide guide for all audit personnel to enhance the performance and professionalism. Most of the firms must regulate or promote this to create ethical culture which will bring a systematic, disciplined approach to evaluate and improve the effectives of risk management, control and governance process. In today’s world auditors are practicing fraudulent activities such as auditors are compromising important information for their personal and self interest to receive incentives from the directors to provide false report.......

Words: 2531 - Pages: 11

Auditing

...Government regulated monopoly GAAP General Standards 1. Adequate training and proficiency 2. Independence in mental attitude 3. Due professional care Standards of Field Work Proper Planning and supervision Understanding of the entity Sufficient appropriate evidence Standards of Reporting Statements prepared in accordance with GAAP Circumstances when GAAP not consistently followed Adequacy of disclosures Expression of opinion on financial statements *Test* Table 5.1 Definitions And broad broad stuff Can accept a gift from a client as long as its no more than “token” or the amount the firm gives you You can indirectly own stock in an auditing client if its immaterial to your net worth You cannot be paid in stock Because we don’t see the audit as one event, its not a series of events even though that looks like it. Because once you have the client you usually have it for a good amount of time. “The professional engagement period begins when the registered public accounting firm either signs an initial engagement letter (or other agreement to review or audit a client’s financial statements) or begins audit, review, or attest procedures whichever is earlier: and (B) the professional engagement period ends when the audit client or the registered public accounting firm notifies the commission that the client is no longer that firm’s audit client. You might be able to write a contract that can say the audit engagement is only a year and you might......

Words: 1134 - Pages: 5

Auditing

... c. Multiple transaction locations 4. Complex exchange transactions a. New and changing business relationships lead to innovative accounting and reporting problems b. Potential impact of transactions not quantifiable, leading to increased disclosures 1-3 1. Risk-free interest rate This is approximately the rate the bank could earn by investing in U.S. treasury notes for the same length of time as the business loan. 2. Business risk for the customer This risk reflects the possibility that the business will not be able to repay its loan because of economic or business conditions such as a recession, poor management decisions, or unexpected competition in the industry. 3. Information risk This risk reflects the possibility that the information upon which the business risk decision was made was inaccurate. A likely cause of the information risk is the possibility of inaccurate financial statements. Auditing has no effect on either the risk-free interest rate or business risk. However, auditing can significantly reduce information risk. 1-4 The four primary causes of information risk are remoteness of information, biases and motives of the provider, voluminous data, and the existence of complex exchange transactions. The three main ways to reduce information risk are: 1. User verifies the information. 2. User shares the information risk with management. 3. Audited......

Words: 3669 - Pages: 15

Advanced Auditing Final Review Case Note

...Gave himself a corporate loan and treating it as his own business and piggy bank * Lack of owners’ oversight which created a one man show * Rationale * One man show, saving the company a lot of money, working so hard, so should get the money to be compensated * Red flags: * Expensive reports: Client is people online, not targeting big sales but targeting individual consumers so doesn't make sense to take them out for dinner * Consultant fees is high for a small company: potentially having agreement with vendor * Paying himself a luxury vehicle on behalf of the company * Other suspicious behavior: Not hiring an accountant and wanting to do everything himself, just want to be done with auditing and just want to do vouching, etc. * Procedures to validate the auditors’ concerns: * Confirmation from those clients he took out to dinner, have phone call to ensure the dinner actually happened * Ask for invoices and receipts: if he bought the laptops and office supplies, where are they in the company and who is using them * Make sure owners are aware the compensation he is getting Switch? * No * Should stay with audit especially since the owners are not involved in the business much, and that Tristan might have something up in his sleeves * Therefore it would be helpful to have another set of eyes...

Words: 1267 - Pages: 6

Auditing

...created the Securities and Exchange Commission (SEC). The 1934 act gave the SEC both the power and responsibility for setting accounting and reporting standards for companies whose securities are publicly traded by Congress. (highered.mcgraw-hill.com) However, the SEC, has delegated the primary responsibility for setting accounting standards to the private sector. The standards for publicly traded companies are now being written by the PCAOB. The SEC delegated the responsibility, but not the authority, to set standards. That power still belongs to the SEC, and they can be denied if the SEC does not agree with them. After the SEC approves the standard they are placed into effect, making them valid so to speak. They are then a legal auditing standard that must be followed by all publicly traded companies. For the private sector, it began with the Committee on Accounting Procedure (CAP), which was a committee of the American Institute of Accountants (AIA); later renamed the American Institute of Certified Public Accountants (AICPA) in 1957. The AICPA is the national organization of professional public accountants. In 1959 the Accounting Principles Board (APB) replaced the CAP. Members of the APB also belonged to the AICPA. Now that we have a brief history of the ‘who’ and ‘how’ of the audit standard setting process, let’s dig a little deeper into three different companies that impact the process of standard setting: the SEC, the PCAOB, and the AIPCA. We’ll start with......

Words: 1869 - Pages: 8

Auditing

...AUDITING: A JOURNAL OF PRACTICE & THEORY Vol. 24, No. 1 May 2005 pp. 21ñ35 Recent Changes in the Association between Bankruptcies and Prior Audit Opinions Marshall A. Geiger, K. Raghunandan, and Dasaratha V. Rama SUMMARY: The intense legislative and media scrutiny after a series of high-profile corporate failures, coupled with the paradigm shift in the regulation of the auditing profession brought forth by the Sarbanes-Oxley Act, suggests that auditorsí decisions would be more conservative in the period after December 2001. Based on analyses of 226 financially stressed companies that entered bankruptcy during the period from 2000 to 2003, we find that auditors are more likely to issue going-concern modified audit opinions in the period after December 2001. Since the post-December 2001 period coincides with recovery from a recession in the U.S., we also examine prior audit opinions for 93 companies entering bankruptcy in 1991 and 1992. We find that auditors were also more likely to issue prior going-concern modified audit opinions in 2002ñ03 than in the earlier recession recovery period. Following the technique used in Francis and Krishnan (2002), we document that the increase in going-concern modification rates for bankrupt companies after December 2001 is due to changes in auditor reporting decisions and not solely due to differences in client characteristics between the time periods studied. Keywords: bankruptcy; going-concern reports. Data Availability: Contact the......

Words: 8724 - Pages: 35

Auditing

...reports from departed executives and make enquiries of existing personnel for evidence of * controls since changed, amended or overridden by management * changes to policies that alter authorisation requirements for financial transactions * segregation of duties * deals authorised by departed executives * reasons for resignation (ASA 500, A22, A23). * Review Board Minutes and additional correspondence for evidence of issues amongst Board members (ASA500, A8). * Conduct an internal control questionnaire to verify completeness and accuracy of sales records and correct classification of transactions (ASA 500, A14; Arens et al. 2013, p. 282, 287). * Examine the summary of significant accounting policies in the notes of financial statements for changes to accounting policies and practices (Elders 2013b, p. 4). * Re-calculate carrying amounts of livestock to check for compliance issues in inventory recognition (ASA500, A19; Binstead & Sprague 2013). EVENT 3: On 2nd August 2013, ‘Elders was compelled by its lenders to sell’ Futuris Auto to Clearlake for $69 million (Binstead 2013b). While the sale to reduce debt was expected, ‘the price raised questions’, given the book value of Futuris was above $200 million in the previous year (Binstead 2013b). Discussion: Planned asset sales to alleviate constraints on capital and credit may give rise to material misstatement (ASA 315, Appendix 2). Overstatement of the value of Futuris......

Words: 1566 - Pages: 7

Auditing

...Topics 19 and 20: Professional Judgment (Parts 1 and 2) Meeting #: 8 Related Chapter/Topic: KPMG Professional Judgment Monograph Overview: For Topics 19 and 20, students read the KPMG Professional Judgment Monograph (outside of class) and viewed the ESPN 30 for 30 Documentary “Judging Jewell” (in class). The assignment was for students to identify roles similar to auditors and the various instances of bias and errors in judgment that the Monograph described. The class discussed this as a group, with the instructor asking a few additional questions to underscore a few points. Course Learning Objective(s) Addressed: Be able to apply critical thinking skills in the auditing area. Key Points: 1. Richard Jewell, a temporary security guard hired by an Olympic sponsor, is falsely accused of the Olympic Park bombing that killed and injured many spectators at the Centennial Olympic Games held in Atlanta, GA in 1996. Supporting Thoughts/Facts: a. Richard Jewell was an unemployed, middle-aged man seeking work in law enforcement. He had previously worked in the field. b. He moved back to Atlanta and lived with his mother to work as a security position with an Olympic sponsor, AT & T, during the Atlanta Games. His friends and family appearing in the documentary indicated that he felt a sense of duty and hoped to have a long-term career in law enforcement. c. Richard Jewell was responsible for first spotting a suspicious backpack, then alerting other security......

Words: 2043 - Pages: 9

Auditing Notes!

...Chantel Francis AC 430 Chapter 1 HW 1.54 Complete the following chart indicating the corresponding Auditing Standards Board assertions and whether the assertion relates to transactions, balances, or disclosures. ------------------------------------------------- ------------------------------------------------- PCAOB Assertion Corresponding ASB Assertion Nature of Assertion Existence or Occurrence Existence Balances Occurrence Disclosures Occurrence Transactions Rights & Obligations Rights and Obligations Balances Rights and Obligations Disclosures Completeness Completeness Balances Completeness Disclosures Completeness Transactions Cutoff Transactions Valuation & Allocation Accuracy Transactions Valuation and Allocation Balances Accuracy Disclosures Valuation and Allocation Disclosures Presentation & Disclosure Classification Transactions Classification Disclosures Understandability Disclosures 1.57 Auditor as Guarantor. Your neighbor Loot Starkin invited you to lunch yesterday. Sure enough, it was no “free lunch” because Loot wanted to discuss the annual report of Dodge Corporation. He owns Dodge stock and just received the annual report. Loot says, “Our auditors prepared the audited financial statements and gave an unqualified opinion, so my investment must be safe.” Required: What misconceptions does Loot Starkin seem to have about the auditor’s...

Words: 590 - Pages: 3

Auditing

...Assignment 2 AU2 Advanced External Auditing Question 2 a) Three specific business strategies that explain eBay’s decision to offer good for sale at fixed prices: 1. Expand into New Markets: With the shrinking market of auction bidders on eBay and a growing market of fixed price buyers, customers may not prefer to go in the direction of purchasing goods in an online auction. Since, in an online auction the customer has to wait till the end of the auction to see which buyer with the highest bid wins that item. Whereas, in a fixed price type of format, there are no bids placed and the price remains constant. Customers may prefer the idea of price stability over waiting to see if they get the item as they may be time-sensitive and want the item right way. Therefore, eBay may want to focus and expand its market to customers who do not prefer online auctions. 2. Fixed price “Buy-It-Now” format is beginning to dominate eBay and is a key to future growth. Fixed price items make up of 42% of the gross merchandise sold on eBay. Over the past six years, this fixed price format has been growing at a faster rate than auctions. (Trouble at eBay) 3. Meet consumer expectations in the marketplace by matching its competitors who also offer products at fixed prices online through their websites. Customers who are not interested in purchasing goods in online auctions will then purchase goods from eBay at fixed prices. Since eBay acts as the ‘middle man’ the......

Words: 4140 - Pages: 17

Auditing

... AUDITING THEORY TESTBANKS / REVIEWERS 1. When an auditor believes that an understanding with the client has not been established, he or she should ordinarily a. Perform the audit with increase professional skepticism. b. Decline to accept or perform the audit. c. Assess control risk at the maximum level and perform a primarily substantive audit. d. Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud. 2. An auditor should design the written audit program so that a. All material transactions will be selected for substantive testing. b. Substantive tests prior to the balance sheet date will be minimized. c. The audit procedures selected will achieve specific audit objectives. d. Each account balance will be tested under either tests of controls or tests of transactions. 3. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? a. Fictitious transactions may be recorded that cause an understatement of revenues and overstatement of receivables. b. Claim received from customers for goods returned may be intentionally recorded in other customer’s accounts. c. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash. d. The failure to prepare shipping documents may cause an overstatement of inventory balances. 4. Accepting an engagement to examine an entity’s......

Words: 24671 - Pages: 99

Auditing

...Accounting Oversight Board (PCAOB) this board is responsible for establishing auditing standards for public companies, it is appointed and overseen by the SEC. The PCAOB provides oversight for auditors of public companies, establishes auditing and quality control standards for public company audits, and performs inspections of the quality controls at audit firms performing those audits. AICPA - Auditing standards. The Auditing Standards Board (ASB) is responsible for issuing pronouncements on auditing matters for all entities other than publicly traded companies i.e private companies. 2-10 Generally accepted auditing standards have been criticized by different sources for failing to provide useful guidelines for conducting an audit. The critics believe the standards should be more specific to enable practitioners to improve the quality of their performance. As the standards are now stated, some critics believe that they provide little more than an excuse to conduct inadequate audits. Evaluate this criticism of the 10 generally accepted auditing standards. * Presently there are 10 generally accepted auditing standards which were developed by the AICPA. These 10 standards are sub categorised into three main sections, General qualifiations and conduct, field work performance of the audit, Reporting results. These set of rules clearly explains the duty of auditor and what he has to take care while auditing. * The above mentioned standards are good and are very clear. ......

Words: 1589 - Pages: 7