Auditing 1

  1. Financial statement misstatements arise due to
    • Accidental Errors
    • Lack of Knowledge of accounting principles
    • Unintentional Bias
    • Deliberate Falsification
  2. Internal Auditors
    • Employed by a company as an employee
    • They often:
    • - perform operational and compliance audits
    • - address internal control
    • - report to the audit comittee of the board of directors and to the president
    • the institute of internal auditors is the international organization of internal auditors
  3. Government Accountability Office Auditors (GAO)
    • Headed bu the comptroller general
    • Responsibility of supporting congress
    • Perform:
    • - compliance, Operation and financial audits of government agencies
    • - Examinations of corporations holding government contracts to verify contract payments have been proper
  4. Tax Auditors
    • Responsible for enforcement of tax laws of various sorts
    • internal revenue agents generally perform compliance of income tax returns
  5. PCAOB Role
    Public Company Accounting Oversight Board

    • Adopt Auditing, Attestation, quality control, ethics and independence standards relating to the preparation of audit reports for SEC registrants
    • Oversee and discipline CPAs and CPA firms that audit public companies
  6. SEC
    Securities and Exchange Commission

    • Agency of the US government
    • Oversight responsibility for the PCAOB
    • Objectives:
    • - protect investors and pubilc by requiring full disclosure of financial information by companies offering securities for sale to the public
    • - prevent misrepresentation, deceit, or other fraud in the sale of securities
  7. Purpose of an Audit
    Provide and opinion on financial statements are in accordance with applicable financial reporting framework
  8. Premise of an Audit
    • Management ( and those charged with governance) gave responsibility to:
    • - prepare financial statements in accordance with applicable financial reporting framework
    • - Provide auditor with needed information and unrestricted access to those in the entity
  9. Personal responsibity of the auditor
    appropriate competence and capabilities to perform audit in accordance with standards, including maintaining professional skepticism and exercising professional judgement throughout the audit

    Professional skepticism - a questioning mind and a critical assessment of audit evidence
  10. Auditor actions in perforning the audit
    • obtain reasonable assurance about whether financial statements are free from eror or fraud
    • the auditor in unable to obtain absolute assurance due to:
    • - nature of Financial reporting
    • - nature of audit procedures
    • - need to conduct audit within a reasonable period of time
  11. Reporting the results of an audit
    • Express in a written report an opinion on findings (or statement that opinion cannot be expressed)
    • the opinion is in whether the financial statements are in accordance, in all material respects, with the applicable financial reporting framework
  12. GAAS - General Standards
    • Adequate technical training and proficiency
    • independence in mental attitude is to be maintained
    • due professional care is to be exercised
  13. GAAS - Standards of field work
    • Auditor must adequately plan and properly supervise work
    • Auditor must obtain a sufficient understanding of entity, and its environment, including internal control to assess risk of material misstatement and to design further audit procedures
    • auditor must obtain suffucient appropriate audit evidence to afford a reasonable basis for the opinion
  14. GAAS - Standards of reporting
    • state whether the financial statements are presented in accordance with GAAP
    • identify circumstances in which such principles have not been consistently applied
    • informative disclosures are adequate unless otherwise stated in the report
    • report should clearly state the degree of responsibility being assumed by the auditors by expressing an opinion or stating that one cannot be expressed and the reason therefor
  15. The standard Auditors' report for nonpublic companies
    • Title
    • Adddressee
    • Content sections
    • - Introductory "We have audited"
    • - Mangement's resopsibility
    • - Opinion Paragraph
    • Signature (firm name)
    • City and State of office issuing the report
    • Date
  16. Standard Unmodified report
    Financial statements follow GAAP and Auditor does not add additional commentary for any issue
  17. Unmodified with emphasis of matter
    Example: A lack of consistency in application of accounting principles
  18. Qualified opinion
    scope limitation or departure from GAAP
  19. Adverse Opinion
    Departure from GAAP so significant that financial statements as a whole are misleading
  20. Disclaimer of opionion
    Unable to arrive at an opinion duue to a very significant scope limitation
  21. Elements of Quality Control
    • Leadership responsibilities for quality within the firm
    • Relevant ethical requirements
    • acceptance and continuance of clients and engagements
    • human resources
    • engagement performance
    • monitoring
  22. PCAOB
    Public Company Accounting oversight board

    • registration of public accounting firms that audit public companies
    • conduct inspections of public company practice of registered public accounting firms

    • Composed of 5 members - only two many be CPA's
    • Members appointed by SEC and may serve no more that two five-year terms
    • All accounting firms that audit SEC registrants must register with PCAOB
Card Set
Auditing 1