auditing

Auditing helps reduce information risk, which can have an effect on borrowers ability to obtain capital at reasonable rates.

• -Information-many forms
• -criteria-standards
• -evidence-info. used to determine if the info. being audited meets the criteria
• -competence-must be able to use evidence to come to a conclusion
• -independence-cant be biased about evidence

• Audit-evaluating evidence to determine if information about f/s is consistent with standards.
• Assurance-improves the quality of information for users.
• Attestation-a type of assurance that reports about he reliability of an assertion made by another party

• Operational-evaluates the effectiveness and effciency of operations
• Compliance-conducted to determine is someone is following specific rules or procedures.
• Financial Statement-to determine whether f/s are stated in accordance to specified criteria.

• Governmental accountability office-audits for congress
• CPA firms-audit historical f/s of companies
• IRS-enforce federal tax laws
• Internal auditors-employed by all types of organizations to audit management

Limited Liability Partnerships

The securities and exchange commission-assist in providing investors reliable information with which to make investment decisions

the public companies accounting oversight commitee-overseen by the sec, the provide oversight for auditors of public companies

American institute of Certified public accountants- set audit standards, code of conduct and other standards

to international companies

All pubic companies

private companies

• 1.)adequate technical training
• 2.)maintain independence
• 3.)exercise due professional care

• 1.)adequately plan and supervise
• 2.)obtain sufficient information about the entity 
• 3.)obtain sufficient evidence

• 1.) state whether f/s comply with GAAP
• 2.) identify the circumstances where GAAP is not consistantly applied
• 3.)adequacy of disclosure
• 4.)expression an opinion

• 1.)leadership for quality
• 2.)ethical requirements
• 3.)acceptance and continuation of clients
• 4.)human resources
• 5.)engagement performance
• 6.)monitoring

Statements on auditing standards- issued interpretations of the principles of GAAS made by the AICPA

• -purpose
• -resposibilities-
• -performance
• -reporting

• -unqualified
• -unqualified with explanation
• -qualified 
• -adverse or disclaimer

• -introductory
• -scope
• -opinion

• -inclusion of all f/s
• -evidence was evaluated with compliance to audit standards
• -f/s presented in accordance to U.S.gaap
• -no circumstances requiring a explanation

• -lack of consistency with GAAP
• -doubt of going concern
• -Auditor agrees with the departure from a principle
• -emphasis of a matter
• -reports involving other auditors

• -scope limitation
• -GAAP departure
• -auditor no Independence

a misstatement that if known about will affect the decision of a reasonable user

• -immaterial-user decisions unlikely affected
• -material-decisions likely affected only if the information is important to the specific decisions being made
• -highly material-decisions based on the f/s are likely to be significantly affected

• immaterial-unqualified
• material-qualified
• highly material-adverse or disclaimer

a set of morals or values

• -trustworthiness
• -respect
• -responsibility
• -fairness
• -caring
• -citizenship

situations where a person faces a decision to be made about a behavior

the unbiased attitude of an auditor

the interpretations of others about an auditors independence

• -restrictions on nonaudit services
• -Audit commitees
• -employment relationships (required 1-year from audit to become a key manager of former client)
• partner rotation-partners rotate after 5 years on engagement
• -ownership interests-prohitation of ownership by audit team and others

Independence

-they have the  responsibility to adopt accounting policies, internal control, and fair representations in f/s.

-they have the responsibility for detecting material misstatements in f/s

• -sales and collection
• -aquistion and payment
• -payroll and personell
• -Inventory and warehousing
• -capital acquisition and repaymeny

audits are performed by dividing f/s into cycles

• occurrence- trans. have been recorded
• completeness-all trans. are recorded
• accuracy- trans. recorded correctly
• classification-trans recorded in proper accounts
• cutoff-trans recorded in correct period

• existence-assets, liabilities and equity interests exist
• completeness- all a,l and e have been recorded
• valuation and allocation- a,l, and e are recorded at correct amounts
• rights and obligations- entity hold the rights to assets and liabilities are their obligations

• occurrence and rights and obligations- disclosed events/trans are of the entities
• completeness- all disclosures are included
• accuracy and valuation- information disclose is appropriate
• classification and understandably- disclosures described are clearly stated

• -physical exam-(counting inventory)
• -confirmation-(reciept of direct written response)
• -documentation-receipts
• -analytical procedures-
• -Inquiries of the client-(response to questions by auditor)
• -recalculation-
• -reperformance
• -observation

a list of audit procedures for an audit area or entire audit

• -appropriateness 
• -sufficiency

• -relevance
• -reliability

• -contain data of a historical or continuing nature pertinent to the current audit
• -provide a convenient source of information

• -includes all information applicable to the year under audit
• -includes: audit program, general info, trial balance, adjusting entries and supporting schedules

• 1.)accept client
• 2.)understand clients business/industry
• 3.)assess client business risk
• 4.)perform prelim analytical procedures
• 5.)set materiality
• 6.)assess control risk
• 7.)assess fraud risks
• 8.)develop overall plan and audit program

• -management is the priamary source for assessing business risk
• -auditor uses his knowledge of the business and the indusrty to assess the business risk

• !.)planning
• 2.)testing
• 3.)completion

• 1.)industry data
• 2.)similar prior period data
• 3.)client determined expected results
• 4.)auditor determined expected results
• 5.)expected results using nonfinancial data

an agreement between the client and the CPA firm with regard to the terms of the engagement for the conduct of the audit.

it is the requirement of an auditor to set the combined amounts of misstatements that would be considered material early in the audit

• -nessesary to allocate materiality into segements because auditors accumulate evidence by segments as well.
• -the amounts allocated to each segment is called tolerable misstatement

known-the auditor can determine the amount of the misstatement in the account

• likely-1.)difference b/t management and auditor about estimates
• 2.)projections by the auditor from samples

use materiality to evaluate findings

the risk that the auditor or the audit firm will suffer harm after the audit is finished

a measure of how willing the auditor is to accept that the f/s are misstated and still issue a unqualified report

• -nature of clients business
• -results of previous audits
• -related parties
• -initial vs repeat engagement
• -nonroutine transactions

helps auditors decide how much and what types of evidence to accumulate in each cycle

PDR=AAR/IR*CR

auditors assessment of the likelihood that there are material misstatements due to error of fraud in a segment before considering controls

auditors assessment of whether misstatements will be prevented or detected in a timely manner

the risk that the audit evidence will fail to detect misstatements exceeding the tolerable amount

more work needs to be done

more testing and more work