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8/13/2019 1 the Role of Public Accountant
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The Role of thePublic Accountant
Chapter 1
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McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Learning Objectives:After studying this chapter, you will be able to
Describe what is auditing
Distinguish between auditing and
accounting Describe assurance services and non-
assurance services provided by CPAs.
Describe how CPA firms are typicallyorganized.
Differentiate the three main types of
audits
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McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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uditing definition Auditing is the accumulation and
evaluation of evidence about information
to determine and report on the degree of
correspondence between the informationand established criteria.
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McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
1-4Distinguish between auditing andaccounting ccountingis the recording, classifying,
and summarizing of economic events
for the purpose of providing financial
information used in decision making. uditingis determining whether recorded
information properly reflects the economic
events that occurred during the
accounting period.
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McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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The Attest Function
Management
SubjectMatter
SuitableCriteria
The CPA
GathersEvidence
Subject
Matter*The Attest
Report
Issues
Report
*May be managements assertion about the subject matter.
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McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Forms of Attestation
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Audit of Financial Statements
Management
PreparesFinancial
Statements
Criteria(e.g., GAAP)
The
Auditors
GathersEvidence
Financial
StatementsThe Auditors
Report
Issues
Report
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What Creates the Demand for Audits?
Audits lend credibility to information by reducinginformation risk, the risk that information is materiallymisstated
Financial statement misstatements arise due to-- Accidental errors
Lack of knowledge of accounting principles
Unintentional bias
Deliberate falsification
Audits do not directly address business risk, the riskthat a company will not be able to meet its financialobligations due to economic conditions or poormanagement decisions
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The Accounting ProfessionsCredibility Crisis
2000The Panel on AuditEffectiveness made a variety of
suggestions to improve audits. 2001Enron Bankruptcy
2002WorldCom Fraud
2002Sarbanes-Oxley Act 2003Public Company Accounting
Oversight Board began operations
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Types of Audits
Audits of Financial Statements
Compliance Audits
Operational Audits
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Types of Auditors
External Auditors
Internal Auditors
GAO Auditors
Tax Auditors
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AICPAs Traditional Role
Establishes Standards
Research and Publication
Continuing Professional Education Self-Regulation
CPA Examination
Note: The standards setting and regulationroles have been taken over by the SECand the PCAOB with respect to auditorsof public companies.
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PCAOB Role
Adopt auditing, attestation, quality control,
ethics and independence standards relating to
the preparation of audit reports
Oversee and discipline CPAs and CPA firmsthat audit public companies, including
Register firms
Perform inspections of firms
Conduct investigations and disciplinary proceedings
of firms
Sanction registered firms
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Types of Professional Services
Attestation and Assurance
Tax
Consulting
Accounting
Personal Financial Planning Litigation support
Fraud Investigation
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