Demand for Audit

7/21/2019 Demand for Audit

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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - 1

The Demand for Audit

and Assurance Services

Chapter 1


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Learning Objective 1

Describe assurance services

and distinguish audit services

from other assurance and

nonassurance services

provided by CPAs.


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Assurance Services

Assurance services are r!"essi!nal

services that i#r!ve the $uality !"in"!r#ati!n "!r decisi!n #a%ers&

Assurance services can be

er"!r#ed by 'PAs !r bya variety !" !ther r!"essi!nals&


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - (

Attestati!n Services

An attestation serviceis a tye !" assuranceservice in )hich the 'PA "ir# issues a

re!rt ab!ut the reliability !" an asserti!n

that is the res!nsibility !" an!ther arty&


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - *

+ther Assurance Services

!st !ther assurance services d! n!t #eet the

"!r#al de"initi!n !" attestati!n services&he 'PA #ust be indeendent&

he 'PA is n!t re$uired t! r!vide a )ritten re!rt&

he 'PA #ust r!vide assurance&


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - .

+ther Assurance Services

he Elli!tt '!##ittee )as charged )ith

researching and devel!ing ne) assurance

services !!rtunities "!r 'PAs t! r!vide

t! business and individual clients )h! need

relevant and reliable in"!r#ati!n "!rcritical decisi!n #a%ing&


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Assurance Services !n

n"!r#ati!n echn!l!gy

here is an increased de#and "!r assurance

ab!ut c!#uter c!ntr!ls surr!undingin"!r#ati!n transacted electr!nically

and the security !" the in"!r#ati!n

related t! the transacti!ns&

assurance !ver eb site c!ntr!ls

assurance ab!ut in"!r#ati!n syste# reliability


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WebTrust is an attestati!n service, and the

WebTrust seal is a sy#b!lic reresentati!n!" the 'PA4s re!rt !n #anage#ent4s

asserti!ns ab!ut its discl!sure !"

electr!nic c!##erce ractices&


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SysTrustis an attest-tye engage#entt! evaluate and test syste# reliability in

areas such as security and data integrity&



+ther Assurance

Services E6a#les

'!ntr!ls !ver and ris%s related t! invest#ents,

including !licies related t! derivatives7

assessing the r!cesses in a c!#any4sinvest#ent ractices t! identi"y ris%s and t!

deter#ine the e""ectiveness !" th!se r!cesses&



+ther Assurance

Services E6a#les

ystery sh!ing7

er"!r#ing an!ny#!us sh!ing t!assess sales ers!nnel dealings )ith

cust!#ers and r!cedures they "!ll!)&



+ther Assurance

Services E6a#les

Assess ris%s !" accu#ulati!n, distributi!n,

and st!rage !" digital in"!r#ati!n7

assessing security ris%s and relatedc!ntr!ls !ver data and !ther in"!r#ati!n

st!red electr!nically, including the

ade$uacy !" bac%u and !""-site st!rage&



+ther Assurance

Services E6a#les

8raud and illegal acts ris% assess#ent7

devel!ing "raud ris% r!"iles and assessing theade$uacy !" c!#any syste#s and !licies in

reventing and detecting "raud and illegal acts&


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Assurance, Attestati!n, and

9!nassurance Services

ASSURANCE SERVICES

Other Attestation Services

e.g.! WebTrust, SysTrust"

Other Assurance Services

e.g.! CPA Performance View"

Certain

#anagement

Consu$ting

ATTESTATION SERVICES

Audits %evie&s


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Assurance, Attestati!n, and

9!nassurance Services

NONASSURANCE SERVICES

Other #anagement

Consu$ting

Ta'

Services

Certain

#anagement

Consu$ting

Accounting and

(oo))eeping


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Learning Objective *

+'p$ain the importance

of auditing in reducing

information ris).



Ec!n!#ic :e#and

"!r Auditing

n"!r#ati!n ris% re"lects the !ssibility that

the in"!r#ati!n u!n )hich the businessris% decisi!n )as #ade )as inaccurate&

Auditing can have a signi"icant e""ect

!n in"!r#ati!n ris%&



Learning Objective ,

List the causes of information

ris)! and e'p$ain ho& this

ris) may be reduced.



'auses !" n"!r#ati!n ;is%

1& ;e#!teness !" in"!r#ati!n

2& Biases and #!tives !" the r!vider

3&



;educing n"!r#ati!n ;is%

1& =ser veri"ies in"!r#ati!n

2& =ser shares in"!r#ati!n ris% )ith #anage#ent

3& Audited "inancial state#ents are r!vided



'aital '!sts t! Shrin% Elli!tt4s

E6a#le

Assu#ing a c!st !" caital !" 13>, Elli!tt

esti#ates this rate is c!#!sed !" the "!ll!)ing?*&*> ris%-"ree interest rate

3&*> ec!n!#ic ris% re#iu# @business ris%

(&0> in"!r#ati!n c!st @in"!r#ati!n ris%


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'aital '!sts t! Shrin% Elli!tt4s

E6a#le

Elli!tt believes the "!ll!)ing "act!rs )ill

drastically reduce in"!r#ati!n ris%?Advanced techn!l!gy

9e) acc!unting and auditing standards

Audit!rs "inding #!re e""icient )ays t! audit


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Learning Objective -

Describe auditing.


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - 2(

9ature !" Auditing

Auditingis the accu#ulati!n and

evaluati!n !" evidence ab!ut

in"!r#ati!n t! deter#ine and

re!rt !n the degree !"

c!rres!ndence bet)een the

in"!r#ati!n and established criteria&Auditing sh!uld be d!ne by a

c!#etent, indeendent ers!n&


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - 2*

Accu#ulating and

Evaluating Evidence

Evidence is any in"!r#ati!n used by the audit!rt! deter#ine )hether the in"!r#ati!n being

audited is stated in acc!rdance )ith the

established criteria&


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - 2.

'!#etent, ndeendent

Pers!n

he audit!r #ust be $uali"ied t! understand the

criteria used and #ust be c!#etent t! %n!)

the tyes and a#!unt !" evidence t! accu#ulate

t! reach the r!er c!nclusi!n a"ter the

evidence has been e6a#ined&

he c!#etence !" the individual er"!r#ing theaudit is !" little value i" he !r she is biased in the

accu#ulati!n and evaluati!n !" evidence&


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;e!rting

he "inal stage in the auditing r!cessis rearing theAudit Reort,)hich

is the c!##unicati!n !" the

audit!r4s "indings t! users&


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Audit !" a a6 ;eturn

E6a#le

nterna$revenue

agent

+'amines cance$$ed

chec)s and other

supporting records

/edera$ ta'

returns fi$ed

by ta'payer

nterna$ %evenue

Code and a$$

interpretations

%eport on ta'

deficiencies

Competent!independent

person

nformation

+stab$ished criteria

Determinescorrespondence

Accumu$ates andeva$uates evidence

%eport on resu$ts


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Distinguish bet&een

auditing and accounting.


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:istincti!n Bet)een

Auditing and Acc!unting

Accountingis the rec!rding, classi"ying,

and su##ariing !" ec!n!#ic events

"!r the ur!se !" r!viding "inancial

in"!r#ati!n used in decisi!n #a%ing&

Auditingis deter#ining )hether

rec!rded in"!r#ati!n r!erly

re"lects the ec!n!#ic events that

!ccurred during the acc!unting eri!d&


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Learning Objective

Differentiate the three

main types of audits.


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yes !" Audits

8inancial State#ent Audit

+erati!nal Audit

E""iciency E""ectiveness

'!#liance Audit


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8inancial State#ent Audit

E6a#le

n"!r#ati!n

Established

'riteria

Available

Evidence

Annual audit !" B!eing4s

"inancial state#ents

B!eingCs "inancial

state#ents

Denerally acceted acc!unting

rinciles

:!cu#ents, rec!rds, and !utside

s!urces !" evidence


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - 3(

+erati!nal Audit

E6a#le

n"!r#ati!n

Established

'riteria

Available

Evidence

Evaluate c!#uteried ayr!ll syste#

"!r e""iciency and e""ectiveness

9u#ber !" rec!rds r!cessed, c!st !"

the deart#ent, and nu#ber !" err!rs

'!#any standards "!r e""iciency and

e""ectiveness in ayr!ll deart#ent

Err!r re!rts, ayr!ll rec!rds, and

ayr!ll r!cessing c!sts


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - 3*

'!#liance Audit

E6a#le

n"!r#ati!n

Established

'riteria

Available

Evidence

:eter#ine )hether ban% re$uire#ents

"!r l!an c!ntinuati!n have been #et

'!#any rec!rds

!an agree#ent r!visi!ns

8inancial state#ents and

calculati!ns by the audit!r


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - 3.


+'p$ain the strategic systems

approach to auditing.


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Strategic Syste#s Audit

he audit!r #ust have a th!r!ugh understanding

!" the entity and its envir!n#ent&

'lient4s industry

;egulati!ns

+erati!ns

;elati!nshis

Business strategies


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dentify the primary

types of auditors.


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yes !" Audit!rs

nternal Audit!rs

'erti"ied Public Acc!unting 8ir#s

nternal ;evenue Agents

Deneral Acc!unting +""ice Audit!rs


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - (0


Describe the re5uirements

for becoming a CPA.

h ; i "


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hree ;e$uire#ents "!r

Bec!#ing a 'PA

Educati!nal ;e$uire#ent

=ni"!r# 'PA E6a#inati!n ;e$uire#ent

E6erience ;e$uire#ent


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'PA E6a#inati!n Secti!ns

Audit and Attestati!n

Acc!unting and ;e!rting

;egulati!ns

Business Envir!n#ents and '!ncets


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Describe the impact of

e7commerce on CPAs.


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2003 Prentice Hall Business Publishing,Auditing and Assurance Services 9/e,Arens/Elder/Beasley 1 - ((

#act !" E-c!##erce

'PAs need t! understand h!) %ey

techn!l!gies are trans"!r#ing all

asects !" business&


Hard)are

S!"t)are '!##unicati!ns

nternet


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+nd of Chapter 1

Documents

Demand for Audit