ACC 442 Lecture Notes - Lecture 13: Financial Audit, Audit Evidence, Financial Statement
**what is auditing
the accumulation and evaluation of evidence to determine and report on degree of correspondence
between the information and established criteria.
information risk
the possibility that information that business decisions were made on was inaccurate
remoteness of information
decision makers must rely on information provided by others
causes of information risk
remoteness of information, biases of provider, voluminous data, and complex exchange transactions
that are difficult to account for.
reducing information risk
user verifies information (impractical), user shares information risk with management (so they don't get
sued), providing audited financial statements (external auditors provide insurance).
**assurance services
independent professional service that improves the quality of information for decision makers. Sox now
requires assurance regarding internal controls for larger public companies
**attestation service
a type of service in which the CPA issues a report about a subject matter or assertion that is made by
another party
**examples of attestation services
audits of historical financial statements, audits of internal controls over financial reporting, reviews of
historical financial statements, other attestation subjects over a wide range of subjects.
non assurance services
accounting and bookkeeping, tax services, management consulting.
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other assurance services
services that do not meet the definition of attestation services.
3 types of audits by cpa firms
operational audit, compliance audit, financial statement audit.
other service activities examples
controls over risks related to investments,mystery shopping, risks of accumulation, fraud risks, organic
ingrediates, compliance with entertainmant royalties, ISO9000, corporate responsibility and
sustainability.
**operational audit
evaluates efficiency and effectiveness of any part of a organizations operating procedures and methods
**compliance audit
determines whether the auditee is following specific procedures, rules, or regulations set by an
authority
**financial statement audit
determines whether the financial statements are stated in accordance with specific criteria.
**difference in assurance and consulting services
an assurance service meets the criteria of attestation and requires written documentation. A consulting
service does not meet the criteria of attestation and therefore is not assured.
**relationship between auditing and accounting
accounting is the recording classifying and summarizing of economic events to provide financial
information for decision making while auditing focuses on determining whether the recorded
information properly reflects the economic events that occured in the accounting period with the use of
audit evidence.
influence of PCAOB on auditing
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provides oversight for auditors of public companies like establishing auditing attestation and quality
control standards for public company audits and performing inspections of audit engagements and
quality controls.
influence of SEC on auditing
provides investors with reliable information upon which to make investing decisions.
form s-1 (prior to issuing new securities), 8-k (reports significant events), 10-k (annual report with
audited financial statements, 10-q (quarterly report)
influence of AICPA
sets the standards and rules that all members and cpas must follow including auditing standards
compilation and review standards attestation standards and code of professional conduct. AICPA writes
and grades cpa exam, supports its own research staff and provides grants to research, and publishes the
journal of accountancy
ASB-issues auditing standards called statements on auditing standards which apply to all audit
engagements not covered by PCAOB standards usually referred to as GAAS.
securities acts of 1933+1934
requires most companies planning to issue new securities to the public to submit a registration
statement to sec/provides additional protection to investors by requiring public companies to file
detailed annual reports with commission+ Require financial statements and the opinion of an
independent public accountant as part of the registration statement and subsequent reports.
pcaob standards
pcaob initially adopted existing auditing standards established by ASB as interim standards. Considers
international standards. Only apply to public companies and dealers registered with the SEC.
relation of auditing standards
ISA-companies outside USA AICPA-applicable to private entities in USA PCAOB- Applicable to us public
companies and other SEC registrants like brokers and dealers
organization of auditing standards
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Document Summary
**assurance services independent professional service that improves the quality of information for decision makers. Sox now requires assurance regarding internal controls for larger public companies. **attestation service a type of service in which the cpa issues a report about a subject matter or assertion that is made by another party. **operational audit evaluates efficiency and effectiveness of any part of a organizations operating procedures and methods. **compliance audit determines whether the auditee is following specific procedures, rules, or regulations set by an authority. **financial statement audit determines whether the financial statements are stated in accordance with specific criteria. **difference in assurance and consulting services an assurance service meets the criteria of attestation and requires written documentation. A consulting service does not meet the criteria of attestation and therefore is not assured. Aicpa writes and grades cpa exam, supports its own research staff and provides grants to research, and publishes the journal of accountancy.
