Describe auditing.

Distinguish between auditing and

Chapter 1 accounting.
The Assurance Explain the importance of auditing in
Services Market reducing information risk.
List the causes of information risk, and
explain how this risk can be reduced.

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Describe assurance services and

1
distinguish audit services from other
assurance and nonassurance services
provided by CPAs.
Differentiate the three main types of
audits. Describe auditing.
Identify the primary types of auditors.

Describe the requirements for becoming a

CPA.
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 Nature of Auditing
Auditing is the accumulation and evaluation
of evidence about information to determine To do an audit, there must be information in a
and report on the degree of correspondence verifiable form and some standards (criteria)
between the information and established criteria. by which the auditor can evaluate the information.

Auditing should be done by a competent, Criteria

independent person. FASB IASB

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Judgment and
Competence
Evidence is any information used by the auditor Experience
to determine whether the information being
audited is stated in accordance with the Independence
established criteria.
Evaluation
Transaction
data Written and
of Evidence
electronic Observations
Communications
Client with outsiders Proper
Testimony
Conclusion
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To the Board of Directors and Stockholders of
ABC Corporation and Subsidiaries
Anywhere, USA

We have audited the accompanying consolidated balance sheets of ABC Corporation and Subsidiaries (the “Company”) as of
December 31, 2010 and December 31, 2009, and the related consolidated statements of income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ABC
Corporation and Subsidiaries as of December 31, 2010 and December 31, 2009, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2011, expressed an unqualified opinion on the Company’s internal control over financial reporting.

INTERNATIONAL CPA FIRM LLP

Anywhere, USA
February 28, 2011

The final step communicates the findings to users.

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2 Accounting is the recording, classifying,

and summarizing of economic events
for the purpose of providing financial
Distinguish between auditing information used in decision making.

and accounting. Auditing is determining whether

recorded information properly
reflects the economic events that
occurred during the accounting period.
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 3 Demand Driver Information risk

Explain the importance of Auditing can have a significant effect

on information risk.
auditing
in reducing information risk. What is meant by “Information risk”?

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4 ➢ Remoteness of information

➢ Biases and motives of the provider

List the causes of information ➢ Voluminous data

risk, and explain how this
➢ Complex exchange transactions
risk can be reduced.

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➢ User verifies information
Client or audit Auditor issues
committee hires report relied
➢ User shares information risk with management auditor
Auditor upon by users to reduce
information risk

➢ Audited financial statements are provided

Provides capital
External
Client
Users
Client provides financial
statements to users
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5 An independent professional service

Describe assurance services and

Can be performed by CPAs or by a variety
distinguish audit services from other of other professionals
assurance and non-assurance services
provided by CPAs.

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 Five
Categories
➢A type of assurance service
1. Audit 3. Review
➢CPA reports on the reliability of an assertion Historical
Financial
➢That is the made by another party. Statements

2. Internal
Control over 4. Information
Financial 5. Other
Reporting
Technology

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Most of the other assurance services that CPAs

provide do not meet the formal definition
WebTrust and SysTrust also meet the of attestation services.
criteria of attestation service

The CPA is not required to issue a written report.

The assurance does not have to be about the

reliability of another party’s assertion about
compliance with specified criteria.

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 Assess risks of accumulation, distribution,
Global interest has triggered a surge in reports. and storage of digital information…

95% of the Global Fortune 250 released including

environmental, social, and governance data.
assessing security risks and related
Presented in standalone reports or integrated controls over data and other information
into annual financial reports. stored electronically, including the
adequacy of backup and off-site storage.
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➢ Controls over and risks related to investments

➢ Compliance with entertainment royalty agreements

➢ ISO 9000 certifications

➢ Corporate responsibility and sustainability

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 6 ➢ Operational

➢ Compliance

Differentiate the three main types ➢ Financial Statement

of audits.

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Evaluate computerized payroll system Determine whether bank requirements

Example Example
for efficiency and effectiveness for loan continuation have been met
Number of records processed, costs of
Information Information Company records
the department, and number of errors
Established Company standards for efficiency and Established
Loan agreement provisions
Criteria effectiveness in payroll department Criteria
Available Error reports, payroll records, and Available Financial statements and
Evidence payroll processing costs Evidence calculations by the auditor
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 Annual audit of Boeing’s financial
Example Extensible Business Reporting Language
statements

Information Boeing's financial statements

Enables sorting and comparing of financial data
Established Generally accepted accounting
Criteria principles
Public companies required to provide interactive
Available Documents, records, and outside financial statement data
Evidence sources of evidence
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7 ➢ Certified public accounting firms

➢ Governmental accountability office auditors

Identify the primary types of ➢ Internal Revenue agents

auditors.
➢ Internal auditors

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 8 ➢ Educational requirement

➢ Uniform CPA examination requirement

Describe the requirements
➢ Experience requirement
for becoming a CPA.

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Financial
Auditing Accounting
and And
Attestation Reporting

Business
Environment
Regulation
and
Concepts
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 Copyright

All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.

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