Chapter 8
Assurance Services
and Auditing
Research
Learning Objectives
The types of assurance and consulting
services, and applicable standards
The environment for the assurance
services standard setting process
Authoritative auditing support
How to utilize the AICPAs professional
standards
Learning Objectives (contd.)
Role of auditing in the public sector
Hierarchy of the AICPAs Code of
Professional Conduct
Role of professional judgment in the
research process
International dimensions of auditing
Assurance services
Independent professional services that
improve the quality of information, or its
context, for decision makers
Adds value to the user, not just the report
Three party contracts the client, the
assurer, and the third party to whom the
accountant is providing assurance
Consulting services and
standards
Attestation and audit services are special types
of assurance services
In an attest engagement, the CPA reports on the
reliability of a written assertion that is
managements responsibility
Consulting is not part of assurance services
Two party contact: client, consultant,
accountant
CPA develops findings, conclusions, and
recommendations
Auditing standard-setting
environment
Audits add credibility to financial information
Auditor conducts audit in conformity with
GAAP and in conjunction with auditing
standards
Attestation services and standards
In the past, only audit opinions
Now expanded to include opinions on
internal controls
Attest engagements and
guidelines
Audit and attest services Generally Accepted
Audit Standards (GAAS), Statements on
Auditing Standards (SAS) Auditing standard
boards (ASB)
Accounting and review services Statements on
Standards for Accounting and Review
Accounting and Review Services Committee
(ARSC)
Accountants services on prospective financial
information Statements on Standards for
Accountants Services on Prospective Financial
Information Auditing Standards Board
Attest engagements and
guidelines
Other attest services Statements on
Standards for Attest Engagement ASB,
ARSC, and the management consulting
services executive committee
Audit and attest services for public
companies Auditing and Related
Professional Practice Standards Public
Company Accounting Oversight Board
(PCAOB)
Attestation standards
General Standards
Adequate technical training and proficiency
Adequate knowledge
Services shall be performed only if the
subject matter is capable of being evaluated
Independence in mental attitude
Due professional care
Attestation standards (contd.)
Fieldwork
Adequately planned, and assistants
properly supervised
Sufficient evidence to provide a
reasonable basis for conclusion
Attestation standards (contd.)
Standards of Reporting
Report shall identify subject matter
Conclusion shall be reported
Reservations shall be reported
Report shall state the use of the report is
restricted to specified parties
Auditing standards
Auditing standards provided measures of the quality of
performance
Audit procedures refer to the specific acts or steps to
perform in an audit
Procedures change, standards remain constant
10 broad requirements referred to as GAAS
In addition, to GAAS, there are Statements of
Auditing Standards (SAS) Interpret GAAS by
clarify procedures
Generally accepted auditing
Standards
General standards
Adequate technical training
Independence
Due professional care
Generally Accepted Auditing
Standards
Field work
Adequately planned and assistants supervised
Sufficient understanding of the business and
internal controls to plan the audit and determine
the nature, timing and extent of procedures
Sufficient competent evident matter to form an
opinion
GAAS (contd.)
Standards of reporting
Report shall state if in accordance with
GAAP
Shall report if not consistent
Informative financial statement
disclosures
Written expression
Auditing standard-setting
process
Previously, set by ASB
SOX transferred standard setting
responsibility to PCAOB for public
company audit
Auditing standard-setting
process
There is a standards hierarchy
Primary support
General application
Special application to certain entities
Secondary authoritative support
Public Company Accounting
Oversight Board (PCAOB)
Legal responsibility to establish GAAS, attestation, ethics, and
quality control standards for accounting firms who audit
public companies
Non-public companies still follow the AICPAs mission:
Develop auditing, attestation and quality control standards
for non-issuer engagements
Contribute to the development and issuance of high-
quality national and international auditing and assurance
standards
Respond to the needs for practical guidance in
implementing professional standards
AICPA reSource database
Professional standards, accounting trends
and techniques, technical practice aids,
auditing and accounting guides, and audit
alerts
Home tab lists the literature available in
the database
Once select a certain literature, can query
Results tab click on the link to find the
result
Code of professional conduct
Minimum level of conduct
Principles, rules, interpretations, and ethics
rulings
Rule 202- compliance with standards
Rule 203 accounting principles
AICPA issues a newsletter that lists
violators of professional conduct.
Hierarchy of the AICPAs Code of
Professional Conduct
Level 1 Principles
provided framework for development
Level 2 Rules
Serve as the enforceable part of the Code
Level 3 Interpretations of the Rules of Conduct
Have been adopted by the professional ethics divisions ethics
committee
Provide guidelines as to the scope and application of rules
Level 4 Ethics Rulings
Formal rulings made by the professional ethics divisions
executive committee.
Summarize the application of the rules and interpretations to
particular factual circumstances
Auditing in the public sector
GAO Government Auditing Standards Yellow
book
Applicable to all governmental organizations
Measure effectiveness of the expenditures, not just identify
the amounts spent
Include compliance auditing
Three levels of auditing
GAAS
Government Auditing Standards (aka generally accepted
government auditing standards)
Federal audit requirements OMB Circular A-133 Audits of
States, Local Governments, and Non-Profit Organizations
Accounting Services
Compilation a service presenting, in the
form of financial statements, information
that is the representation of management
without expressing any assurance on the
statements.
Review a service performing inquiry and
analytical procedures that provide the
accountant with a reasonable basis for
expressing limited assurance on the
statements
International Auditing
International Federation of Accountants (IFAC)
International Auditing Practices Committee
(IAPC)
International Standards on Auditing (ISAs)
International Practice Statements (IAPs)
International Auditing and Assurance Standards
Board (IAASB)
Role of judgment in accounting
and auditing research
Judgment in: substance of transaction, adequacy
of disclosure, materiality thresholds
Auditor gathers information, evaluates and
judges, then expresses an opinion
Many pronouncements provide only guidelines
or alternatives, requiring judgment.
Critical thinking skills are crucial
SAS No. 5 discusses auditors judgment