assurance services and auditing research chapter 8
TRANSCRIPT
Assurance Assurance Services and Services and
Auditing Auditing ResearchResearch
Chapter 8Chapter 8
Learning ObjectivesLearning Objectives
The types of assurance and The types of assurance and consulting services, and applicable consulting services, and applicable standardsstandards
The environment for the assurance The environment for the assurance services standard setting processservices standard setting process
Authoritative auditing supportAuthoritative auditing support How to utilize the AICPA’s How to utilize the AICPA’s
professional standardsprofessional standards
LearningLearning Objectives Objectives (contd.)(contd.)
Role of auditing in the public Role of auditing in the public sectorsector
Hierarchy of the AICPA’s Code of Hierarchy of the AICPA’s Code of Professional ConductProfessional Conduct
Role of professional judgment in Role of professional judgment in the research processthe research process
International dimensions of International dimensions of auditingauditing
Assurance servicesAssurance services
““Independent professional services Independent professional services that improve the quality of that improve the quality of information, or its context, for information, or its context, for decision makers”decision makers”
Adds value to the user, not just the Adds value to the user, not just the reportreport
Three party contracts – the client, the Three party contracts – the client, the assurer, and the third party to whom assurer, and the third party to whom the accountant is providing assurancethe accountant is providing assurance
Consulting services Consulting services and standardsand standards
Attestation and audit services are special Attestation and audit services are special types of assurance servicestypes of assurance services
In an attest engagement, the CPA reports In an attest engagement, the CPA reports on the reliability of a written assertion on the reliability of a written assertion that is managements responsibilitythat is managements responsibility
Consulting is not part of assurance Consulting is not part of assurance servicesservices Two party contact: client, consultant, Two party contact: client, consultant,
accountantaccountant CPA develops findings, conclusions, CPA develops findings, conclusions,
and recommendationsand recommendations
Auditing standard-Auditing standard-setting environmentsetting environment
Audits add credibility to financial Audits add credibility to financial informationinformation
Auditor conducts audit in conformity Auditor conducts audit in conformity with GAAP and in conjunction with with GAAP and in conjunction with auditing standardsauditing standards
Attestation services and standardsAttestation services and standards In the past, only audit opinionsIn the past, only audit opinions Now expanded to include opinions Now expanded to include opinions
on internal controlson internal controls
Attest engagements Attest engagements and guidelinesand guidelines
Audit and attest services – Generally Audit and attest services – Generally Accepted Audit Standards (GAAS), Accepted Audit Standards (GAAS), Statements on Auditing Standards Statements on Auditing Standards (SAS) – Auditing standard boards (ASB)(SAS) – Auditing standard boards (ASB)
Accounting and review services – Accounting and review services – Statements on Standards for Statements on Standards for Accounting and Review – Accounting Accounting and Review – Accounting and Review Services Committee (ARSC)and Review Services Committee (ARSC)
Accountant’s services on prospective Accountant’s services on prospective financial information – Statements on financial information – Statements on Standards for Accountant’s Services on Standards for Accountant’s Services on Prospective Financial Information – Prospective Financial Information – Auditing Standards BoardAuditing Standards Board
Attest engagements Attest engagements and guidelinesand guidelines
Other attest services – Statements Other attest services – Statements on Standards for Attest on Standards for Attest Engagement – ASB, ARSC, and the Engagement – ASB, ARSC, and the management consulting services management consulting services executive committeeexecutive committee
Audit and attest services for public Audit and attest services for public companies – Auditing and Related companies – Auditing and Related Professional Practice Standards – Professional Practice Standards – Public Company Accounting Public Company Accounting Oversight Board (PCAOB)Oversight Board (PCAOB)
Attestation standardsAttestation standards
General StandardsGeneral Standards Adequate technical training and Adequate technical training and
proficiency proficiency Adequate knowledgeAdequate knowledge Services shall be performed only if the Services shall be performed only if the
subject matter is capable of being subject matter is capable of being evaluatedevaluated
Independence in mental attitudeIndependence in mental attitude Due professional careDue professional care
Attestation standards Attestation standards (contd.)(contd.)
FieldworkFieldworkAdequately planned, and Adequately planned, and assistants properly assistants properly supervisedsupervised
Sufficient evidence to Sufficient evidence to provide a reasonable basis provide a reasonable basis for conclusionfor conclusion
Attestation standards Attestation standards (contd.)(contd.)
Standards of ReportingStandards of ReportingReport shall identify subject Report shall identify subject
mattermatterConclusion shall be reportedConclusion shall be reportedReservations shall be reportedReservations shall be reportedReport shall state the use of Report shall state the use of
the report is restricted to the report is restricted to specified partiesspecified parties
Auditing standardsAuditing standards
Auditing standards provided measures of the Auditing standards provided measures of the quality of performance quality of performance
Audit procedures refer to the specific acts or Audit procedures refer to the specific acts or steps to perform in an auditsteps to perform in an audit Procedures change, standards remain Procedures change, standards remain
constantconstant 10 broad requirements referred to as GAAS10 broad requirements referred to as GAAS
In addition, to GAAS, there are Statements In addition, to GAAS, there are Statements of Auditing Standards (SAS) of Auditing Standards (SAS) Interpret Interpret GAAS by clarify proceduresGAAS by clarify procedures
Generally accepted Generally accepted auditing Standardsauditing Standards
General standardsGeneral standardsAdequate technical trainingAdequate technical training IndependenceIndependenceDue professional careDue professional care
Generally Accepted Generally Accepted Auditing StandardsAuditing Standards
Field workField work Adequately planned and assistants Adequately planned and assistants
supervisedsupervised Sufficient understanding of the business and Sufficient understanding of the business and
internal controls to plan the audit and internal controls to plan the audit and determine the nature, timing and extent of determine the nature, timing and extent of proceduresprocedures
Sufficient competent evident matter to form Sufficient competent evident matter to form an opinionan opinion
GAAS (contd.)GAAS (contd.)
Standards of reportingStandards of reportingReport shall state if in Report shall state if in
accordance with GAAPaccordance with GAAPShall report if not consistentShall report if not consistent Informative financial Informative financial
statement disclosuresstatement disclosuresWritten expressionWritten expression
Auditing standard-Auditing standard-setting processsetting process
Previously, set by ASBPreviously, set by ASB SOX transferred standard SOX transferred standard
setting responsibility to PCAOB setting responsibility to PCAOB for public company auditfor public company audit
Auditing standard-Auditing standard-setting processsetting process
There is a standards hierarchyThere is a standards hierarchy Primary supportPrimary support
General applicationGeneral applicationSpecial application to certain Special application to certain entitiesentities
Secondary authoritative supportSecondary authoritative support
Public Company Public Company Accounting Oversight Accounting Oversight
Board (PCAOB)Board (PCAOB) Legal responsibility to establish GAAS, Legal responsibility to establish GAAS,
attestation, ethics, and quality control standards attestation, ethics, and quality control standards for accounting firms who audit public companiesfor accounting firms who audit public companies
Non-public companies still follow the AICPA’s Non-public companies still follow the AICPA’s mission:mission: Develop auditing, attestation and quality Develop auditing, attestation and quality
control standards for non-issuer engagementscontrol standards for non-issuer engagements Contribute to the development and issuance Contribute to the development and issuance
of high-quality national and international of high-quality national and international auditing and assurance standardsauditing and assurance standards
Respond to the needs for practical guidance Respond to the needs for practical guidance in implementing professional standardsin implementing professional standards
AICPA reSource AICPA reSource databasedatabase
Professional standards, accounting Professional standards, accounting trends and techniques, technical trends and techniques, technical practice aids, auditing and practice aids, auditing and accounting guides, and audit alertsaccounting guides, and audit alerts
Home tab – lists the literature Home tab – lists the literature available in the databaseavailable in the database
Once select a certain literature, can Once select a certain literature, can queryquery
Results tab – click on the link to find Results tab – click on the link to find the resultthe result
Code of professional Code of professional conductconduct
Minimum level of conductMinimum level of conduct Principles, rules, interpretations, Principles, rules, interpretations,
and ethics rulingsand ethics rulings Rule 202- compliance with Rule 202- compliance with
standardsstandards Rule 203 – accounting principlesRule 203 – accounting principles AICPA issues a newsletter that lists AICPA issues a newsletter that lists
violators of professional conduct.violators of professional conduct.
Hierarchy of the AICPA’s Hierarchy of the AICPA’s Code of Professional ConductCode of Professional Conduct Level 1 – Principles Level 1 – Principles
provided framework for developmentprovided framework for development Level 2 – RulesLevel 2 – Rules
Serve as the enforceable part of the CodeServe as the enforceable part of the Code Level 3 – Interpretations of the Rules of ConductLevel 3 – Interpretations of the Rules of Conduct
Have been adopted by the professional ethics Have been adopted by the professional ethics division’s ethics committeedivision’s ethics committee
Provide guidelines as to the scope and application Provide guidelines as to the scope and application of rulesof rules
Level 4 – Ethics RulingsLevel 4 – Ethics Rulings Formal rulings made by the professional ethics Formal rulings made by the professional ethics
division’s executive committee.division’s executive committee. Summarize the application of the rulesSummarize the application of the rules and and
interpretations to particular factual circumstancesinterpretations to particular factual circumstances
Auditing in the public Auditing in the public sectorsector
GAO – Government Auditing Standards – GAO – Government Auditing Standards – “Yellow book“Yellow book”” Applicable to all governmental organizationsApplicable to all governmental organizations Measure effectiveness of the expenditures, not Measure effectiveness of the expenditures, not
just identify the amounts spentjust identify the amounts spent Include compliance auditingInclude compliance auditing Three levels of auditingThree levels of auditing
GAASGAAS Government Auditing Standards (aka generally Government Auditing Standards (aka generally
accepted government auditing standards)accepted government auditing standards) Federal audit requirements – OMB Circular A-133 Federal audit requirements – OMB Circular A-133
Audits of States, Local Governments, and Non-Audits of States, Local Governments, and Non-Profit OrganizationsProfit Organizations
Accounting ServicesAccounting Services
Compilation – a service presenting, in Compilation – a service presenting, in the form of financial statements, the form of financial statements, information that is the representation information that is the representation of management without expressing any of management without expressing any assurance on the statements.assurance on the statements.
Review – a service performing inquiry Review – a service performing inquiry and analytical procedures that provide and analytical procedures that provide the accountant with a reasonable basis the accountant with a reasonable basis for expressing limited assurance on the for expressing limited assurance on the statementsstatements
International AuditingInternational Auditing
International Federation of Accountants International Federation of Accountants (IFAC)(IFAC)
International Auditing Practices International Auditing Practices Committee (IAPC)Committee (IAPC)
International Standards on Auditing International Standards on Auditing (ISAs)(ISAs)
International Practice Statements (IAPs)International Practice Statements (IAPs) International Auditing and Assurance International Auditing and Assurance
Standards Board (IAASB)Standards Board (IAASB)
Role of judgment in Role of judgment in accounting and auditing accounting and auditing
researchresearch
Judgment in: substance of transaction, Judgment in: substance of transaction, adequacy of disclosure, materiality adequacy of disclosure, materiality thresholdsthresholds
Auditor gathers information, evaluates and Auditor gathers information, evaluates and judges, then expresses an opinionjudges, then expresses an opinion
Many pronouncements provide only Many pronouncements provide only guidelines or alternatives, requiring guidelines or alternatives, requiring judgment.judgment. Critical thinking skills are crucialCritical thinking skills are crucial
SAS No. 5 – discusses auditor’s judgmentSAS No. 5 – discusses auditor’s judgment