...01 An Introduction to Assurance and Financial Statement Auditing True / False Questions 1. | Independence standards are required for audits of public companies, but not for audits of private companies. True False | 2. | Decision makers demand reliable information that is provided by accountants. True False | 3. | Information asymmetry seldom occurs. True False | 4. | Conflicts of interest often occur between absentee owners and managers. True False | 5. | Auditing services and attestation services are the same. True False | 6. | Auditing is a type of attest service. True False | 7. | Testing all transactions that occurred during the period is cost prohibitive. True False | Multiple Choice Questions 8. | Why do auditors generally use a sampling approach to evidence gathering? A. | Auditors are experts and do not need to look at much to know whether the financial statements are correct or not. | B. | Auditors must balance the cost of the audit with the need for precision. | C. | Auditors must limit their exposure to their auditee to maintain independence. | D. | The auditor's relationship with the auditee is generally adversarial, so the auditor will not have access to all of the financial information of the company. | | 9. | Which of the following statements best describes a relationship between sample size and other elements of auditing? A. | If materiality increases, so will the sample...
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...Access the PCAOB Website ( www.pcaob.org) and list two new or proposed auditing standards issued by the PCAOB. Auditing Standard no .18: Related Parties The Securities and Exchange Commission (SEC) approved a new Public Company Accounting Oversight Board (PCAOB) standard on auditing transactions with related parties and amendments to PCAOB standards on significant unusual transactions and a company’s transactions and financial relationships with its executive officers. The standard includes new requirements for evaluating how a company identifies, accounts for and discloses its transactions and relationships with related parties. The amendments also require auditors to perform procedures to (1) help them identify and evaluate the business purpose of the significant unusual transaction (2) Obtain understanding of a company’s financial relationship with its executive officers and also understanding their employment contracts. The PCAOB developed this standard and amendment to focus on the auditor’s areas that have been associated with risks and fraudulent financial reporting errors, the PCAOB hopes the new standard will increase the auditors like hood to identify material misstatement on financial statements. Auditing Standard (AS) No.18, Related Parties, will supersede an interim auditing standard and is effective for fiscal year beginning on or after December 15, 2014. The PCAOB noticed the existing standard provided example of procedures an auditor could perform but...
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...MEMORANDUM TO: Accounting Staff FROM: Junior Accountant DATE: September 23, 2013 SUBJECT: Replacement of SAS 112 with SAS 115 The American Institute of CPAs (AICPA) Statement on Auditing Standards (SAS) Number 115 supersedes SAS Number 112. Going forward, auditors are to use rule SAS 115 when performing internal control audits. The rules have some similarities. However, the key differences in the rules are the definitions for control deficiency, significant deficiency, and material weaknesses. The change in rules also creates more opportunities for accounting firms to offer services. Similarities between SAS 112 and SAS 115: Similarities exist between SAS 115 and SAS 112. The rules require auditors to look at deficiencies found during an audit. The auditor must continue to identify the deficiencies found as significant deficiencies or material weaknesses.1 SAS 112 and SAS 115 require auditors to determine if internal controls can prevent and detect errors. Management receives written communication of the findings, as before. Both rules require management to become more aware of the weaknesses in the organizational internal controls. The differences in rules SAS 112 and SAS 115 are as significant as the similarities. Differences between SAS 112 and SAS 115: The differences between SAS 112 and SAS 115 are subtle but important. The major difference between the two rules is the definition of control deficiency, significant deficiency, and material weakness...
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...Team B Formal Communications University of Phoenix Team B Formal Communications To: Accountants From: Team B Subject: Statement on Auditing Standards (SAS) 112 and 115 Notification Changes have been made regarding the rules that must be followed by auditors. The purpose of this memo is to provide an outline of the changes and explanation on how the changes will impact our valued clients. As accountants, understanding the Statement of Auditing Standards (SAS) No. 112 and the superseding SAS No. 115 is extremely important as they may affect our audit results and findings. This internal memo is being distributed to all accountants in our office to provide information related to the new changes in standards and to show how the changes my affect you (AICPA, 2009). SAS No. 115 has replaced SAS No. 112 effective on or after December 15, 2009. SAS No. 115 was designed to bring awareness of deficiencies in internal controls and to assist in reducing the risks of financial statement misstatements. SAS No. 115 also provides guidance on how to assess whether a deficiency in internal controls is a compelling deficiency or materials weakness. The auditor will evaluate the identified controlled deficiencies and decide if the deficiencies are significant or material. The main difference between SAS No. 112 and SAS No. 115 are the definitions of significant deficiency and material weakness (AICPA, 2009). SAS No. 112 defined significant deficiencies as "more than a remote likelihood...
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...11 Ramecha Davis This paper is submitted in partial fulfillment of the requirements for Auditing BUS5423 Section 70 Texas Woman’s University Dr. John Nugent April 20, 2015 Abstract The purpose of this research paper is to provide an in depth review of the Public Company Accounting Oversight Board (PCAOB) and how it contributes to the interest of the Sarbanes Oxley Act of 2002. The research highlights the importance of the PCAOB’s role in the accounting profession as well as prospective changes that may evolve in the future related to PCAOB. Upon reading this research the reader will be familiar with PCAOB’s roles and functions, as well as auditing standards (AS) released such as AS5 and AS11. The PCAOB’s significance in the protection of investors is revealed as well. Keywords: SEC, PCAOB, SOX, AS 5, AS 11, Internal Control, Materiality Table of Contents Introduction……………………………………………………………………………………………….5 PCAOB…………….……………………………………..……………………………….……….……5-6 a) The PCAOB Mission, Vision, & Core Values………………………………….………........6-7 b) Current Standards…………………………………………………………….…..............…7-8 c) Future Standard Plans…………………………………………………………………….…8-9 Sarbanes Oxley Act of 2002 Section 404……………………………………………………………...….9 a) Auditing Standard 5…………………………………………………………………….….9-10 b) Auditing Standard 11……………………………………………………………………..10-12 c) Communication Requirements...............................................................................
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... PAGE ABSTRACT 3 1. INTRODUCTION 3 2. REASONS 3 2.1 INTERNAL AUDITOR ROLES 3 2.2 THE REPORTING AND OBJECTIVITY RELATIONSHIP OF THE INTERNAL AUDITOR 4 3. COLLABORATION IN PRACTICE 5 3.1 COMMUNICATION AND COOPERATION 5 3.2 PROFESSIONAL STANDARDS 5 3.3 RECORDING AND TESTING ACCOUNTING SYSTEMS 6 3.4 SUBSTANTIVE TESTS 6 4. CONSEQUENCES OF INFLUENCE 7 5. RELIANCE IMPROVEMENTS 8 5.1 ATTEMPTS FOR IMPROVEMENT 8 5.2 INCREASE THE EFFICIENCY AND COMMUNICATION METHOD FOR INTERNAL AUDITORS AND EXTERNAL AUDITORS 8 5.3 FURTHER EDUCATION IS SIGNIFICANT 9 5.4 A HARMONIOUS WORKING ENVIRONMENT MAKES THINGS DIFFERENT 9 5.5 LEGISLATION ...
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...Auditing Standards Essay: Auditing Planning Broadly speaking, audit planning is specific guidelines for auditor to perform an audit. Audit planning is usually conducted at the beginning stage of audit process. AICPA (American Institute of Certificate Public Accounting), PCAOB (Public Company Oversight Board), and IFAC (The International Federation of Accountants) are organizations or non-profit corporations who contributes to developing standards and guidance in auditing area, including standards for audit planning. Thus, this essay will discuss the requirement, and compare and contrast, of standards and guidance for auditing planning that has been issued by them; as well, analyze the impact on the performance of the audit. AICPA, by its publication titled AUC Section 300, addresses guidance for auditors in planning an audit. This contains introduction, objective, requirements, and application and other explanatory material. First, the introduction part includes the scope in planning the audit, the role and timing of planning, and the effective date of this standard. The scope of planning an audit explains the responsibility of the auditor to plan an audit of financial statement. This section also mentioned to refer to section 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) for further information related to the auditor’s responsibility. The role of planning and timing explains the adequate benefit in planning...
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...Audit and Assurance Services Chapter 1 1 Learning Objectives 1. What is auditing? Distinguish between auditing and accounting. Importance of auditing in reducing information risk. 2. Distinguish audit services from other assurance and non-assurance services provided by CPAs. 3. Three main types of audits. 4. How to become a CPA? Identify the primary types of auditors. 2 What is auditing? Evaluating 3 Nature of Auditing Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person. 4 Audit Reporting -- (Expressing Opinions) The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users. 5 Information and Established Criteria To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information. 6 Accumulating Evidence and Evaluating Evidence Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria. Transaction data Client inquiry Written and electronic Communications with outsiders Observations 7 Competent, Independent Person The auditor must be qualified...
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...REFLECTION PAPER ON “THE IMPACT OF EMERGING INFORMATION TECHNOLOGY ON AUDITING” In our modern world today, everything is possible... Everything is faster. But based on this fact, do we really know the influence of evolving “Information Technology” on our society specifically in the dynamics of businesses nowadays? To respond with this, IT has affected many sectors or aspects especially auditing. Audit is an evaluation of a person, organization, system, process, enterprise, project or product to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, is in accordance with the applicable financial reporting framework. The use of computers in the process of auditing is what we called “Accounting Information System” which is wildly by the auditors today. In a business context, information technology (IT) is defined as "the study, design, development, application, implementation, support or management of computer-based information systems". The prompt growth in information technology (IT) competencies and the longing of businesses of all sizes to obtain competitive advantage have led to a dramatic increase in the use of IT systems to make, process, store and communicate information. Today, employees at all levels use IT systems in their daily activities. Electronic records have replaced traditional paper documents. In fact, there are few companies that don’t rely on IT to at least some extent to achieve their financial...
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...SPE 135734 Difference Between Traditional and Risk Based Auditing Danny Spadaccini, Weatherford International Copyright 2010, Society of Petroleum Engineers This paper was prepared for presentation at the SPE Annual Technical Conference and Exhibition held in Florence, Italy, 19–22 September 2010. This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessarily reflect any position of the Society of Petroleum Engineers, its officers, or members. Electronic reproduction, distribution, or storage of any part of this paper without the written consent of the Society of Petroleum Engineers is prohibited. Permission to reproduce in print is restricted to an abstract of not more than 300 words; illustrations may not be copied. The abstract must contain conspicuous acknowledgment of SPE copyright. Abstract Auditors are trained to make detailed examinations of the internal control systems such as ISO 9001, ISO 29001, ISO 14001, OSHAS 18001, API, accounting systems and various legislative requirements and; focus their audit planning, testing, and reporting on internal controls in the business process. The Evaluation of controls without first examining the purpose of the business process and its risks provides no context for the results...
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...controls Section 404: reaffirms management is responsible for establishing and maintaining an adequate internal control structure. 1992 Coso report: established common definition of internal control for assessing control system, as well as determined how to improve controls. An internal control system should consist of the five components: 1. The control environment 2. Risk assessment 3. Control activities 4. Information and communication 5. Monitoring Control environment: foundation for all other internal control components and provides discipline and structure. Top management oversight, integrity, and ethical principles that guide the organization Risk assessment: identify organizational risks, analyze their potential in terms of costs and likelihood of occurrence, and implement only those controls whose projected benefits outweigh their cost Control Activities: policies and procedures that management develops. Example, approvals, authorizations, verifications, reconciliations, reviews, and segregation od duty Information and communication: managers inform employees about their roles and responsibilities pertaining to internal control. Employees feel safe communicating...
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...MEMO To: Andrey Simonov From: Vivian Jeansonne Subject: Internal Controls and the Auditing of Internal Controls Date: March 19, 2013 _________________________________________________ The Internal Control—Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), defines internal control as “a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations” (Douglas). Internal controls are a very important aspect of a business which involves people at every level of an organization working together to achieve the same objectives. The three categories stated above address the different needs of a company and allow a specific focus in order for these needs to be met. The most important internal control to implement is over financial reporting. This involves preparing the financial statements so that they are presented fairly and accurately based on generally accepted accounting principles and any other financial reporting framework used by management (Landes & Ratcliffe). Fair presentation is when the accounting principles chosen by management have general acceptance and are appropriate in the circumstances. Financial statements must also reflect underlying transactions...
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...Auditing Concepts ZZZZ Best Company, Inc Case Solutions: 1. A review is performed to obtain a reasonable basis for providing limited assurance that the client's financial statements have been prepared in conformity with generally accepted accounting principles. An independent audit is designed to provide a reasonable basis for expressing an opinion concerning whether or not a client’s financial statements have been prepared in accordance with generally accepted accounting principles. There is also a major difference between a review and an audit in terms of the scope of work performed. When a review is done, the main evidence collection techniques are analytical procedures and inquiries of client personnel. Whereas, in an audit, the full range of evidence collection techniques available to an auditor is likely to be used. A review does not assess control risk, tests of accounting records and responses to inquiries by obtaining validating evidence through inspection, observation or any other audit procedure. It can point out significant matters of the financial statements but does not provide assurance of their accuracy. Because reviews are generally not as rigorous as audits, considerably less evidence is typically collected in a review than in a comparable audit engagement. The issue with ZZZZ Best case is that the auditors review was not sufficient enough to review any material misstatements on the financial statements. 2. Third party confirmations should...
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...Research Method Internal Auditing versus external Auditing When it comes to the subject of the audit, one will often find the concepts of internal audit and external audit. If these two audits are necessary for the good functioning of company, and if the collected sources agree that the skills required for these two notions are relatively identical, it remains not only tasks and the environment of the internal auditor and the external auditor differ. In order to best support our report, we gave a point of honour to diversify sources and points of view. Our researches were principally based on key words such as: internal auditing, external auditing, differences between auditors, cooperation between auditors, similarities between external and internal auditing. The diversification of our sources has in fact been paramount and allowed us to have a global vision of the subject and the issues it implies. So we will be based on data of the IFACI and the CNCC, the point of view of a University Professor, that of an NLC internal auditor, reflections and axes of various analysis collected from the blog Be audit you can Be (http://amais5.tumblr.com/). In the light of the evidence and their convergence on some specific aspects concerning the general question “How internal and external auditors can benefits for each other ?”, the following questions are imposed on us as problematic to treat during this report: What precisely are the differences between these two audit activities...
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...that the independent auditor obtain written representations from management as a part of an audit of financial statements performed in accordance with generally accepted auditing standards and provides guidance concerning the representations to be obtained. Reliance on Management Representations .02 During an audit, management makes many representations to the auditor, both oral and written, in response to specific inquiries or through the financial statements. Such representations from management are part of the audit evidence the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit. Written representations from management ordinarily confirm representations explicitly or implicitly given to the auditor, indicate and document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding concerning the matters that are the subject of the representations. [Revised, March 2006, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 105.]1 .03 The auditor obtains written representations from management to complement other auditing procedures. In many cases, the auditor applies auditing procedures specifically designed to obtain audit evidence concerning matters that also are the subject of written representations. For example, after the auditor...
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