...Kristin Bamberger Business Risk and Auditing Regis University Auditing Principles June 28, 2014 Business Risk and Auditing In the eyes of the average person auditing is a very black and white business as is all aspects of accounting. However, neither of these are as cut-and-dry as people would like to think. Auditors, as many people assume, are not always looking for fraud. Their main purpose in auditing is to ensure the financial statements comply with Generally Accepted Accounting Principles (GAAP). Auditing is as much for external users as it is for internal users. It is important for internal users because they can ensure they are complying with many of the GAAP laws. For external users auditing allows them to make educated decisions on which companies to invest in and they can see both business risk and audit risk. For any given auditing firm they will evaluate a potential client before actually committing to doing an audit. Auditors are looking at business risk and are always aware of audit risk. These two terms are glaringly different and yet go hand-in-hand for auditors. Many people think that business and audit risk are all about fraud, however, audit risk is more about legally protecting the auditing firm and the CPA’s while business risk is about protecting people that may invest or lend money to a business. Fraud is not actually a large part of auditing because auditing is looking at internal controls, and if a company has strong internal controls they...
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...Continuous Auditing In the customary tradition, internal auditing’s testing of controls has been performed on months once business activities have occurred. Internal auditors need to respond effectively to the demands of a fast changing business environment, while assisting organizations comply with growing regulatory mandates. This pressures internal auditors to provide more timely and ongoing assurance that controls are working effectively and risk is being mitigated. Today, IAs use continuous auditing as a method to perform control and risk assessments automatically on a more frequent basis. According to Canadian Institute of Chartered Accountants (CICA) and the American Institute of Certified Public Accountants (AICPA), Continuous Auditing is defined as a methodology that enables independent auditors (both internal & external) to provide written assurance on a subject matter using a series of auditors’ reports issued simultaneously with, or a short period of time after, the occurrence of events underlying the subject matter (Searcy and Woodroof, 2003). The Institute of Internal Auditors' (IIA) Global Technology Audit Guide (GTAG 3) defined continuous auditing as any method used by auditors to perform audit-related activities (including control and risk assessments) on a more continuous (occurring without interruption) or continual (occurring at repeated intervals.) basis. Continuous auditing requires specialized skills of audit personnel to monitor information...
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...1 Session 4 Audit Planning; Materiality and the audit risk model Auditing: Principles and Methods 2 After studying this session you should be able to: 1. Discuss why adequate audit planning is essential 2. Make client acceptance decisions and perform initial audit planning 3. Gain an understanding of the client’s business and industry 4. Assess client business risk 5. Perform preliminary analytical procedures 6. Apply the concept of materiality to the audit 7. Define risk in auditing and the audit risk model Auditing: Principles and Methods 3 8. Consider the impact of engagement risk on acceptable audit risk 9. Discuss the relationship of risks to audit evidence 10. Answer the Review Questions Auditing: Principles and Methods 1. Audit Planning 4 Why is adequate audit planning essential? “The auditor must adequately plan the work and must properly supervise any assistants”. There are three main reasons why the auditor should properly plan engagements: to enable himself to obtain sufficient appropriate evidence, to keep audit cost reasonable and to avoid misunderstanding with the client. Auditing: Principles and Methods 1. Audit Planning 5 An important part of audit planning is assessing acceptable audit risk and inherent risk because it helps determine the amount of evidence that will need to be accumulated and staff assigned to the engagement. Acceptable audit risk is a measure of how willing the auditor is to accept that the FSs...
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...Auditing and Assurance Introduction The essay is mainly discussing that Transval Ltd wants to hire a new auditing team and depend on the request that be given to the new auditor, whether the new auditor should accept the offer to audit for Transval Ltd or not. Upon that, the essay also talks about the threats to the objectivity as an auditor and the ways to mitigate these threats. Last part of the essay is talking about the risks that could cause misstatements to the financial statements and how quality control can mitigate them. A) Firstly, according to the information given from the case, there is a part of inventory not located at Transval Ltd. This part of inventory is located at customers’ premises which means Transval Ltd has to count inventory quarterly from each customer. Consider about this, there might be a misstatement happened here. Auditors have to get the right and overall information from the company to do the audited accounts. There is a possibility that the information like financial accounts from the customers’ companies are not overall or if there is any mistake in it, the auditor will not know. The audited account will not be accurate if that happened. Secondly, the firm’s most of existing customers are from the retail and service sectors. So as an auditor from this kind of firm might not have enough experience on the company like Transval Ltd. Transval Ltd is a company which make plastice balls for use in the injection moulding business. The...
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...Difficulty: Medium 2. The American Institute of Certified Public Accountants issues CPA certificates and permits CPAs to practice. Answer: False Difficulty: Medium 3. A company is either audited by the GAO or internal auditors, but not both. Answer: False Difficulty: Easy 4. The SEC does not pass on the merits of the securities that are registered with the agency. Answer: True Difficulty: Medium 5. The American Institute of Certified Public Accountants has the primary authority to establish accounting standards. Answer: False Difficulty: Easy 6. An annual peer review is a requirement of the AICPA. Answer: False Difficulty: Medium 7. Many small companies elect to have their financial statements reviewed by a CPA firm, rather than incur the cost of an audit. Answer: True Difficulty: Easy 8. Staff assistants in CPA firms generally are responsible for planning and coordinating audit engagements. Answer: False Difficulty: Easy Whittington, Principles of Auditing, Fifteenth Edition 1 Chapter 1 The Role of the Public Accountant 9. The Sarbanes-Oxley Act requires that auditors of publicly traded companies in the United States perform an integrated audit that includes providing assurance on both the financial statements and on compliance with laws and regulations. Answer: False Difficulty: Medium 10. Auditing is frequently only a small part of the practice of local CPA firms. Answer: True Difficulty: Medium Multiple Choice Questions 11. A summary of findings rather than assurance...
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...Internal audit Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.[1] Internal auditing is a catalyst for improving an organization's governance, risk management and management controls by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. The scope of internal auditing within an organization is broad and may involve topics such as an organization's governance, risk management and management controls over: efficiency/effectiveness of operations (including safeguarding of assets), the reliability of financial and management reporting, and compliance with laws and regulations. Internal auditing may also involve conducting proactive fraud audits to identify potentially fraudulent acts; participating in fraud investigations under the direction of fraud investigation professionals, and conducting post investigation fraud audits to identify control breakdowns and establish...
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...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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...Introduction Technology plays a vital role in continuous auditing activities. As an automatic method, continuous auditing’s responsibility is to perform auditing activities more frequently which including control and risk assessments. With the aim of helping to automate the identification of anomalies or exceptions, analyze models, test controls and review trends, “Continuous” in this aspect of continuous reporting and auditing serves as the financial information’s real-time ability to be shared and checked. Continuous auditing presents that the financial information’s integrity can be evaluated at any given-point-time; as a result, financial information’s inefficient, frauds and errors could able to be verified constantly. In the other hand, we could consider continuous auditing as a very detailed audit. 1 Historical development of continuous auditing As a kind of audit method, it theoretical sources is from the traditional auditing method. The traditional auditing theory is the basis of analyzing the continuous auditing. Most of the auditing is a format of statutory audit, but not all the auditing is required by the statutory from the beginning. Under the freedom of market environment, we should strengthen research on audit risk, explore ways of audit risk management and control, continue to improve audit quality, and reduce audit risk. “In fact, the concept of “continuous auditing” has been around since the late 1980s. But the urgency that Sarbanes-Oxley has brought...
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...THE IMPACT OF INTERNAL AUDIT ROLE ON RISK MANAGEMENT IN UAE PHD proposal Presented to (Dr Puah Chin Hong) Faculty of Economics and Business University of Malaysia Sarawak Presented By Muhammad Usman Research Proposal for PHD Admission: Presented By Muhammad Usman Page 1 TABLE OF CONTENTS 1.0 2.0 INTRODUCTION BACKGROUND 2.1 2.2 2.3 2.4 3.0 4.0 A brief history of internal auditing The role of the internal auditor Role of the risk management function The internal auditor and the risk management process PROBLEM STATEMENT RESEARCH OBJECTIVES 4.1 Specific Research Questions 5.0 6.0 7.0 8.0 9.0 IMPORTANCE OF STUDY SCOPE OF STUDY RESEARCH DESIGN THE LITERATURE REVIEW DATA COLLECTION & SAMPLING 9.1 9.2 Survey by questionnaire and interviews Sample selection 10.0 11.0 DATA ANALYSIS REFERENCES Research Proposal for PHD Admission: Presented By Muhammad Usman Page 2 1.0 INTRODUCTION The audit function has been performed at least since the fifteenth century. However internal auditing has developed most rapidly throughout the twentieth century as a core tool of risk assessment. Today, in businesses worldwide, the internal audit function is becoming very important for achieving the objectives of organizations. In recent years, UAE market has recognized the importance of the internal audit function, which is why that function has been established in some public as well as private companies. These companies setup audit functions to deal with the assessment...
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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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...CHAPTER 2 OVERVIEW OF AUDITING I. Review Questions 1. One definition of auditing is that it is a systematic process by which a competent, independent person objectively obtains and evaluates evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. The Philippine Standards on Auditing (PSA) 120 “Framework of Philippine Standards on Auditing” states the objective of an audit as follows: “The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared in all material respects, in accordance with an identified financial reporting framework.” 2. This apparent paradox arises from the distinction between the function of auditing and the function of accounting. The accounting function is the process of recording, classifying and summarizing economic events to provide relevant information to decision makers. The rules of accounting are the criteria used by the auditor for evaluating the presentation of economic events for financial statements and he or she must therefore have an understanding of generally accepted accounting principles (GAAP), as well as generally accepted auditing standards (GAAS). The accountant need not, and frequently does not, understand what auditors do, unless he or she is involved in doing audits, or has been trained...
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...AUDIT 401-01 Chapter 1: Auditing and Assurance Services User Demand for Reliable Information A. Information and Information Risk * ****Business risk: the risk that an entity will fail to meet its objectives**** * Environmental conditions to increase user demand for relevant, reliable, information: 1. Complexity 2. Remoteness 3. Time sensitivity 4. Consequences * Information risk: the probability that the information circulated by a company will be false or misleading * ****Assurance: Depend on information professionals to serve as an independent and objective intermediaries who will lend credibility to the information**** * ****Attestations: when the assurance is provided for specific assertions made by management**** Auditing, Attestation, and Assurance Services A. Definition of Financial Statement Auditing * ****Auditing: systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users **** OVERVIEW: Independent auditor – obtains and evaluates evidence knowledge of client’s business, observation of physical assets, inquiry of managers, confirmations from third parties, inspection of documents Management assertions about economic actions and events: * Balance sheet * Income statement * Statement...
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...Sampaloc Manila Job Opportunities for Internal Auditing Graduates A Research Paper Presented to the Institute of Accounts, Business & Finance Proponents: Ballan, Mary Jane M. Bautista, Dennis V. Burce, Jayraldine D. Culaton, Mary Joy C. Dacillo, Jessmin P. (Leader) Maquinano, Jem Karol R. Ortiz, Maribel G. Quiros, Marco M. Reyes, Angela M. Palencia, Alfred Foster M. Pascual, Karl Alexis M. Villanueva, Christian Paul M. In Partial Fulfillment Of the Requirement for the Degree of Bachelor of Science in Business Administration Major in Internal Auditing Dr. FE R. OCHOTORENA, CPA Adviser First Semester Academic Year 2014-2015 Job Opportunities for Internal Auditing Graduates AIA0807/Group 3 Abstract Internal auditing helps the organization to achieve its future goals by improving the business process of the organizations. The purpose of this study is to determine the job opportunities of Internal Auditing graduates. This study used the descriptive method of research and used non-probability sampling technique specifically stratified random sampling. This study revealed that job opportunities for the Internal Auditing graduates are rising in foreign companies particularly for the positions of Junior Internal Auditors given that Internal Auditing is designed to add value by helping organizations achieve its objectives. We conclude that many companies are already appreciating the importance of internal auditing function in their organizations resulting to increase...
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...4.47: A. In this case Auditor 2’s argument is more persuasive. Risk management is a process that aims to help organizations understand, evaluate, and take action on all their risks. Business risk, financial reporting risk, engagement risk, and audit risk are the four critical components of risk that are relevant to conduct an audit. Risk is a pervasive concept. Organizations are at risk everyday they operate. Old fashioned audit was only looking for the financial risk. And auditors were over auditing. Company’s shareholders is expecting more than just financial auditing. Company management, audit committee, shareholders, public and creditors is expecting more from auditors. They want to get information about all the risks company facing. Auditor has to understand company’s strategy and the structure of its transaction to determine where the real risk of misstatement may be occurring. B. Risk based auditing is help to management and public to evaluate the company position. If a auditor can audit all the risk facing by the company is a plus point in the auditing. SEC and PCAOB recommend the risk based auditing. I am not supporting the auditor 3’s analysis. If a auditor can perform risk based auditing, it will more helpful to the public and management. c. Risk based audit approach is dependent on the auditor’s ability to understand the business to identify account balance that are more likely to be materially misstated and then a adjust audit procedures to increase the likelihood...
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...Auditing Exam 1 Review Ch 1 Nature of Auditing: * Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence b/w the information and established criteria. * Auditing should be done by a competent, independent person. 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. 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. Competent, Independent Person: * The auditor must be qualified to understand the criteria used and must be competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined. * The competence of the individual performing the audit is of little value if he or she is biased in the accumulation and evaluation of evidence. Reporting: * The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users. Distinguish b/t auditing and accounting: * Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making. * Auditing is determining whether recorded information...
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