Assurance, Attestation, and Audit Services Flashcards
What are the two primary types of audit services?
- Audit of financial statements
- Audit of internal controls over financial reporting (ICFR)
What is the purpose of an audit of financial statements?
It is to provide statement users with an opinion by the auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework.
What is the purpose of an audit of ICFR?
It is to provide financial statement users with an opinion by the auditor on the design and operating effectiveness of ICFR.
What do audit services do for the intended users?
It enhances the degree of confidence that users can place in the financial statements.
What are attestation services?
They are performed when an independent practitioner, or CPA, is engaged to issue a report on subject matter that is the responsibility of another party.
Example: Companies produce financial information that goes beyond historical financial statements. Financial forecasts, and detailed schedules for specific accounts. When a CPA is hired to report on the integrity of this type of financial information, it is called attestation services.
What is a review of financial statements under attestation?
The practitioner expresses limited assurance that no material modifications need to be made to the financial statements.
A review is less extensive and less expensive.
What are assurance services?
They are independent professional services that improve the quality of information, or its context, for decision makers.
It encompasses any service that a professional provides that involves improving the quality of information that was prepared by someone else.
Who are intended users of assurance services?
They are decision makers, such as investors, creditors, and regulators.
What does “independent” mean in the context of assurance services?
It means that the person performing the service is not involved with the creation of the information and is objective in the evaluation of the information.
What are examples of an “applicable financial reporting framework?”
Examples are GAAP, IFRS, and a federal income tax basis of accounting
What are the different types of assurance services that a practitioner can provide?
- Financial statement audits
- Compliance audits
- Operational (performance) audits
- Internal audits
What is the reason for requiring an audit of internal controls (ICFR)?
It is because effective internal controls provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
What is an integrated audit?
An audit that combines the financial statement audit with an audit of the effectiveness of ICFR.
What are the limitations of an audit caused by?
- The nature of financial reporting
- The nature of audit procedures
- The need for the audit to be conducted within a reasonable period of time at a reasonable cost.
What does the nature of financial reporting mean?
It refers to the use of judgment when preparing financial statements due to the subjectivity required when arriving at accounting estimates.
What does the nature of audit procedures mean?
It refers to the reliance on evidence provided by the client and its management.
It also refers to the concept of materiality. Materiality means information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity.
What is a compliance audit?
It involves gathering evidence to determine whether the person or entity under review has followed the rules which they must conform.
What is an operational (performance) audit?
Is an assessment of the economy, efficiency, and effectiveness of an organization’s audit.
Economy refers to the cost of inputs, including wages and materials.
Efficiency refers to the relationship between inputs and outputs, or the use of the minimum amount of inputs to achieve a given output.
Effectiveness refers to the achievement of certain goals or the production of a certain level of outputs.
What is an internal audit?
A function within an entity which generally evaluates and improves risk management, internal control procedures and elements of the governance process.
What is the objective of a financial statement audit?
It is to provide financial statement users with an opinion by the auditor on whether the statements are presented fairly in accordance with an applicable financial reporting framework.
Explain the inherent limitations of a financial statement audit.
- It is the nature of financial reporting whereby auditors use judgment when preparing financial statements due to the subjectivity required when arriving at accounting estimates.
- It is also the nature of audit procedures which refers to the reliance on evidence provided by the client and its management. (Auditors inherent often use sampling techniques rather than auditing an entire population of items, therefore there is a risk of arriving at an incorrect conclusion.)
- The need for the audit to be conducted within a reasonable period of time at a reasonable cost.
What are the three elements of an operational audit?
Economy, efficiency, and effectiveness of an organization’s activities.
What are the most common functions of the internal auditors?
Are evaluating and improving risk management, internal control procedures, and elements of the governance process.
Who are financial statement users?
Current and potential investors, suppliers, customers, lenders, employees, governments, and the general public.