Auditing Flashcards
Accounting
Accounting is the recording, classifying, and summarizing of economic events
for the purpose of providing financial information used in decision making.
Purpose of financial reporting

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.
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 critera.
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.
Audit Report
The final stage in the auditing process is preparing the Audit Report, which is the communication of theauditor’s findings to users.
Distinguish Between 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 properly reflects the economic events that occurred during the accounting period.
Economic Demand for Auditing
-Explain the importance of auditing in reducing information risk.
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
Auditing can have a significant effect on information risk.
Causes of Information Risk
Remoteness of information
Biases and motives of the provider
Voluminous data
Complex exchange transactions
Reducing Information Risk
User verifies information
User shares information risk with management
Audited financial statements are provided
Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by auditors.

Definitions
Attestation
Audit
Review
Agreed-upon procedures
Compilations
Assurance
Assurance and Assurance Services
The overall need of individuals and organizations for credible information, combined with changes currently taking place in information technology, is leading to rapid changes in the role of the public accounting profession
Auditor firms are already embracing a broader concept of the attest function that is being referred to as the assurance function , which includes providing assurance on a broad variety of types of financial or non-financial information
Trust Services (SysTrust and WebTrust)
PrimePlus/Elder Care Services
XBRL Services
An assurance service is an independent professional service that improves the quality of information for decision makers.
Assurance services can be performed by auditors or by a variety of other professionals.
Attestation Services
An attestation service is a type of Assurance service in which the audit firm issues a report about the reliability of an Assertion that is the responsibility of another party.
In an attest engagement a Auditor is engaged to issue or does issue an examination (audit), a review, or an agree-upon procedures report on subject matter, or an assertion about subject matter, that is the responsibility of another party
The attest function adds value to information by having a third party (the Auditor) provide assurance over subject matter prepared by a party responsible for that information
Example: Compliance Report, Due Diligence Report, Valuation Report,

Attestation Services
Five Categories:
- Audit of historical financial statements
- Attestation of internal control over financial reporting
- Review of historical financial statements
- Attestation services on information technology
- Other attestation services
Other Attestation
Examination (Audit)
Review
Agree-upon procedures
Audit
An examination, referred to as an audit when it involves financial statements, normally results in a positive opinion, the highest form of assurance provided
– Positive assurance: the auditor confirms that the subjects matter follows in all material respects the appropriate criteria
When performing an examination, the Auditors select from all available evidence a combination that limits to a low level of risk the chance of material misstatement

Review
Is substantially less in scope than an audit and consists primarily of
(1) Application of analytical procedures
(2) Making inquiries of management
(3) Obtaining representations from management relating to the financial statements
Results in a report with limited assurance (or negative assurance)
– Negative assurance the reviewer concludes that he or she is not aware of any material misstatements
Agreed-upon Procedures
An Auditor and a specified party that wishes to use the information may mutually decide on specific agreed upon procedures that the Auditor will perform
Result in a report that describes the procedures performed and related findings.
Compilation
- Accountants may also provide services to clients in the form of compilation.
- The objective of a compilation of financial statements is to present, in the form of financial statements, information that is the representation of management without expressing any assurance on the statements
Relationships Among Auditors, Client, and External Users

Other Assurance Services
- Most of the other assurance services that auditors provide do not meet the formal definition
- of attestation services.
- The auditor is not required to issue a written report.
- The assurance does not have to be about thereliability of another party’s assertion aboutcompliance with specified criteria.
Nonassurance Services Provided by auditors
- Accounting and bookkeeping services
- Tax services
- Management consulting services





































































































