Chapter 1 Flashcards
Auditing is
is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria
Accounting is
is the recording, classifying, and summarizing of economic events to provide financial information for decision making.
Auditors focus
on determining whether recorded information properly reflects the economic events that occurred during the accounting period.
Information risk reflects
the possibility that the information upon which a business decision was made was inaccurate.
Four components of information risk are:
- Remoteness of information
- Biases and Motives of the provider,
- Voluminous data
- Complex exchange transactions.
Remoteness of information
Decision makers do not have firsthand knowledge and must rely on information provided by others.
Biases and motives of the provider
Information is provided by someone whose goals are inconsistent with those of the decision maker and may be biased.
Voluminous data
Higher volumes of transactions increase the likelihood of undetected errors.
Complex exchange transactions
Transactions are increasingly complex and more difficult to record properly. Complex accounting standards are difficult to interpret and apply.
Assurance service
is an independent professional service that improves the quality of information for decision makers.
Section 404 of the Sarbanes-Oxley Act now requires
assurance regarding internal controls for larger public companies
Non Assurance services
Services that CPA firms perform that generally fall outside the scope of assurance service such accounting and bookkeeping.
Three specific examples of non assurance service are:
- Accounting and bookkeeping services
- Tax services
- Management consulting services
Attestation service
is a type of assurance service in which the CPA issues a report about a subject matter or assertion that is made by another party.
The primary categories of attestation services include:
- Audits of historical financial statements
- Audits of internal control over financial reporting
- Reviews of historical financial statements
- Other attestation that may be applied to a broad range of subjects
Operational audit
Evaluates the efficiency and effectiveness of any part of an organization’s operating procedures and methods. Performed by internal auditors.
Compliance audit
Determines whether the auditee is following specific procedures, rules, or regulations set by some higher authority. Performed by GAO auditors and IRS Agents.
Financial statement audit
Determines whether the financial statements are stated in accordance with specific criteria. The criteria are normally U. S. GAAP or international accounting standards. Performed by CPAs who are commonly referred to as external auditors or independent auditors
