Kế toán, kiểm toán - Chapter 01: Auditing and assurance services

Auditing & Assurance Services, 6eChapter 01 Auditing and Assurance Services“Our system of capital formation relies upon the confidence of millions of savers to invest in companies.The auditor’s opinion is critical to that trust." -- James R. Doty, ChairmanPublic Company Accounting Oversight Board (PCAOB)1-*Learning ObjectivesDefine information risk and explain how the financial statement auditing process helps to reduce this risk, thereby reducing the cost of capital for a company.Define and contrast financial statement auditing, attestation, and assurance services.Describe and define the assertions that management makes about the recognition, measurement, presentation, and disclosure of the financial statements and explain why auditors use them as the focal point of the audit.Define professional skepticism and explain its key characteristics.Describe the organization of public accounting firms and identify the various services that they offer.Describe the audits and auditors in governmental, internal, and operational auditing.List and explain the requirements for becoming a certified public accountant (CPA) and other certifications available to an accounting professional.1-*Definition of AuditingAuditing is a 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.Financial Statements(including footnotes)GAAPAuditor's Report/Other ReportsPersons who rely on the financial reportsCreditorsInvestorsSource: American Accounting Association Committee on Basic Auditing Concepts. 1973. A Statement of Basic Auditing Concepts, American Accounting Association (Sarasota, FL). 1-*Attestation EngagementsAn attestation engagement - a practitioner is assesses and reports on “subject matter or an assertion about the subject matter that is the responsibility of another party.”Some financial attestation engagements (other than audits)Financial forecasts and projections Examination of Management’s Discussion & AnalysisPro forma financial informationSome non-financial attestation engagementsEffectiveness of internal control systems Compliance with environmental regulationsSustainability reporting engagements1-*Sarbanes-Oxley Act of 2002Management’s Responsibility For Financial ReportingOne of its most important provisions clearly indicates that the management team is responsible for the financial reporting process and the financial statements. In fact, Section 302 of the Act states that the key company officials must certify the financial statements. That is, the company CEO and CFO must sign a statement indicating:They have read the financial statements.They are not aware of any false or misleading statements (or any key omitted disclosures).They believe that the financial statements present an accurate picture of the company’s financial condition.Source: U.S. Congress, Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat/ 745 (2002).1-*Management’s Financial Statement Assertions (PCAOB)Existence or occurrence – Assets and liabilities included in the accounts exist and recorded transactions are valid and have actually occurred.Rights and obligations- Entity has a legal claim on all assets and revenues reported and has a legal responsibility for all liabilities and expensesCompleteness - All balances and transactions have been recorded in the financial statementsValuation or allocation – Assets, liabilities and recorded transactions have been valued in accordance with GAAPPresentation and disclosure – All accounts are presented in the appropriate place and all information required has been disclosed in the statements and footnotes.1-*Management’s Financial Statement Assertions (ASB)Assertions about Events and TransactionsOccurrence – Events giving rise to transactions are valid and have taken placeCompleteness and Cutoff - All transactions have been recorded and are recorded in the appropriate periodAccuracy – Transactions are recorded at the correct amountClassification – Transactions have been posted to the proper account1-*Management’s Financial Statement Assertions (ASB)Assertions about Account BalancesExistence – Balances include only assets and liabilities that existRights and obligations – Entity has legal claim on all assets and revenues reported and has a legal responsibility for all liabilities and expensesCompleteness – Balances include all items that should be included in accordance with GAAPAccuracy and valuation –Balances are reported at the proper amount in accordance with GAAP1-*Management’s Financial Statement Assertions (ASB)Assertions about Presentation and DisclosuresOccurrence and rights and obligations – items presented have occurred and are either owned by or represent the responsibility of the entityCompleteness – the proper disclosures have all been made by the entityClassification and understandability – accounts in the disclosures have been appropriately grouped and users can comprehend the disclosuresAccuracy and valuation – the amounts in the disclosures have been properly measured and are valued in accordance with GAAP1-*Professional SkepticismRefers to an auditor’s questioning mindset towards representations made by management and evidential matter gatheredInquiry alone is never enough. The auditor must obtain sufficient corroborative evidence.Unusual financial trends need investigationDocuments are always checked for authenticity or possible alterationAsk questions, get answers, then verify the answers.Must be skeptical because a potential conflict of interest always exists between the auditor and the client.Management wants to portray the company and its operations in the best possible light.Auditors want to make sure that this portrayal is fair and accurate.1-*A Professional Judgment ProcessClarify the issues and objectivesConsider the possible alternativesGather and evaluate the relevant evidenceReach an audit conclusionCarefully document rationale for the professional judgment reachedSource: “Elevating Professional Judgment in Accounting and Auditing: The KPMG Professional Judgment Framework” (Montvale, NJ: KMPG, 2011). 1-*Prohibited Professional ServicesIn summary, Sarbanes-Oxley prohibits professional service firms from performing any client services for audit clients in which the auditors may find themselves making management decisions or auditing their own firm’s work.Specifically, Sarbanes-Oxley prohibits professional service firms from providing any of the following services to an audit client: bookkeeping and related servicesdesign or implementation of financial information systemsappraisal or valuation servicesactuarial servicesinternal audit outsourcing management or human resources services investment or broker/dealer services legal and expert services (unrelated to the audit) Professional service firms may provide client tax services (with some restrictions) and other non-prohibited services to audit clients if the company’s audit committee has approved them in advance.1-*Types of Audits and Auditors Financial (External Auditors/CPAs)Ensure that financial statements are reliableOperational (Internal and Governmental Auditors/CIAs)Improve operational economyImprove operational efficiencyCompliance (Internal and Governmental Auditors)Ensure compliance with company and/or governmental rules and regulationsForensic (Fraud Auditors/CFEs)Designed to investigate a crime and will often involve gathering evidence designed to convict a fraudster1-*The CPA ExamSignificantly Revised in 2011Computerized14 Hours - Four parts Auditing and Attestation (AUD)Financial Accounting and Reporting (FAR)Regulation (REG)Business Environment and Concepts (BEC)Multiple Choice Questions and Task-Based Simulations1-*