Chapter 1

1. Chapter 1 Assurance Services

2. Need for Assurance • Why do you need assurance? • Potential bias in providing information. • Remoteness between a user and the organization or trading partner. • Complexity of the transactions, information or processing systems.

3. Potential Bias in Providing Information • Sellers • Management • Inside information • Compensation of management • Stock options held by management

4. Remoteness of Users • Global society • Lack of personal interaction • Can’t physically inspect goods • Can’t interview management • Can’t inspect facility • Can’t review books and records

5. Complexity • Economic transactions are more complex • Information systems are more complex • Processing of transactions is more complex • Users of financial statements must rely on CPA’s

6. Need for Assurance Regarding Information and Operations • What is assurance? • Independent professional services that improve the quality of information, or its context, for decision makers. • Assurance is a broad concept. • Assurance services depict: • A wider spectrum of services. • A more diverse group of users. • Greater potential users.

7. Attestation Services Subset of a broader spectrum of assurance services. Attest services always involve evaluation of an assertion by one party to a third party. Assurance services do not need to involve a report.

8. Evolving Assurance Services • Assisting organizations in identifying, measuring, assessing, and managing risks. • Providing assurance on information systems integrity. • Identifying and communicating improved methods of measuring and communicating organizational performance. • Improving the quality of financial services provided to the elderly population. (ElderCare Services) • Developing criteria and communicating assurance regarding e-business. • Identifying better measurements of quality of health care.

9. Internal Audit Assurance Services • The effectiveness of a company’s process for identifying risk. • The quality of an organization’s governance processes. • The effectiveness and efficiency of an organization’s control processes.

10. Characteristics of Assurance Services • Information or aprocess on which the assurance service is provided. • A user or a group of users who derive value from the assurance services provided. • An assurance service provider.

11. Value of Assurance The assurance function gives investors and creditors confidence in the accuracy of data. The value of assurance, then, is in the confidence it generates in users of the information.

12. Attributes Needed to Perform Assurance • Subject matter knowledge • Independence from parties requesting the • assurance • Established criteria

13. 1 Positive assurance (such as an audit opinion) Limited or negative assurance (such as on interim financial statements) 2 3 No assurance (such as a compilation of financial statements) Levels of Assurance Provided Three Levels:

14. The Special Role of Financial Statement Audits Reliability of financial information. CPA’s provide independent evaluations and reports. CPA career is one of the most important and most highly regarded public functions. New challenges.

15. Auditing Defined Auditing is both more and less than public accounting.!! Auditing is a systematic process of objectively obtaining and evaluating evidenceregarding assertionsabout economic actions and events to ascertain the degree of correspondence between those assertions and established criteriaand communicating the resultsto interested users.

16. Requirements to Enter the Public Accounting Profession • Accounting and Auditing Expertise • Knowledge of Business and its Risks • Understanding Accounting System Complexity

17. The Providers of Assurance Services • The Public Accounting Profession • The Internal Audit Profession • The Governmental Audit Profession

18. The Internal Audit Profession Definition 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.

19. Major Types of Internal Audits Operational Audits Risk Management and Control Evaluations Compliance Audits

20. Governmental Auditing Profession Employed by various federal, state, and local agencies. GAO places a great deal of emphasis on performance audits. IRS Defense Contract Audit Agency

21. Other Professional and Regulatory Organizations American Institute of Certified Public Accountants (AICPA) State Boards of Accountancy Securities and Exchange Commission (SEC) The Institute of Internal Auditors (IIA) The U.S. General Accounting Office (GAO) The Court System