Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition

1. Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Chapter 1 – Auditing and the Public Accounting Profession – Integrity of Financial Reporting

2. Chapter 1 Overview

3. Auditing Defined • Systematic process • Objectively obtaining and evaluating evidence • Assertions about economic actions and events • Degree of correspondence

4. Auditing Defined (cont.) • Established criteria • Communicating the results • Interested users

5. Comparative Summary of Types of Audits

6. Types of Auditors • Independent Auditors • Internal Auditors • Government Auditors

7. Assurance Services Defined • Independence • Professional services • Quality of information • Decision maker

8. Example Assurance Services • Audit Engagements • Attest Services • Examination • Review Engagement • Agreed-upon Procedures Engagement • Accounting Services • Compilation Services

9. Levels of Assurance • Reasonable Assurance • Negative Assurance • Agreed-upon Procedures • Compilation Without Assurance

10. Universe of Assurance Services

11. The Accountant’s Value Chain

12. Study Break 1. This type of audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity’s operating activities. • Financial Statement Audit • Compliance Audit • Operational Audit • Internal Control Audit C. Operational Audit

13. Study Break 2. These auditors are typically CPA’s who render professional auditing services to clients. • Independent Auditors • Internal Auditors • Government Auditors • IRS Auditors A. Independent Auditors

14. The Roots of Auditing • British influence and migration • Stock market crash • Legislation of the 1930’s • Important changes in the 1940’s

15. The Roots of Auditing • Scrutiny of 1980’s lead to changes • Increasing amount of consulting in 1990’s • Growing numbers of earnings restatements • Sarbanes-Oxley Act of 2002

16. Need for Financial Statement Audits • Conflict of Interest • Consequence • Complexity • Remoteness

17. Economic Benefits of an Audit • Access to Capital Markets • Lower Cost of Capital • Deterrent to Inefficiency and Fraud • Control and Operational Improvements

18. Limitations of a Financial Statement Audit • Economic Limitations • Reasonable Cost • Reasonable Length of Time • Accounting Framework Limitations • Alternative Accounting Principles • Accounting Estimates

19. Study Break 3. Which of the following is not an economic benefit of a financial statement audit? • Access to Capital Markets • Lower Cost of Capital • Control and Operational Improvements • Maintain Fair Competition D. Maintain Fair Competition

20. Study Break 4. Which of the following is not an inherent limitation of a financial statement audit? • Reasonable Cost • Unlimited Timeframe • Alternative Accounting Principles • Accounting Estimates B. Unlimited Timeframe

21. Organizations Associated with the Public Accounting Profession

22. Regulatory Framework for Ensuring High-Quality Services • Standard Setting • Firm Regulation • Inspection and Peer Review • Government Regulation

23. Standard-Setting Organizations in the United States

24. Study Break 5. Which organization is considered to be a private sector organization? • State Boards of Accountancy • Securities and Exchange Commission • AICPA • IRS C. AICPA

25. Study Break 6. This component of regulatory framework includes the inspection of audits by the PCAOB staff and peers in other accounting firms. • Standard setting • Firm regulation • Inspection and peer review • Government regulation C. Inspection and peer review