Assurance Services and the CPA Profession

1. Assurance Services and theCPA Profession Chapter 1

2. Learning Objective 1 Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.

3. Assurance Services Assurance services are professional services that improve the quality of information for decision makers. Assurance services can be performed by CPAs or by a variety of other professionals.

4. Attestation Services An attestation service is a type of assurance service in which the CPA firm issues a report about the reliability of an assertion that is the responsibility of another party.

5. Other Assurance Services Most other assurance services do not meet the formal definition of attestation services. The CPA must be independent. The CPA must provide assurance. The CPA is not required to provide a written report.

6. Assurance Services onInformation Technology There is an increased demand for assurance about computer controls surrounding information transacted electronically and the security of the information related to the transactions. – assurance over Web site controls – assurance about information system reliability

7. Assurance Services onInformation Technology WebTrust is an attestation service, and the WebTrust seal is a symbolic representation of the CPA’s report on management’s assertions about its disclosure of electronic commerce practices.

8. Assurance Services onInformation Technology SysTrust is an attest-type engagement to evaluate and test system reliability in areas such as security and data integrity.

9. Assurance Services onOther Types of Information CPA Performance View CPA ElderCare Services CPA Risk Advisory Services

10. ASSURANCE SERVICES ATTESTATION SERVICES Reviews Audits Certain Management Consulting Other Attestation Services (e.g., WebTrust, SysTrust) Other Assurance Services (e.g., CPA Performance View) Assurance, Attestation, and Nonassurance Services

11. Assurance, Attestation, and Nonassurance Services NONASSURANCE SERVICES Other Management Consulting Certain Management Consulting Accounting and Bookkeeping Tax Services

12. Learning Objective 2 Explain the causes of information risk and the importance of auditing in reducing this risk.

13. Economic Demandfor Auditing 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.

14. Causes of Information Risk 1. Remoteness of information 2. Biases and motives of the provider 3. Voluminous data

15. Reducing Information Risk 1. User verifies information 2. User shares information risk with management 3. Audited financial statements are provided

16. Learning Objective 3 Describe auditing and distinguish between auditing and accounting.

17. 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.

18. Accumulating andEvaluating Evidence Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.

19. 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.

20. Reporting The final stage in the auditing process is preparing the Audit Report which is the communication of the auditor’s findings to users.

21. Information Competent, independent person Federal tax returns filed by taxpayer Internal revenue agent Report on results Determines correspondence Report on tax deficiencies Accumulates and evaluates evidence Established criteria Examines cancelled checks and other supporting records Internal Revenue Code and all interpretations Audit of a Tax Return – Example

22. Distinction BetweenAuditing and Accounting Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making. Auditingis determining whether recorded information properly reflects the economic events that occurred during the accounting period.

23. Learning Objective 4 Differentiate the three main types of audits.

24. Efficiency Effectiveness Types of Audits Operational Audit Compliance Audit Financial Statement Audit

25. Example Evaluate computerized payroll system for efficiency and effectiveness Information Number of records processed, cost of the department, and number of errors Established Criteria Company standards for efficiency and effectiveness in payroll department Available Evidence Error reports, payroll records, and payroll processing costs Operational Audit

26. Example Determine whether bank requirements for loan continuation have been met Information Company records Established Criteria Loan agreement provisions Available Evidence Financial statements and calculations by the auditor Compliance Audit

27. Example Annual audit of Boeing’s financial statements Information Boeing's financial statements Established Criteria Generally accepted accounting principles Available Evidence Documents, records, and outside sources of evidence Financial Statement Audit

28. Learning Objective 5 Identify the primary types of auditors.

29. Types of Auditors Certified Public Accounting Firms General Accounting Office Auditors Internal Revenue Agents Internal Auditors

30. Learning Objective 6 Discuss how e-commerce and the Internet affect CPA firm operations.

31. Receiver’s mail server E-Commerce and CPA Firm Operations CPA firms are using the Internet to market their services. They also use the Internet to connect their global professional staff. Sender’s mail server

32. Learning Objective 7 Describe the requirements for becoming a CPA.

33. Three Requirementsfor Becoming a CPA Educational Passing the CPA Exam Experience

34. Learning Objective 8 Describe the AICPA and its role in setting standards.

35. AICPA The AICPA sets professional requirements for CPAs, conducts research, and publishes materials on many different subjects related to accounting, auditing, attestation and assurance services, management consulting services, and taxes.

36. Vision for the Future The AICPA has established the CPA Vision Project to provide a core purpose and a vision for the CPA profession in the year 2011 and beyond. The core purpose of the CPA Vision Project is “CPAs…making sense of a changing and complex world.”

37. Vision for the Future The future success of the CPA profession relies a great deal on public perceptions of CPAs’ abilities and roles. CPAs must become market driven and not dependent on regulations to keep them in business. The market demands less audit and accounting and more value-adding consulting services.

38. Vision for the Future Specialization is critical for the future of the CPA profession. The market demands that CPAs be conversant in global business practices and strategies.

39. Establishing Standardsand Rules The AICPA is empowered to set standards (guidelines) and rules that all members and other practicing CPAs must follow. The requirements are set by committees made up of AICPA members.

40. Establishing Standardsand Rules 1. Auditing Standards 2. Compilation and Review Standards 3. Other Attestation Standards 4. Code of Professional Conduct

41. Learning Objective 9 Use generally accepted auditing standards as a basis for further study.

42. General Standards 1. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. 2. In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors. 3. Due professional care is to be exercised in the planning and performance of the audit and the preparation of the report.

43. Standards of Field Work 1. The work is to be adequately planned and assistants, if any, are to be properly supervised. 2. A sufficient understanding of internal control is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed.

44. Standards of Field Work 3. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.

45. Standards of Reporting 1. The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles. 2. The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.

46. Standards of Reporting 3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. 4. The report shall contain an expression of opinion regarding the financial statements, taken as a whole.

47. Generally Accepted Auditing Standards General Field Work Reporting 1. Adequate training and proficiency 2. Independence in mental attitude 3. Due professional care 1. Proper planning and supervision 2. Internal control understanding 3. Sufficient competent evidence 1. Statements prepared in accordance with GAAP 2. Circumstances when GAAP not followed 3. Adequacy of disclosures 4. Expression of opinion on financial statements Summary ofGeneral Standards

48. Learning Objective 10 Identify quality control standards and practices within the accounting profession.

49. Elements of Quality Control Independence, integrity, and objectivity Personnel management Acceptance and continuation of clients and engagements Engagement performance Monitoring

50. Quality control standards Generally accepted auditing standards Division of CPA firms Peer review Relationships