An Introduction To Assurance And Financial Statement

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Chapter 1An Introductionto Assurance right 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

LO# 1The Study of AuditingThe study of auditing is different from other accountingcourses that you have taken in college because OTHER COURSESRules,techniques andcomputations toprepare andanalyze financialinformationAUDITINGAnalytical andlogical skillsMuch moreconceptual innature1-2

The Role of AuditingLO# 2Figure 1-1 Overview of the Principal-Agent Relationship Leading to the Demand for Auditing1-3

LO# 4Relationships among Auditing,Attest, and Assurance Services1-4

LO# 5Auditing, Attest, and AssuranceServices DefinedAuditingAttestAssuranceServicesA systematic process of objectivelyobtaining and evaluating evidenceregarding assertions about economicactions and events to ascertain thedegree of correspondence betweenthose assertions and establishedcriteria and communicating the resultsto interested users.1-5

LO# 5Auditing, Attest, and AssuranceServices DefinedAuditingAttestAssuranceServicesAttest services occur when apractitioner is engaged to issue . areport on subject matter, or anassertion about subject matter, that isthe responsibility of another party.1-6

LO# 5Auditing, Attest, and AssuranceServices DefinedAuditingAttestAssuranceServicesIndependent professional services thatimprove the quality of information, orits context, for decision makers.1-7

LO# 6Fundamental Concepts inConducting a Financial StatementAuditMaterialityAuditRiskEvidence1-8

LO# 6Overview of the FinancialStatement Audit Process1-9

LO# 7Sampling: Inferences Based onLimited ObservationsAuditors use (1) their knowledge about thetransactions and/or (2) a sampling approach toexamine the transactions.It would be toocostly for the auditorto examine everytransaction.1-10

LO# 8Major Phases of the Audit Client acceptance/continuance Preliminary engagement activities Plan the audit Consider and audit internal control Audit business processes and related account (e.g.revenue generation) Complete the audit Evaluate results and issue audit report1-11

LO# 9Issue the Audit ReportThe title line of the audit report includes the word“Independent,” and usually, the report is addressedto the stockholders of the company.The audit report includes an introductory paragraph,a scope paragraph, an opinion paragraph, anexplanatory paragraph referring to the audit ofinternal control, the name of the auditor or auditfirm, and the date of the audit report.UnqualifiedQualifiedAdverse1-12

LO# 10Auditing Demands Logic,Reasoning, and ResourcefulnessAn auditor needs to understand more than just theaccounting concepts and techniques.Auditing is a fundamentally logical process ofthinking and reasoning – so use your commonsense and reasoning skills! As you learn new auditingconcepts, take some time to understand theunderlying logic and how the concepts interrelatewith other concepts.Being a good auditor sometimes requires imaginationand innovation.1-13

End of Chapter 11-14

Auditing, Attest, and Assurance Services Defined Auditing Assurance Services A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established cr