会计专业英语Chapter 12.ppt

Part Auditing,Chapter 12 Auditing Principles,Chapter Skeleton,Understand the basis of auditing Describe assurance services and distinguish audit services from other assurance and non-assurance services provided by CPAs. Distinguish from auditing from accounting. Identify auditing objectives. Understand auditing responsibility and describe audit risks. Describe the characteristics of auditing evidence and auditing sampling.,12.1 auditing Basis and Auditing Objectives,Assurance Services,Assurance services are independent professional services that improve the quality of information for decision makers. Attestation service is a type of assurance service in which the CPA firm issues a written communication that expresses a conclusion about the reliability of a written assertion of another party.,Audit of Historical Financial Statements,An audit of historical financial statements is a form of attestation service in which the auditor issues a written report expressing an opinion about whether the financial statements are in material conformity with generally accepted accounting principles.,Review of Historical Financial Statements,A review of historical financial statements is another type of attestation service performed by CPAs. A review is often adequate to meet users needs and can be provided by the CPA firm at a much-lower fee than an audit.,Distinction Between Auditing and Accounting,Accounting is the recording, classifying, and summarizing of economic events in a logical manner of the purpose of providing financial information for decision making. In auditing accounting data, the concern is with determining whether recorded information properly reflects the economic events that occurred during the accounting period. In addition to understanding accounting, the auditors must posses expertise in the accumulation and interpretation of audit evidence.,Three types of Auditing,Financial statement audit, operational audits, and compliance audits. The latter two services are often called audit activities. A financial statement audit is conducted to determine whether the overall financial statements are stated in accordance with specified criteria. An operational audit is a review of any part of an organizations operating procedures and methods. The purpose of a compliance audit is to determine whether the auditee is following specific procedures, rules, or regulations set by some higher authority.,Objectives of Conducting an Audit of Financial Statements,In the context of an audit, assertions represent the set of information that the preparer of information is providing to another party. Five broad categories of assertions: 1. existence or occurrence 2. completeness 3. rights and obligations 4. valuation or allocation 5. disclosure and presentations.,In a sense, the auditors overall objective becomes that of examine the assertions that comprise the information being audited. For managements assertion about valuation, the auditor confronts three separate objectives. Two audit objectives pertain to managements assertions about presentation and disclosure: 1. Classification objective 2. disclosure objective,Objectives of Conducting an Audit of Financial Statements,The objective, overall reasonableness, is intended to provide a broader view of the full set of assertions being examined.,Objectives of Conducting an Audit of Financial Statements,12.2 Materiality and Auditing Risk,Materiality,The FASB defines materiality as the magnitude of an omission or misstatement of accounting information that , in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement. An audit is designed to detect material misstatements.,Audit Risk,A fundamental precept in the risk-based approach to auditing is that auditor should assess the risk that an account balance is misstated and then adjust the audit procedures to minimize the possibility that misstatements will go undetected. Consider the risks and potential causes of misstatement that might be associated with managements assertions regarding accounts receivable. Engagement risk refers to the risk the auditing firm encounters because it is associated with a particular client.,Audit risk is defined as the risk the auditor may give an unqualified opinion on materially-misstated financial statements.,Audit Risk,The Professions Audit Risk Model: Practice Implication,Audit is risk is defined as the risk of an auditors issuing an unqualified opinion on materially-misstated financial statements. That is possible only when two independent events occur: 1. a material misstatement occurs in the financial recording process 2. the auditor fails to discover the misstatement. General observations flow from the nature of accounting transactions,Audit Risk Model AR = f (IR, CR, DR) Inherent risk is the initial susceptibility of a transaction or accounting adjustment to be recorded in error, or for the transaction not to be recorded in the absence of internal control. Control risk is the rick that the audit procedures will fail to prevent or detect a misstatement. Detection risk is the rick that the audit procedures will fail to detect a material misstatement.,The Professions Audit Risk Model: Practice Implication,The model can also be written as AR = IR * CR * DR Audit risk is a planning judgment that is set by the auditor. Inherent risk is the susceptibility of transactions to be recorded in error or to be influenced by managements fraudulent activities. Control risk is the risk that a material misstatement that could occur in a transaction or adjusting entry will not be prevented or quickly detected by the entitys internal controls.,The Professions Audit Risk Model: Practice Implication,Internal control may vary with classes of transitions. The combination of inherent risk and control risk is often referred to as the environment risk. Detection risk is the risk that the auditor will not detect a material misstatement that exists in an account balance.,The Professions Audit Risk Model: Practice Implication,Illustration of the Audit Risk Model Limitations of Audit Risk Model Adjusting Audit Risk,12.3 Auditing Evidence and Auditing Sampling,Auditing Evidence,Evidence must be both relevant an valid. For evidence to be relevant, it must relate to the audit objective being tested. The validity of evidence is dependent on the circumstances in which it is obtained. Factors affect the validity of evidential matter. There is an inverse relationship between the quantity of evidence that is sufficient in a specific situation an the competence of that evidence.,Types of Evidence,Physical evidence Third-party representations Documentary evidence Computations Data interrelationships Client representations Accounting records,Physical evidence is evidence that the auditors can actually see. Examples Physical examination or observation provides evidence as to the existence of certain assets, but generally needs to be supplemented by other types of evidence to determine the ownership, proper valuation, and condition of these assets.,Physical Evidence,Are a variety of representations from a member of outside parties, such as the clients customers, vendors, financial institutions, and attorneys. Confirmation requests are used it the audit of a number of accounts. Auditors evidence about technical tasks is best obtained from qualified specialists. Examples,Third-party Representations,Documentary Evidence,It includes checks, invoices, contracts, and minutes of meetings. A few documents are created outside the client organization an transmitted directly to the auditors, like cutoff bank statements. Adequate internal control will also provide for extensive segregation of duties so that no one employee handles a transaction from beginning to end.,Computations,Are made independently by auditors to prove that arithmetical accuracy of a clients analyses and records.,Data Interrelationships,Involve the comparison of relationships among financial and, sometimes, non-financial data. Data interrelationships differ from computations.,Oral and Written Representations,Are obtained by asking a great many questions of the officers and employees of the clients organization,. Auditors also obtain written representations from clients.,Accounting records,Serve an important function when auditors attempt to verity an amount in a financial statement by tracing it back through the accounting records.,Auditing sampling,Audit sampling is defined as applying audit procedures to less that 100 percent of a population in order to estimate some characteristic of that population,. When assessing the effectiveness of control procedures, the audit challenge is to gather sufficient reliable evidence on the degree to which the clients internal controls prevent or detect misstatements of any given class transactions,. An auditor needs to make four important decisions in sampling.,Non-Sampling and Sampling risk,An auditor may fail to detect a material misstatement because of human error(non-sampling risk ) or by drawing a conclusion from a sample that is not representative of the population(sampling risk). Non-sampling includes all the aspects of audit risk that are not due to sampling. The auditor can use sampling to assess the effectiveness of control over transaction processing. Auditors can use either non-statistical or statistical sampling.,Basic steps involved in using sampling for substantive tests of account balances. There is no way to mathematically control for sampling risk in a non-statistical sample. Example : p 284,Non-Sampling and Sampling risk,Probability proportional to size(PPS),PPS sampling is an adaptation of attribute sampling methods to dollar-value testing. The design of a PPS sample requires the auditor to determine 1. the allowable risk of the sample failing to detect a materials misstatement 2. tolerable misstatement 3. expected misstatement in the account balance.,Probability proportional to size(PPS),AR = IR * CR * DR AR = IR * CR * OSPR * TD Therefore: AR TD = IR* CR* OSPR TD: test of details risk OSPR: other substantive procedures risk,The auditor wants to control the risk of inferring that the account balance does not contain a material misstatement for the assertion being tested when , in fact, it does contain a material misstatement (risk of incorrect acceptance). Whichever sampling method is used, it is important to select a sample that is representative of the population.,Probability proportional to size(PPS),Chapter Summary,