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    Auditing (Arens) 14e Chapter 1 PowerPoint Slides

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    Auditing (Arens) 14e Chapter 1 PowerPoint Slides

    Uploaded by

    Mohsin Ali
    496 views17 pages

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    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    496 views17 pages

    Auditing (Arens) 14e Chapter 1 PowerPoint Slides

    Uploaded by

    Mohsin Ali

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 17

    Auditing: The Art and Science of Assurance

    Engagements
    Fourteenth Canadian Edition

    Chapter 1
    The Demand for Audit and
    Other Assurance Services

    Copyright © 2019 Pearson Canada Inc. 1-1


    Learning Objectives
    1. Describe auditing and its purpose.
    2. Distinguish between auditing and accounting.
    3. Explain how auditing reduces information risk.
    4. Determine the causes of information risk.
    5. Explain how information risk can be reduced.
    6. Identify major types of audits and auditors.
    7. Explain the general characteristics of an assurance engagement.
    8. Describe assurance and nonassurance services provided by
    public accountants and distinguish the audit of financial
    statements from other assurance services.

    Copyright © 2019 Pearson Canada Inc. 1-2


    Nature and Relevance 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 is done by a competent, independent person.

    Copyright © 2019 Pearson Canada Inc. 1-3


    Report
    • The final stage in the audit process is the independent
    auditor’s report—the communication of the audit findings
    to users.
    • Reports differ in nature, but in all cases they must inform
    readers of the degree of correspondence between the
    information and established criteria.
    • Reports also differ in form and can vary from the auditor’s
    standard opinion usually associated with financial
    statements to a customized report

    Copyright © 2019 Pearson Canada Inc. 1-4


    Distinction Between Auditing and
    Accounting
    • What is accounting—it is the recording, classifying and
    summarizing of economic events in a logical manner for
    the purpose of providing financial information to decision
    making.
    • When auditing accounting data, the concern is with
    evaluating whether recorded information reasonably
    reflects the economic events that occurred during the
    accounting period within specified dollar ranges.

    Copyright © 2019 Pearson Canada Inc. 1-5


    Economic Demand for Auditing
    • Auditing can reduce information risk associated with
    financial statements (the risk that the financial statements
    are inaccurate).
    • Financial information is prepared by an entity’s
    management—this leads to a natural conflict of interest
    between company managers and other parties.
    • The independent audit provides assurance to users with
    respect to the reliability of the financial statements.

    Copyright © 2019 Pearson Canada Inc. 1-6


    Causes of Information Risk
    • Remoteness of information
    • Bias and motives of provider
    • Voluminous data
    • Complex exchange transactions
    • Perceived cost/benefit

    Copyright © 2019 Pearson Canada Inc. 1-7


    Reducing Information Risk
    • User verifies information
    • User shares information risk with management.
    • Provider submits audited financial statements.

    The latter is is the most common way for users to obtain


    more reliable information. Typically, management of a private
    company or the audit committee for a public company
    engages the external auditor to provide assurances to users
    that the financial statements are reliable.

    Copyright © 2019 Pearson Canada Inc. 1-8


    Relationships Among Auditor, Client and
    External Users of Financial Statements

    Copyright © 2019 Pearson Canada Inc. 1-9


    Common Types of Audits
    • Financial statement audit: Conducted by public
    accountants to determine whether the overall financial
    statements are stated in accordance with specified criteria.
    • Compliance audit: To determine whether the auditee
    complied with specific laws, regulations, rules, or
    provisions of contracts or grant agreements.
    • Operational audit: A review of any part of an
    organization’s operating procedures and methods for the
    purpose of evaluating efficiency and effectiveness.

    Copyright © 2019 Pearson Canada Inc. 1 - 10


    Types of Auditors
    • Internal auditor
    • Government auditor
    • Canada Revenue Agency (CRA) auditor
    • Forensic Accountants and Fraud Auditors
    • Public accountant (PA)

    Copyright © 2019 Pearson Canada Inc. 1 - 11


    Public Accountants
    • Only public accounting firms can conduct financial
    statement audits or reviews, and only Canadian CPAs with
    a public accountant’s licence can sign an assurance report.
    • Canadian provinces restrict the audit attest function to
    those public accountants “licensed” in that province.

    Copyright © 2019 Pearson Canada Inc. 1 - 12


    General Characteristics of an Assurance
    Engagement
    • An assurance engagement is an independent
    professional service in which the assurance provider
    expresses a conclusion on the outcome of an evaluation or
    measurement of a subject matter against criteria.
    • Any engagement that fulfills the following criteria is an
    assurance engagement:
    – Existence of a three-party relationship
    – Subject matter
    – Criteria
    – Gathering of sufficient appropriate evidence
    – Expression of opinion or conclusion

    Copyright © 2019 Pearson Canada Inc. 1 - 13


    Assurance and Nonassurance Services
    Offered by Public Accounting Firms
    • Audit of Historical Financial Statements
    – Many entities have audits done, often to support financing. Audits
    are required for public companies.

    • Review of Historical Financial Statements


    – provides only moderate assurance, rather than high assurance as
    in the case of an audit engagement.

    • Audit of Financial Information Other Than Financial


    Statements
    – These engagements are audits of specific income statement or
    balance sheet accounts (e.g., sales, receivables, inventory) or
    audits of a single financial statement.

    Copyright © 2019 Pearson Canada Inc. 1 - 14


    Assurance Engagements for Nonfinancial
    Information
    • Audit of Effectiveness of Internal Control Over Financial
    Reporting
    • Audit of Controls of Service Organizations
    • Compliance With an Agreement or Regulations
    • Attestation Services on Information Technology
    • Assurance Engagements on Greenhouse Gas Statements

    Copyright © 2019 Pearson Canada Inc. 1 - 15


    Assurance over Other Nonfinancial
    Information
    • There are almost no limits on what nonfinancial information
    a public accountant can provide assurance services for.
    • Assurance services related to nonfinancial information are
    not the sole domain of public accounting firms.

    Copyright © 2019 Pearson Canada Inc. 1 - 16


    Nonassurance Services
    • Compilations
    • Tax Services
    • Management Advisory Services
    • Accounting and Bookkeeping Services

    Copyright © 2019 Pearson Canada Inc. 1 - 17

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