Audit Holt Exam 1 Ch. 2

4 types of auditors

-external auditors

-internal auditors

-government auditors

-fraud auditors

certification for external auditors

CPA

certification for internal auditors

CIA (certified internal auditor)

certification for fraud auditors

CFE (certified fraud examiner)

external auditors

must be *independent* of organization that they are auditing; handle F/S, compliance, operational, and fraud audits for public and private companies, as well as government entities

internal auditors

employees of the organization that they are auditing; handle F/S, compliance, operational, and fraud audits within their organization

government auditors

typically a type of internal auditor; employed by government (federal, state, or local)

fraud auditors

detect, investigate, and deter white-collar crime

types of services offered by auditors

-audit

-assurance

-attest

-non-audit

assurance services

independent professional services that improve the quality of information, or its context, for decision makers

*must be independent to offer these services*

attest services

type of assurance service; main difference is that it results in an *issued report*

*must be independent to offer these services*

audit services

type of attestation; main difference is that is is *specifically for financial information*

*must be independent to offer these services*

non-audit services

Tax Preparation and Planning Services, Management Advisory Services, Compilation and Review Services

*do not have to be independent to offer these services*

members on an audit team

-partner

-manager

-senior

-associate/staff

partner

head of team; most experienced; assembles and supervises team; obtains clients

manager

supervises and reviews work of seniors

senior

at client site; delegate responsibilities to team and review their work; handle the work that requires most judgement

associate/staff

work under senior

what happened during the economic boom of the 90's and early 2000's?

accounting firms started offering new high-margin non-audit services to companies that they were auditing; lots of high-profile scandals soon followed (Enron, worldcom, healthsouth)

Anderson example

Enron's auditor; also performed consultings services for Enron, but shredded evidence to avoid liability; still went out of business due to loss of pubic's trust

when was the Sarbanes Oxley act passed?

2002

what group was created by the SOX? what could they do?

PCAOB (public company accounting oversight board); set and enforce auditing standards for public companies

integrated audit

An audit of both financial statements and internal control over financial reporting, provided by the external auditor. Required for public companies by SOX

Dodd-Frank Wall Street Reform and Consumer Protection Act

-gave PCAOB the right to inspect foreign audit firms working on US companies

-exempt smaller companies (

society's expectation of an auditor

due professional care

due professional care involves:

professional skepticism and reasonable assurance

Corporate Governance

the system of governing a company so that the interests of corporate owners and other stakeholders are protected

board of directors

a group of persons elected by the stockholders to manage a corporation

(voted on by shareholders and in charge of appointing management)

board of directors consists of:

independent and non-independent members

CEO, CFO, COO, audit committee, chairman

the majority of the audit committee must be:

independent

the chairman of the board of directors must be:

independent

Audit Committee

A subcommittee of the board of directors that is responsible for overseeing both the internal audit function and the annual financial statement audit by independent CPAs

must be independent and at least one member must be a financial expert

5 broad business processes

-financing process

-purchasing process

-Human Resources management process

-inventory management process

-revenue process

an AIS is used to:

-measure the performance of a business

-assess whether objective are being met

-comply with external reporting requirements

Organizations that affect the public accounting profession:

SEC

PCAOB

AICPA

IAASB

FASB

IASB

SEC

Securities and Exchange Commission; established in the 1930's; an independent federal agency that oversees the exchange of securities to protect investors

*highly politicized*

who makes up the SEC

5 commissioners; 3 from the party of the president

PCAOB

Public Company Accounting Oversight Board; sets audit standards (GAAS) for public companies

influenced by the SEC, so also heavily politicized

5 members

AICPA

American Institute of Certified Public Accountants; the national professional organization of CPAs

used to set auditing standards before PCAOB; *still responsible for setting standards for private company audits*

IAASB

international auditing and assurance standards board; establishes auditing standards internationally

FASB

Financial Accounting Standards Board, is the private sector body given the primary responsibility to work out the detailed rules that become GAAP.

IASB

International Accounting Standards Board; sets accounting standards in the rest of the world (IFRS)

who is responsible for the CPA's code of professional conduct?

AICPA

organizations that affect financial statement audits in the United States

purpose auditing standards

serve as *guidelines* for and *measures of quality* of the auditors performance

ASB

auditing standards board; part of AICPA

set SAS

SAS

statements on auditing standards (for private companies)

AS

auditing standards for public companies

set by PCAOB

ISA

international standards on auditing

set by IAASB

principles underlying an audit (according to the ASB)

-purpose: express opinion on FS prepared by management

-responsibilities: have competence and capabilities, follow ethical guidelines, maintain professional skepticism, exercise professional judgement

-performance: sufficient evidence that supports reasonable assurance

reporting: express an opinion in the form of a written report

where did AS come from?

PCAOB adopted ASB's SAS in 2003 and have modified/updated them since then

are SAS, AS, and ISA more specific or general in nature?

general

2 organization categories of SAS

-chronological order (SAS number)

-codified by topic (AU section)

PCAOB's auditing standards are grouped by:

topic as well

ISA organization

36 standards; less structured and smaller than SAS and AS