Louwers_Chap001_PPT_Revised_For_9th_Edition_Jay_Thibodeau_January_5_2023_Accessible

Chapter 1: Auditing & Assurance Services

• Learning changes everything

• Importance of Auditing and Assurance Services for transparency and trust in financial reporting.

Introduction

Key Quote

• "Our system of capital formation relies upon the confidence of millions of savers to invest in companies. The auditor’s opinion is critical to that trust."

Learning Objectives

1. Information Risk

   • Define information risk and how auditing reduces this risk, lowering the cost of capital for companies.

2. Assurance Services

   • Differentiate assurance, attestation, and financial statement audits.

3. Management Assertions

   • Define assertions made by management regarding financial statements and why they are critical to audits.

4. Professional Skepticism

   • Explain the concept and characteristics of professional skepticism.

5. Public Accounting Firms

   • Describe the structure of public accounting firms and their services.

6. Types of Audits

   • Distinguish between governmental, internal, and operational audits.

7. CPA Requirements

   • List certification requirements to become a CPA and other accounting qualifications.

Audit Quality

• Ernst & Young (November 2021) emphasized continuous improvement in audit quality and the responsibility to serve public interest.

User Demand for Reliable Information

Business Risks

• Increasing complexity of information and the need for timely, reliable assessments from independent third parties.

Information Risk

• The chance that a company's circulated information is false or misleading.

Consequences of Poor Auditing

Case Study: Bernard Madoff

• Madoff’s Ponzi scheme highlights red flags ignored by investors and auditors leading to massive losses.

Assurance Services

• Independent services aimed at improving information quality. Examples include:

  • Cybersecurity risk assessment

  • XBRL reporting

  • Internal audit outsourcing

  • Fraud prevention

Accounting Complexity and XBRL

Measurement of Reporting Complexity

• XBRL allows tagging specific data items, enhancing collection and reporting of financial information.

Challenges

• Complexity can lead to errors and increased audit risks.

Emerging Market for CPA's: NFTs

Understanding NFTs

• NFTs are unique digital assets authenticated through blockchain technology.

Financial Implications

• Rapid market growth, with billions spent in recent years, presents new opportunities for accounting professionals.

Attestation Engagements

• Services examining the validity of management assertions, covering financial forecasts, internal control effectiveness, and compliance.

The Importance of Sustainability

• Introduction of the International Sustainability Standards Board to enhance disclosure standards in sustainability reporting.

Professionalism in Auditing

Professional Skepticism

• Defined as having a questioning mind and a critical assessment of evidence in auditing, essential due to potential conflicts of interest.

Recent Case Study: Evergrande Group

• Raises questions about auditor skepticism as serious financial issues emerged after a clean audit report.

Professional Judgement Process

1. Clarify issues and objectives.

2. Consider alternatives.

3. Gather relevant evidence.

4. Reach audit conclusions.

5. Document rationale for judgments.

Public Accounting Services

• Overview of services including financial statement auditing, tax, and advisory services with significant revenues.

Prohibited Services Under Sarbanes-Oxley

• Lists services that auditors cannot provide to audit clients to maintain independence, such as bookkeeping and internal auditing.

Certification Requirements for Accountants

Key Certifications

• CPA, CISA, CIA, CFE, CMA - each with specific education and experience requirements detailed.

The CPA Examination

Structure and Updates

• Discussion of the CPA Exam structure, with substantial changes expected in 2024 to better align with the evolving accounting landscape.

Conclusion

• Emphasis on the ongoing evolution of auditing and assurance services and their critical role in maintaining trust in financial reporting.