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    Assurance services and the cpa profession  (essch01.ppt) Assurance services and the cpa profession (essch01.ppt) Presentation Transcript

    • Assurance Services and the CPA Profession Chapter 1©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-1
    • Learning Objective 1 Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-2
    • Assurance Services Assurance services are professional services that improve the quality of information for decision makers. Assurance services can be performed by CPAs or by a variety of other professionals.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-3
    • Attestation Services An attestation service is a type of assurance service in which the CPA firm issues a report about the reliability of an assertion that is the responsibility of another party.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-4
    • Other Assurance Services Most other assurance services do not meet the formal definition of attestation services. The CPA must be independent. The CPA must provide assurance. The CPA is not required to provide a written report.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-5
    • Assurance Services on Information Technology There is an increased demand for assurance about computer controls surrounding information transacted electronically and the security of the information related to the transactions. – assurance over Web site controls – assurance about information system reliability©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-6
    • Assurance Services on Information Technology WebTrust is an attestation service, and the WebTrust seal is a symbolic representation of the CPA’s report on management’s assertions about its disclosure of electronic commerce practices.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-7
    • Assurance Services on Information Technology SysTrust is an attest-type engagement to evaluate and test system reliability in areas such as security and data integrity.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-8
    • Assurance Services on Other Types of Information CPA Performance View CPA ElderCare Services CPA Risk Advisory Services©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1-9
    • Assurance, Attestation, and Nonassurance Services ASSURANCE SERVICES ATTESTATION SERVICES Audits Reviews Certain Other Attestation Services Management (e.g., WebTrust, SysTrust) Consulting Other Assurance Services (e.g., CPA Performance View)©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 10
    • Assurance, Attestation, and Nonassurance Services NONASSURANCE SERVICES Other Management Consulting Certain Accounting and Management Bookkeeping Consulting Tax Services©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 11
    • Learning Objective 2 Explain the causes of information risk and the importance of auditing in reducing this risk.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 12
    • Economic Demand for Auditing Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate. Auditing can have a significant effect on information risk.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 13
    • Causes of Information Risk 1. Remoteness of information 2. Biases and motives of the provider 3. Voluminous data©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 14
    • Reducing Information Risk 1. User verifies information 2. User shares information risk with management 3. Audited financial statements are provided©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 15
    • Learning Objective 3 Describe auditing and distinguish between auditing and accounting.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 16
    • Nature 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 should be done by a competent, independent person.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 17
    • Accumulating and Evaluating Evidence Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 18
    • Competent, Independent Person The auditor must be qualified to understand the criteria used and must be competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined. The competence of the individual performing the audit is of little value if he or she is biased in the accumulation and evaluation of evidence.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 19
    • Reporting The final stage in the auditing process is preparing the Audit Report which is the communication of the auditor’s findings to users.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 20
    • Audit of a Tax Return – Example Competent, Information independent Federal tax person returns filed by taxpayer Internal Report on results revenue agent Determines Report on tax correspondence deficiencies Accumulates and evaluates evidence Established criteria Examines cancelled Internal Revenue checks and other Code and all supporting records interpretations©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 21
    • Distinction Between Auditing and Accounting Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making. Auditing is determining whether recorded information properly reflects the economic events that occurred during the accounting period.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 22
    • Learning Objective 4 Differentiate the three main types of audits.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 23
    • Types of Audits Operational Audit Efficiency Effectiveness Compliance Audit Financial Statement Audit©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 24
    • Operational Audit Evaluate computerized payroll system Example for efficiency and effectiveness Number of records processed, cost of Information the department, and number of errors Established Company standards for efficiency and Criteria effectiveness in payroll department Available Error reports, payroll records, and Evidence payroll processing costs©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 25
    • Compliance Audit Determine whether bank requirements Example for loan continuation have been met Information Company records Established Loan agreement provisions Criteria Available Financial statements and Evidence calculations by the auditor©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 26
    • Financial Statement Audit Annual audit of Boeing’s Example financial statements Boeings financial Information statements Established Generally accepted accounting Criteria principles Available Documents, records, and outside Evidence sources of evidence©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 27
    • Learning Objective 5 Identify the primary types of auditors.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 28
    • Types of Auditors Certified Public Accounting Firms General Accounting Office Auditors Internal Revenue Agents Internal Auditors©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 29
    • Learning Objective 6 Discuss how e-commerce and the Internet affect CPA firm operations.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 30
    • E-Commerce and CPA Firm Operations CPA firms are using the Internet to market their services. They also use the Internet to connect their global professional staff. Sender’s Receiver’s mail mail server server©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 31
    • Learning Objective 7 Describe the requirements for becoming a CPA.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 32
    • Three Requirements for Becoming a CPA Educational Passing the CPA Exam Experience©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 33
    • Learning Objective 8 Describe the AICPA and its role in setting standards.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 34
    • AICPA The AICPA sets professional requirements for CPAs, conducts research, and publishes materials on many different subjects related to accounting, auditing, attestation and assurance services, management consulting services, and taxes.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 35
    • Vision for the Future The AICPA has established the CPA Vision Project to provide a core purpose and a vision for the CPA profession in the year 2011 and beyond. The core purpose of the CPA Vision Project is “CPAs…making sense of a changing and complex world.”©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 36
    • Vision for the Future The future success of the CPA profession relies a great deal on public perceptions of CPAs’ abilities and roles. CPAs must become market driven and not dependent on regulations to keep them in business. The market demands less audit and accounting and more value-adding consulting services.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 37
    • Vision for the Future Specialization is critical for the future of the CPA profession. The market demands that CPAs be conversant in global business practices and strategies.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 38
    • Establishing Standards and Rules The AICPA is empowered to set standards (guidelines) and rules that all members and other practicing CPAs must follow. The requirements are set by committees made up of AICPA members.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 39
    • Establishing Standards and Rules 1. Auditing Standards 2. Compilation and Review Standards 3. Other Attestation Standards 4. Code of Professional Conduct©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 40
    • Learning Objective 9 Use generally accepted auditing standards as a basis for further study.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 41
    • General Standards 1. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. 2. In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors. 3. Due professional care is to be exercised in the planning and performance of the audit and the preparation of the report.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 42
    • Standards of Field Work 1. The work is to be adequately planned and assistants, if any, are to be properly supervised. 2. A sufficient understanding of internal control is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 43
    • Standards of Field Work 3. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 44
    • Standards of Reporting 1. The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles. 2. The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 45
    • Standards of Reporting3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. 4. The report shall contain an expression of opinion regarding the financial statements, taken as a whole.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 46
    • Summary of General Standards Generally Accepted Auditing Standards General Field Work Reporting1. Adequate training 1. Proper planning 1. Statements prepared in and proficiency and supervision accordance with GAAP2. Independence in 2. Internal control 2. Circumstances when mental attitude understanding GAAP not followed3. Due professional 3. Sufficient 3. Adequacy of disclosures care competent 4. Expression of opinion evidence on financial statements©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 47
    • Learning Objective 10 Identify quality control standards and practices within the accounting profession.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 48
    • Elements of Quality Control Independence, integrity, and objectivity Personnel management Acceptance and continuation of clients and engagements Engagement performance Monitoring©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 49
    • Relationships Quality control Generally accepted standards auditing standards Division of Peer CPA firms review©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 50
    • Learning Objective 11 Summarize the role of the Securities and Exchange Commission in accounting and auditing.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 51
    • Securities and Exchange Commission The overall purpose of the Securities and Exchange Commission (SEC) is to assist in providing investors with reliable information upon which to make investment decisions.©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 52
    • CPAs Encouraged to Conduct Themselves at a High Level CPA GAAS and examination interpretations Conduct of CPA firm personnel Continuing education requirements©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 53
    • CPAs Encouraged to Conduct Themselves at a High Level Peer SEC review Conduct of CPA firm personnel Quality control©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 54
    • CPAs Encouraged to Conduct Themselves at a High Level Legal Division of liability CPA firms Conduct of CPA firm personnel Code of Professional Conduct©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 55
    • End of Chapter 1©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley 1 - 56