dear all researchers, these are slides of auditing to the financial statement

1. 2-1
Chapter 2
The Financial
Statement
Auditing
Environment
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

2. 2-2
Government Regulation
In July 2002, Congress passed the
Sarbanes-Oxley Public Company
Accounting Reform and Investor
Protection Act.
The Sarbanes-Oxley Act effectively
ended the profession’s era of “self-
regulation,” creating and transferring
authority to set and enforce standards
to the Public Company Accounting
Oversight Board (PCAOB).
LO# 1

3. 2-3
Context of Financial Statement
Auditing
The primary context with which an auditor is concerned is the industry or
business of his or her audit client. In other words, the context provided by the
client’s business impacts the auditor and the audit, and is thus a primary
component of the environment in which financial statement auditing is
conducted.
LO# 2
How would your concerns about the inventory account
differ for a Computer Hardware Manufacturer and a
Jewelry Store?
What assertions would you be most concerned about
and why?

4. 2-4
A Model of Business
Board of Directors
Audit
Committee
Business organizations exist to create value for their
stakeholders. Due to the way resources are invested and
managed in the modern business world, a system of
corporate governance is necessary, through which
managers are overseen and supervised.
LO# 3

5. 2-5
LO# 4
An Overview of Business
Figure 2-1 An Overview of Business

6. 2-6
LO# 5
Management Assertions
Financial statements issued by management contain
explicit and implicit assertions.

7. 2-7
Auditing Standards
Auditing standards serve as
guidelines for and measures of
the quality of the auditor’s
performance.
Public
Companies
PCAOB
Nonpublic
Companies
Auditing
Standards
Board
LO# 6, 7
PCAOB
Initially
adopted

8. 2-8
GAAS
LO# 6, 7

9. 2-9
Statements on Auditing Standards
(SAS)—Interpretations of GAAS
GAAS and SAS are considered to be minimum
standards of performance for auditors.
PCAOB adopted, on an
interim basis, GAAS and
SAS existing in 2003.
Standards issued by
PCAOB are called
Auditing Standards (AS).
LO# 8, 9

10. 2-10
Ethics, Independence, and the
Code of Professional Conduct
Code of
Professional
Conduct
Principles
Rules of Conduct
Interpretations
of the Rules
LO# 10

11. 2-11
Society’s Expectations and the
Auditor’s Responsibilities
The auditor has a responsibility to plan and perform
the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement, whether caused by error or fraud.
Because of the nature of audit
evidence and the characteristics
of fraud, the auditor is able to
obtain reasonable, but not
absolute, assurance that material
misstatements are detected.
The auditor has no
responsibility to plan and
perform the audit to obtain
reasonable assurance that
misstatements, whether
caused by errors or fraud, that
are not material to the financial
statements will be detected.
LO# 11

12. 2-12
Public Accounting Firms
Public accounting firms range in size from a single proprietor
to thousands of owners (or “partners”) and thousands of
professional and administrative staff employees.
LO# 12
Big 4
PwC
EY
Deloitte
KPMG
Mid-Tier
Grant Thornton
BDO Seidman
RSM McGladrey
Regional Local

13. 2-13
LO# 12
Audit Teams

14. 2-14
Types of Audit, Attest, and
Assurance Services
LO# 13
Audit Services:
Attest Services:
Assurance Services:
Non-assurance Services:
Internal Control Audits, Compliance Audits, Operational
Audits, Forensic Audits
Reporting on Internal Control
Risk Assessment, Performance Measurement
Tax Services, Management Advisory Services, Accounting
and Review Services

15. 2-15
Types of Auditors
External Auditors Internal Auditors
Government
Auditors
Forensic Auditors
LO# 14

16. 2-16
Organizations That Affect the
Public Accounting Profession
Securities and
Exchange
Commission (SEC)
American Institute of
Certified Public
Accountants (AICPA)
Public Company
Accounting Oversight
Board (PCAOB)
Financial Accounting
Standards Board
(FASB)
LO# 15

17. 2-17
End of Chapter 2
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin