This document provides an overview of auditing and related topics. It defines auditing and describes an auditor's responsibilities to have appropriate competence, comply with ethical standards, and maintain professional skepticism. It distinguishes the roles of accountants and auditors and discusses types of audits. It also covers topics like GAAS, GAAP, the AICPA, ASB, audit opinions, and the purpose of audited financial statements.

1. ACCO.304-part 1
Jose Cintron, MBA-CPC
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http://Josecintron.com
jose@mba4help.com

2. Auditing
American Accounting Association
Auditing is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic
actions and events to ascertain the degree of correspondence
between the assertions and established criteria and
communicating the results to stateholders.
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3. Auditor’s Responsibilities
The fundamental principle of responsibilities relates to the personal
integrity and professional qualifications of auditors. This principle
addresses the following responsibilities of auditors:
Auditors are responsible for:
Having appropriate competence and capabilities to perform the audit.
Complying with relevant ethical requirements; and,
Maintaining professional skepticism and exercising professional
judgment, throughout the planning and performance of the audit.
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4. Accounting vs. Auditing
Accountants and auditors ensure that firms are run efficiently by
providing them with valuable financial information and accurate record
keeping. Accountants on a day-to-day basis are responsible for
bookkeeping, preparing balance sheets, profit and loss statements, and
other financial reports, and may also analyze trends, costs, revenues,
financial commitments, and obligations to predict future revenues and
expenses. Accountants are responsible for reporting finance information
to managements.
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5. Accounting vs. Auditing
Auditors examine this accounting and financial data and
procedures to ensure accuracy and compliance with
government guidelines and laws. They work to identify
improper accounting or documentation and research issues in
order to make recommendations to improve policies or
procedures accordingly. Auditors and accountants need to be
critical and detail-oriented thinkers.
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6. GAAS
Generally Accepted Auditing Standards - GAAS'
A set of systematic guidelines used by auditors when conducting audits
on companies' finances, ensuring the accuracy, consistency and
verifiability of auditors' actions and reports.
By relying on GAAS, auditors can minimize the probability of missing
material information. GAAS are divided into these main sections:
1) General standards
2) Standards of fieldwork
3) Standards of reporting
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7. GAAS Ethics
Professional ethics represent a commitment by a
professional to ethical principles and rules of
conducts. This is the key element that separates
recognized professions from other occupations.
Core values are associate with the CPA profession:
Integrity
Objectivity
Competence
Continue education
Attuned to business Issues
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8. AICPA
The American Institute of Certified Public Accountants (AICPA) is the
national professional organization for Certified Public Accountants
(CPAs) in the United States.
AICPA designated to issue pronouncements on auditing matters
applicable to the preparation and issuance of audit reports.
The AICPA’s mission is to provide members with the resources,
information and leadership that enable them to provide valuable services
in the highest professional manner to benefit the public, employers and
clients.
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9. AICPA Code of Conduct
Code and rule of professional conduct.
Ethical Principles
Responsibilities
The Public interest
Integrity
Objectivity and independence
Due care
Scope and nature of services
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10. ASB
The role of the Accounting Standards Board (ASB) was to issue
accounting standards.
Statements on Auditing Standards (SASs) are issued by the Auditing
Standards Board (ASB),
The AICPA Code of Professional Conduct require an AICPA member
who performs an audit to comply with standards promulgated by the
ASB.
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11. Rule of Conducts
Rule 101 Independence
Rule 102 Integrity and Objectivity
201 General Standards
202 Compliance with standards
203 Accounting Principles
301 Confidential Client Information
302 Contingent fees
501 Acts Discrepancies
502 Advertising and solicitation
503Commision and referral fees
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12. Responsibility of Management
Management’s Responsibility for
Preparation of the Financial Statements
Management is responsible for the preparation of the
financial statements included in the Annual Report. The
financial statements were prepared in accordance with
the accounting principles generally accepted in the
United States of America and include amounts that are
based on the best estimates and judgments of
management.
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13. Responsibilities of Auditors
Independent auditor is engaged to render an
opinion on whether a company’s financial
statements are presented fairly, in all material
respects, in accordance with financial reporting
framework. An audit conducted in accordance with
GAAS and relevant ethical requirements enables the
auditor to form that opinion.
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14. Types of Audits/Reviews
Financial Audits or Reviews
Operational Audits
Department Reviews
Information Systems Audits
Integrated Audits
Investigative Audits or Reviews
Follow-up Audits
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15. Financial Audit
Financial related audits include determining
whether;
(a) financial information is presented in
accordance with established or stated criteria
(b) the entity has adhered to specific financial
compliance requirements, or
(c) the entity's internal control structure over
financial reporting is suitably designed and
implemented to achieve control objectives.
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16. Operational, Compliance,
Performance audits
These audits may include any or all of: (a)
determining the extent to which the desired results
or benefits established or other authorizing body
are being achieved, (b) the effectiveness of
organizations, programs, activities, or functions, (c)
whether a division is acquiring, protecting, and
using its resources (such as personnel, property, and
space) economically and efficiently, and (d) whether
the division has complied with laws and regulations
applicable.
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17. Department Review/Audit
A current period analysis of administrative
functions, to evaluate the adequacy of
controls, safeguarding of assets, efficient use
of resources, compliance with related laws,
regulations, policy and integrity of financial
information.
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18. Fraud Audit
Undertakes forensic investigations including
suspected fraudulent activities and manages
the fraud.
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19. Bernard Madoff
Bernard Madoff, 2009. a former chairman of the NASDAQ Stock
Market and a respected Wall Street adviser and broker for the past
50 years, was arrested after his sons turned him in for running “a
giant Ponzi scheme,” bilking investors out of an estimated $50
billion. Many investors, including actors, investment bankers,
politicians, and sports personalities, lost their life savings. Some
who had already retired, now in their 70s and 80s, were forced to
go back to work. Others lost their retirement homes. Charities
and pensions that had invested heavily were wiped out.
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20. Assurance
Potential conflict of interest between information providers and users,
along with financial statement frauds such as those
of Enron and WorldCom, leads to a natural skepticism on the part of
users. Thus, they depend on information professionals to serve as
independent and objective intermediaries who will lend credibility to the
information.
This lending of credibility to information is known as
providing assurance. When the assurance is provided for specific
assertions made by management, we refer to the assurance provided
asattestation. And, when the assertions are embodied in a company's
financial statements, we refer to the attestation as auditing.
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21. Attestation
While auditing refers specifically to expressing an opinion on financial
statements and attestation refers to expressing an opinion on an expanded
set of financial information beyond financial statements or a specified
element of financial statement information, assurance services include
many areas of information, including nonfinancial information.
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22. Attestation Engagements
Agreed Upon Procedures Engagements (AT 201), such as verifying inventory quantities and
locations.
Financial Forecasts and Projections (AT 301), such as analysis of prospective or hypothetical
“what-if” financial statements for some time period in the future.
Reporting on Pro Forma Financial Information (AT 401), such as retroactively analyzing the
effect of a proposed or consummated transaction on the historical financial statements “as if” that
transaction had already occurred.
An Examination of an Entity's Internal Control Over Financial Reporting that Is Integrated
with an Audit of Its Financial Statements (AT 501), focused on the design and operating
effectiveness of an entity's internal control over financial reporting.
Compliance Attestation (AT 601), such as ascertaining a client's compliance with debt covenants.
Examination of Management's Discussion and Analysis (AT 701), prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC).
Reporting on Controls at a Service Organization (AT 801), such as organizations that provide
outsourced processes that are likely to be relevant to the user entities' internal control over financial
reporting.
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23. Assurance Services
While they are subsets of assurance services, attestation and audit
services are highly structured and intended to be useful for large groups
of decision makers (e.g., investors, lenders). On the other hand,
assurance services other than audit and attestation services tend to be
more customized for use by smaller, targeted groups of decision makers.
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24. Examples of Assurance Services
Public accounting firms must pick and choose the services that they wish
to provide to the market, based on the expertise that lies within the firm.
Enterprise risk management assessment.
Information risk assessment and assurance.
Third-party reimbursement maximization.
Rental property operations review.
Customer satisfaction surveys.
Evaluation of investment management policies.
Fraud and illegal acts prevention and deterrence.
Accounts receivable review and cash enhancement.
Internal audit outsourcing.
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25. Attestation and Audit Services
Attestation and audit services are special types of assurance services, but
consulting services are not. In providing consulting services, CPAs use
their professional skills and experiences to provide recommendations to a
client.
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26. Audit Opinion
Unqualified Opinion
Often called a clean opinion, an unqualified opinion is an audit report
that is issued when an auditor determines that each of the financial
records provided by the small business is free of any misrepresentations.
In addition, an unqualified opinion indicates that the financial records
have been maintained in accordance with the standards known as
Generally Accepted Accounting Principles (GAAP). This is the best type
of report a business can receive.
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27. Audit Opinion
Qualified Opinion
In situations when a company’s financial records have not been
maintained in accordance with GAAP but no misrepresentations are
identified, an auditor will issue a qualified opinion. The writing of a
qualified opinion is extremely similar to that of an unqualified opinion. A
qualified opinion, however, will include an additional paragraph that
highlights the reason why the audit report is not unqualified.
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28. Audit Opinion
Adverse Opinion
The worst type of financial report that can be issued to a business is an
adverse opinion. This indicates that the firm’s financial records do not
conform to GAAP. The financial records provided by the business have
been grossly misrepresented. Although this may occur by error, it is often
an indication of fraud. When this type of report is issued, a company
must correct its financial statement and have it re-audited, as investors,
lenders and other requesting parties will generally not accept it.
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29. Audit Opinion
Disclaimer of Opinion
On some occasions, an auditor is unable to complete an accurate audit
report. This may occur for a variety of reasons, such as an absence of
appropriate financial records. When this happens, the auditor issues a
disclaimer of opinion, stating that an opinion of the firm’s financial
status could not be determined.
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30. What is the need for Audited
Financial Statements
Financial audits exist to add credibility to the implied assertion by an
organization's management that its financial statements fairly represent
the organization's position and performance to the firm's stakeholders.
Audited financial statements provides enhanced degree of confidence to
stakeholders of a company are typically its shareholders, but other parties
such as tax authorities, banks, regulators, suppliers, customers and
employees may also have an interest in knowing that the financial
statements are presented fairly, in all material aspects.
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31. The Audit Committee
The Audit Committee assists the Board in fulfilling its oversight
responsibilities. The Audit Committee shall consist of no less than three
members of the Board of Directors, This member most be independent in
accordance with applicable Securities and Exchange Commission
(“SEC”) rules. Each member of the Audit Committee shall in the
judgment of the Board of Directors be financially literate, as such
qualification is interpreted by the Company’s Board in its
business judgment, have a basic understanding of finance and accounting
and be able to read and understand the Company’s fundamental financial
statements.
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32. Audit Purpose
The purpose of an audit is to enhance the degree of confidence that
intended users can place in the financial statements. This is achieved by
the expression of an opinion by the auditor on whether the financial
statements are prepared, in all material respects, in accordance with an
applicable financial reporting framework. In the case of most general
purpose frameworks, that opinion is on whether the financial statements
are presented fairly, in all material respects. An audit conducted in
accordance with generally accepted auditing standards and relevant
ethical requirements enables the auditor to form that opinion.
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33. Audit Planning
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