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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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an engagement in which an assurance practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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2. Subject matter 3. Suitable criteria 4. Sufficient appropriate evidence 5. Written assurance report
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Users derive value from the knowledge that the assurance provider has no interest in the information other than for its usefulness.
Expertise:
Assurers must have the competence to obtain sufficient relevant information to provide a reasonable basis for their conclusions. Requires professional judgement and professional scepticism.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Users derive value from the knowledge that the assurance provider has no interest in the information other than for its usefulness. An attitude that includes a questioning mind, being alert to conditions indicating possible misstatement and critically assessing audit evidence.
Professional scepticism:
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Levels of assurance
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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(cont.)
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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called 'audit engagements'. Reasonable assurance = positive expression of opinion. Limited assurance engagements are commonly called 'review engagements'. Limited assurance = negative expression of opinion. There are also engagements that provide no assurance:
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
The auditor issues an opinion on written assertions made by the party responsible for the subject matter.
The auditor issues an opinion directly on the subject matter (no written assertion is made by the party responsible for the subject matter).
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Systematic process audits are structured activities Objectivity freedom from bias Obtaining and evaluating evidence allows the auditor to determine the support for assertions or representations Assertions about economic actions and events describes the subject matter of an audit Degree of correspondence established criteria the purpose of the audit is to determine conformity with some specified criteria Communicating results the results must be communicated to interested parties
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Boards released a draft paper in which they outlined possible fundamental principles underlying an audit. These principles should:
Underpin the objective(s) of an audit, and help
drive the conduct of the auditor in using professional judgment to meet the professional requirements of the auditing standards Be easily understood, both by auditors and other readers of auditing standards Be universally applicable to all audits Entrench the expectations that auditors are expected to accept and abide by.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Ethical principles
Contained in national and international codes of
ethics:
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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attributes of accounting information provide the basis for the audit function:
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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to establish the credibility of the information they are presented with. This may be due to:
Conflict of interest managers may present biased information, as they are also evaluated on the information. Consequence information provided forms the basis of many users decisions. Complexity many users do not have the expertise required to determine the quality of information presented. Remoteness the separation of owners from management prevents users from assessing information quality.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Agency theory
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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thirteenth century.
Until the early 1900s, audits focused on a
has been the expression of an opinion as to whether the financial report is materially misstated.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Approaches to Auditing
These have evolved over time:
Statement of financial position approach this involved the auditor auditing the assets and liabilities with little emphasis on profit and loss account items. Transactions-cycle approach this emphasised the review of controls that operated within each transaction cycle and provided for limited testing of balance sheet items.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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The auditor considers relative financial risk and materiality in planning the audit, such that audit work is concentrated in areas where there is a higher risk of misstatement.
As well as financial risk, the auditor considers business strategy, associated business risks, and managements plans to respond to changes in the business environment.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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The auditor uses a risk-based assertion-based methodology in undertaking the audit. For example, the assertions that management are implicitly making by recording an inventory balance of $1 million in the statement of financial position are: Inventory of $1 million exists (existence); The entity has the rights of ownership of this inventory (rights and obligations); All inventory that should have been recorded has been recorded (completeness); and Inventory has been recorded in the financial report at the appropriate value, and any resulting valuation adjustment (such as obsolescence) has been correctly recorded (valuation and allocation).
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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The auditor uses a risk-based methodology to identify risks of misstatement and relates these through to assertions (Chapters 68). For example, consider that the auditor identifies major risk as entity wishing to overstate profit. They can achieve this by overstating inventory, which understates cost of goods sold (if goods are in inventory, they are not sold). The auditor assesses how entity is likely to achieve this overstatement, and concentrates their audit attention on the related assertions. In this example, two ways of achieving overstatement of inventory are to include inventory that does not exist (for example, goods that have been sold) or overstate valuation of the inventory items included in the statement of financial position (valuation and allocation). The auditor then uses specific procedures to test assertions at risk (Chapters 9-11).
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
is to resource providers of the client entity; however, the client entity usually engages the auditor and pays the auditors fees. The auditor also discusses the audit findings with management prior to releasing information to the resource providers. In order to combat pressures on independence and objectivity, the auditing profession has issued a series of ethical rulings and professional standards to guide the auditor in the conduct of his or her duties.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Defined as: the gap between societys expectations of auditors and auditors performance as perceived by society. There are 3 components of the expectation gap:
The reasonableness gap between what society expects auditors to achieve and what they can reasonably be expected to accomplish. 2. The performance gap arising from deficient standards. 3. The performance gap arising from deficient performance by auditors.
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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of assurance
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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2001, the auditing standards (ASAs) must be applied, thus giving them legal authority.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Statements (AGSs): provide guidance on procedural matters or industry-specific issues, but do not establish new principles or amend existing standards. Professional obligations extend application of standards to all other audit and assurance engagements by members of professional bodies. Failure to observe these standards may expose a member to investigation and disciplinary action from the Australian Securities and Investments Commission (ASIC).
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Australian auditing standards relating to these audits are now designated as ASAs, and have the same numbering as the equivalent ISAs. Note: there are still a number of standards designated as AUSs, which relate to frameworks or assurance engagements on other than financial reports prepared in accordance with the Corporations Act 2001.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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and presentation of appropriate accounts. Accounts are to be accompanied by a report of an independent auditor appointed by the shareholders.
The Corporations Act 2001 (ss 292306) indicates
that directors must prepare a financial report (income statement, balance sheet, statement of changes in equity cash flow statement, directors declaration and other related notes and reports), together with any other information or explanation necessary to give a true and fair view.
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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members on the directors financial report presented at the AGM. They say whether the financial report:
Is in accordance with the law, including compliance with accounting standards (s 296) Provides a true and fair view (s 297).
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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also employable in the audit of activities other than financial reports. Compliance audit:
Examination for the purpose of reporting on legality and control of operations. Analyses organisation structure, internal systems, workflow and managerial performance efficiency, effectiveness and economy of these items.
Performance audit:
Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett
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Usually includes components of compliance, performance and financial report audits. Audits performed by employees of the entity as a part of the entitys risk management process. Associated many times with fraud detection.
Internal audit:
Forensic audit:
Including prospective financial information, internal controls and sustainability and carbon emissions reports.
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Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia 4e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett