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Chapter 1
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Sarbanes-Oxley Act
The Act established the Public Company Accounting Oversight Board. It also requires auditors to attest to management reports on the effectiveness of internal control over financial reporting.
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Learning Objective 1
Describe auditing.
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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.
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Audit Report
The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditors findings to users.
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Determines correspondence
Established criteria Internal Revenue Code and all interpretations
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Learning Objective 2
Distinguish between auditing and accounting.
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Learning Objective 3
Explain the importance of auditing in reducing information risk.
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Learning Objective 4
List the causes of information risk, and explain how this risk may be reduced.
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Learning Objective 5
Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.
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Assurance Services
An assurance service is an independent professional service that improves the quality of information for decision makers. Assurance services can be performed by CPAs or by a variety of other professionals.
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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.
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Attestation Services
1. Audit of historical financial statements 2. Attestation of internal control over financial reporting 3. Review of historical financial statements
Client
External Users
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assessing the processes in a companys investment practices to identify risks and to determine the effectiveness of those processes.
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 28
performing anonymous shopping to assess sales personnel dealing with customers and procedures they follow.
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 29
assessing security risks and related controls over data and other information stored electronically, including the adequacy of backup and off-site storage.
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 30
developing fraud risk profiles and assessing the adequacy of company systems and policies in preventing and detecting fraud and illegal acts.
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 31
Environmental audit
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Internal Control over Financial Reporting Other Attestation Services (e.g., WebTrust, SysTrust)
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Tax Services
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Learning Objective 6
Differentiate the three main types of audits.
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Types of Audits
Operational Compliance Financial Statement
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Operational Audit
Example Information Established Criteria Available Evidence Evaluate computerized payroll system for efficiency and effectiveness
Compliance Audit
Example Information Established Criteria Available Evidence Determine whether bank requirements for loan continuation have been met Company records Loan agreement provisions Financial statements and calculations by the auditor
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Learning Objective 7
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Types of Auditors
Independent certified public accounting firms Governmental general accounting office auditors
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Learning Objective 8
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End of Chapter 1
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