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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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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 4. Attestation services on information technology 5. Other attestation services
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Auditor
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.
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performing anonymous shopping to assess sales personnel dealing with customers and procedures they follow.
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assessing security risks and related controls over data and other information stored electronically, including the adequacy of backup and off-site storage.
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developing fraud risk profiles and assessing the adequacy of company systems and policies in preventing and detecting fraud and illegal acts.
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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 Evaluate computerized payroll system for efficiency and effectiveness Number of records processed, costs of the department, and number of errors
Established Company standards for efficiency and Criteria effectiveness in payroll department Available Evidence Error reports, payroll records, and payroll processing costs
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Compliance Audit
Example Information Determine whether bank requirements for loan continuation have been met Company records
Established Loan agreement provisions Criteria Available Evidence Financial statements and calculations by the auditor
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Established Generally accepted accounting Criteria principles Available Evidence Documents, records, and outside sources of evidence
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Learning Objective 7
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Types of Auditors
Independent certified public accounting firms Governmental general accounting office auditors Internal Revenue agents Internal auditors
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Learning Objective 8
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End of Chapter 1
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