Chapter 8 Assurance services Independent professional services that improve the quality of information or its context for decision makers Adds value to the user not just the report Three party contracts the client the assurer and the third party to whom the accountant is providin ID: 526872
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Assurance Services and Auditing Research
Chapter 8Slide2
Assurance services
“Independent professional services that improve the quality of information, or its context, for decision makers”
Adds value to the user, not just the report
Three party contracts – the client, the assurer, and the third party to whom the accountant is providing assuranceSlide3
Consulting services and standards
Attestation and audit services are special types of assurance services
In an attest engagement, the CPA reports on the reliability of a written assertion that is managements responsibility
Consulting is not part of assurance services
Two party contact: client, consultant, accountant
CPA develops findings, conclusions, and recommendationsSlide4
Attest engagements and guidelines
Audit and attest services – Generally Accepted Audit Standards (GAAS), Statements on Auditing Standards (SAS) – Auditing standard boards (ASB)
Accounting and review services – Statements on Standards for Accounting and Review – Accounting and Review Services Committee (ARSC)
Accountant’s services on prospective financial information – Statements on Standards for Accountant’s Services on Prospective Financial Information – Auditing Standards BoardSlide5
Attest engagements and guidelines
Other attest services – Statements on Standards for Attest Engagement – ASB, ARSC, and the management consulting services executive committee
Audit and attest services for public companies – Auditing and Related Professional Practice Standards – Public Company Accounting Oversight Board (PCAOB)Slide6
Attestation standards
General Standards
Adequate technical training and proficiency
Adequate knowledge
Services shall be performed only if the subject matter is capable of being evaluated
Independence in mental attitude
Due professional careSlide7
Attestation standards (contd.)
Fieldwork
Adequately planned, and assistants properly supervised
Sufficient evidence to provide a reasonable basis for conclusionSlide8
Attestation standards (contd.)
Standards of Reporting
Report shall identify subject matter
Conclusion shall be reported
Reservations shall be reported
Report shall state the use of the report is restricted to specified partiesSlide9
Auditing standard-setting environment
Audits add credibility to financial information
Auditor conducts audit in conformity with GAAP and in conjunction with auditing standards
Attestation services and standards
In the past, only audit opinions
Now expanded to include opinions on internal controlsSlide10
Auditing standards
Auditing standards provided measures of the quality of performance
Audit procedures refer to the specific acts or steps to perform in an audit
Procedures change, standards remain constant
10 broad requirements referred to as GAAS
In addition, to GAAS, there are Statements of Auditing Standards (SAS)
interpret GAASSlide11
Generally Accepted Auditing Standards (PCAOB)
General standards
Adequate technical training
Independence
Due professional careSlide12
GAAS (contd.)
Field work
Adequately planned and assistants supervised
Sufficient understanding of the business and internal controls to plan the audit and determine the nature, timing and extent of procedures
Sufficient competent evident matter to form an opinionSlide13
GAAS (contd.)
Standards of reporting
Report shall state if in accordance with GAAP
Shall report if not consistent
Informative financial statement disclosures
Written expressionSlide14
Auditing standard-setting process
Previously, set by ASB
SOX transferred standard setting responsibility to PCAOB for public company auditSlide15
Auditing standard-setting process
There is a standards hierarchy
Primary support
General application
Special application to certain entities
Secondary authoritative supportSlide16
Public Company Accounting Oversight Board (PCAOB)
Legal responsibility to establish GAAS, attestation, ethics, and quality control standards for accounting firms who audit public companies
Non-public companies still follow the AICPA’s mission:
Develop auditing, attestation and quality control standards for non-issuer engagements
Contribute to the development and issuance of high-quality national and international auditing and assurance standards
Respond to the needs for practical guidance in implementing professional standardsSlide17
International Auditing
International Federation of Accountants (IFAC)
International Auditing Practices Committee (IAPC)
International Standards on Auditing (ISAs)
International Practice Statements (IAPs)
International Auditing and Assurance Standards Board (IAASB)Slide18
AICPA Professional Library
Professional standards, accounting trends and techniques, technical practice aids, auditing and accounting guides, and audit alerts
Home tab – lists the literature available in the database
Once select a certain literature, can query
Results tab – click on the link to find the resultSlide19
Code of Professional Conduct
Minimum level of conduct
Three sections-according to a members practice-public, business, other
Principles, rules, interpretations
Includes a conceptual framework-threats and safeguards approachSlide20
Hierarchy of the AICPA’s Code of Professional Conduct
Level 1 – Principles
provided framework for development
Level 2 – Rules
Serve as the enforceable part of the Code
Level 3 – Interpretations of the Rules of Conduct
Have been adopted by the professional ethics division’s ethics committee
Provide guidelines as to the scope and application of rulesSlide21
Auditing in the public sector
GAO – Government Auditing Standards – “Yellow book
”
Applicable to all governmental organizations
Measure effectiveness of the expenditures, not just identify the amounts spent
Include compliance auditing
Three levels of auditing
GAAS
Government Auditing Standards (aka generally accepted government auditing standards)
Federal audit requirements – OMB Circular A-133 Audits of States, Local Governments, and Non-Profit OrganizationsSlide22
Accounting Services
Compilation – a service presenting, in the form of financial statements, information that is the representation of management without expressing any assurance on the statements.
Review – a service performing inquiry and analytical procedures that provide the accountant with a reasonable basis for expressing limited assurance on the statementsSlide23
Role of judgment in accounting and auditing research
Judgment in: substance of transaction, adequacy of disclosure, materiality thresholds
Auditor gathers information, evaluates and judges, then expresses an opinion
Many pronouncements provide only guidelines or alternatives, requiring judgment.
Critical thinking skills are crucial