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BUS 425 – Auditing
Chapter 1
The Demand for Audit Services
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The company had recorded billions of dollars of regular fees paid to local telephone companies as capital assets. This accounting trick allowed the company to turn a $662 million loss into a $2.4 billion profit in 2001.
WorldCom – Cynthia Cooper
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Line cost expense 3,062
Cash 3,062
Adjusting JE
PP&E 3,062
Line cost expense 3,062
WorldCom – Cynthia Cooper
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Juancarlos
What is the definition of Auditing?
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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.
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financia
l statem
ents
GAAP
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Peter
What is audit evidence?
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Evidence ----
is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
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Evidence ----
electronic data about transactions
documented data about transactions
written communications
observations by the auditor
oral testimony (responses to questions)
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Levi
What is the objective of AU-C 330
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AU-C 330 response to RoMM
The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risk of material misstatement through designing and implementing appropriate responses to those risks.
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Bart
What is the objective of AU-C 500
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AU-C 500 Audit Evidence
The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.
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Vouch or Trace project
Go to web site http://clubs.cob.calpoly.edu/~cmiller/ACTG%20425%20page.html
look up sales journal - talk about overstatement / occurrence
look at sales journal – talk about overstatement / valuation
look at sales orders – talk about understatement / completeness
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Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
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Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
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Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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The magnitude of an omission or misstatement of accounting information that, in light of the surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement,
Materiality page 118
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John
What is “our” operational definition of independence?
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A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing professional auditing or attestation services.
Independence
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Independence enhances the auditor’s ability to act with integrity, to be objective, and to maintain an attitude of professional skepticism.
Independence includesindependence of mind (fact)Independence of appearance
Independence
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Jeanette
What does FASB stand for ?
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Priya
What is the Sarbanes Oxley Act of 2002?
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Algernon
Which of the following are government agencies ?
FASB
SEC
PCAOB
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Julia
What does GAAS stand for ?
What does GAAP stand for ?
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GAAP
FASB
FAS
ASC 310-10-25-3
ASU
GAAS public private
PCAOB
AICPA
AS
SAS
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Jordan
What is Business Risk? What is Information Risk?
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Business Risk - the risk (probability) that an entity will fail to meet its objectives
Information Risk - the probability that the information upon which the decision was made was inaccurate.
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Joseph
What is the Risk-Free interest rate?
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Mackenzie
You are a bank lending officer
In relation to the risk-free interest rate
What interest rate would you charge to a company with a great deal of business risk?
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Melissa
You are a bank lending officer
In relation to the risk-free interest rate
What interest rate would you charge to a company with a great deal of information risk?
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Garren
What are some conditions that create demand for auditing?
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conditions which create demand for audits
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Remoteness owner separate from management
Motives of the provider
Voluminous data
Complex transactions
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Who?
Talk about the difference between
assurance
attestation
auditing
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Assurance – improves the quality of information
Attestation – report regarding the reliability of specific assertions made by management
Audit – opinion regarding management’s assertions embodied in financial statements
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Important
Specified audit objectives • AU-C 200, 315, 500, 700 & Independence)
Unmodified Audit Report Management’s Assertions p. 59
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Cody
What are the three lines of service typically provided by a public accounting firm ?
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Typical lines of business
Audit (accounting, attestation, audit)
Tax
Consulting (advisory services)
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Jeffrey
What are the various job levels or career levels in a public accounting firm ?
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CPA partnership structure
Partner P
Senior Mngr SM SM
Manager X Y Z
Senior X X X Y Y Y Z ZStaff XXX XXX XXX YYY YYY YYY ZZZ
ZZ
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Education cpa exam
As of Dec. 31, 2013 / Jan. 1, 2014• Bachelors degree
• 225 quarter hours
• 36 business
• 36 + 30 accounting– 20 accounting– 10 ethics
• + 1 year experience
• http://www.dca.ca.gov/
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transactionsAccountbalances
Presentation& disclosure
occurrence existenceoccurrence & rights &
obligations
completeness completeness completeness
accuracyvaluation & allocation
accuracy &
valuation
classificationclassification &
understandability
cutoff
rights & obligations
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