Chapters 1 & 2

Definition of Auditing
Auditing is the accumulation and evaluation of
evidence to report on the level of agreement
between the information and the established
criteria.
Example: IRS audit
Types of audits: financial statement, internal
control over financial reporting, operational,
compliance, forensic
External audit vs. internal audit

Demand for auditing

Financial audit: to form an opinion about whether

Reducing information risk

the financial statements are fairly stated in accordance

with GAAP.
- Information risk is the risk that the information that
business decisions are based upon is inaccurate.
- The risk is caused by the following factors:
(1) information is difficult to access by the financial statement
user, (2) the company management has motivation to distort
the information that is provided, (3) the amount of information
is difficult to sort through for each user, and (4) many of the
transactions entered into by the company are too complicated
for the average financial statement user to comprehend

Insurance

Attestation and Assurance

What is an attestation service?
Some of the types of attestation
-Audit of financial statements
-Review of financial statements
-Audit of internal control over financial reporting
-WebTrust, SysTrust

Financial statement audit

A form of attestation service in which the
auditor issues a written report expressing an
opinion about whether the financial
statements are fairly stated in accordance
with GAAP.
What does it mean fairly stated?
What does the word opinion imply?

Generally Accepted Auditing Standards

GAAS
1. General Standards
1. adequate Training and proficiency as an auditor
2. Independence in mental attitude
3. due Professional care in planning and performing

2. Fieldwork Standards
1. adequately Planned and assistants supervised
2. understand Internal controls to determine the
nature, timing and extent
3. sufficient competent Evidence

GAAS (cont.)
3. Reporting Standards
1. presented in Accordance with GAAP
2. identify when principles have not been Consistently
applied.
4. Express an opinion
3. adequate Disclosure

Quality Control
Five elements (table 2-4, p. 38)
SEC requires:
Peer review
Continuing education
Partner rotation (every 5 years)
Second partner review
Reporting disagreements with
management to the audit committee