Kế toán, kiểm toán - Chapter 1: An introduction to assurance and financial statement auditing

An Introduction to Assurance and Financial Statement AuditingChapter 1The Study of AuditingAnalytical and logical skillsMuch more conceptual in natureRules, techniques and computations to prepare and analyse financial informationThe study of auditing is different from other accounting courses that you have taken because OTHER COURSESAUDITINGThe Demand for Auditing and AssuranceThe development of the corporate form of business and the expanding world economy over the last 200 years have given rise to an explosion in the demand for assurance provided by auditors.Principals and AgentsManagersAgentsPrincipals StockholdersA public company is a company that sells its stocks or bonds to the public, giving the public a valid interest in the proper use, or stewardship, over the company’s resources. The Role of AuditingAuditing and Assurance Defined AssuranceA systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. AuditingAuditing and Assurance Defined AuditingAssuranceAn engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria. Fundamental Concepts in Conducting a Financial Statement AuditAuditRiskMaterialityEvidenceOverview of the Financial Statement Audit ProcessAudit RiskAudit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. The auditor’s report with an unmodified opinion states that the audit provides only reasonable assurance that the financial statements do not contain material misstatements.Reasonable assurance implies some risk that a material misstatement could be present in the financial statements and the auditor will fail to detect it.MaterialityMisstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Judgements about materiality are made in light of surrounding circumstances, and are affected by the size or nature of a misstatement, or a combination of both.Evidence Regarding Management AssertionsRelevance – Is the information related to the specific assertion being tested?Reliability – Can the information be relied upon to signal the true state of the specific assertion being tested?Evidence that assists the auditor in evaluating management’s financial statement assertions consists of the underlying accounting data and any additional information available to the auditor, whether originating from the client or externally.Sampling: Inferences Based on Limited ObservationsAuditors use (1) their knowledge about the transactions and/or (2) a sampling approach to examine the transactions.It would be too costly for the auditor to examine every transaction.Major Phases of the AuditClient acceptance/continuance and establishing an understanding with the clientPreliminary engagement activitiesPlan the auditConsider internal controlAudit business processes and related account (e.g. revenue generation)Complete the auditEvaluate results and issue audit reportIssue the Audit ReportThe auditor’s report is the main product or output of the audit. The audit report with an unmodified (‘clean’) opinion is the most common type of report issued. Issue the Audit ReportThe title line of the audit report includes the word ‘Independent,’ and usually, the report is addressed to the stockholders of the company. The audit report includes an introductory paragraph, a management’s responsibility paragraph, an auditor’s responsibility paragraph, and an auditor’s opinion paragraph.The audit report is signed and dated.Adverse QualifiedUnmodified Issue the Audit ReportThe auditor may issue a modified opinion. Suppose a client’s financial statements contain a misstatement that the auditor considers material and the client refuses to correct the misstatement. The auditor will likely qualify the opinion, explaining that the financial statements are fairly stated except for the misstatement identified by the auditor.Issue the Audit ReportThe auditor may issue an adverse opinion. Suppose a client’s financial statements contain a material misstatement and the auditor considers the significance of the effect on the financial statements of the material misstatement pervasive. Given such a situation, the auditor will issue an adverse opinion, indicating that the financial statements are not fairly stated and should not be relied upon. Auditing Demands Logic, Reasoning, and ResourcefulnessAn auditor needs to understand more than just the accounting concepts and techniques. Auditing is a fundamentally logical process of thinking and reasoning – so use your common sense and reasoning skills! As you learn new auditing concepts, take some time to understand the underlying logic and how the concepts interrelate with other concepts.Being a good auditor sometimes requires imagination and innovation. End of Chapter 1