Kế toán, kiểm toán - Chapter two: The financial statement auditing environment

The Financial StatementAuditing EnvironmentChapter TwoA Time of Challenge and Change 1990During the economic boom of the late 1990s and the early 2000s, accounting firms aggressively sought opportunities to market a variety of high-margin non-audit services to their audit clients.19902000A Time of Challenge and Change A Series of ScandalsEnronWorldComParmalatLernout & HauspieAholdArthur AndersenRegulationSelf-regulation by the profession versus government regulation Stricter regulation and more public oversightInternational Standards on Auditing more comprehensiveAuditors’ Legal LiabilityThreat of legal liability: Main deterrent to auditor’s misconduct Legal doctrines:Joint and several liabilityProportional liabilityLiability caps Litigation exposure and audit markets:ConcentrationBarriers to entryLiability reforms International Federation of Accountants (IFAC)International Organisations that Affect the Accounting ProfessionInternational Federation of AccountantsIFACInternational Accounting Standards Board IASBInternational Organization of Securities Commissions IOSCOInternational Organization of Supreme Audit Institutions INTOSAIEuropean UnionEUEU 8th Directive on Statutory AuditsUnited StatesSecurities and Exchange Commission (SEC)Public Company Accounting Oversight Board (PCAOB)Financial Accounting Standards Board (FASB)American Institute of Certified Public Accountants (AICPA)International Auditing and Assurance Standards Board (IAASB): StandardsAuditing Standards Auditing standards serve as guidelines for and measures of the quality of the auditor’s performance.IFAC membersIAASB issues International Standards on Auditing (ISAs).ISAs are considered to be minimum standards of performance for auditors.General Principles and ResponsibilitiesISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on AuditingISA 210 Agreeing the Terms of Audit EngagementsISA 220 Quality Control for an Audit of Financial StatementsISA 230 Audit DocumentationISA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial StatementsISA 250 Consideration of Laws and Regulations in an Audit of Financial StatementsISA 260 Communication with Those Charged with GovernanceISA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and ManagementRisk Assessment and Response to Assessed RisksISA 300 Planning an Audit of Financial StatementsISA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its EnvironmentISA 320 Materiality in Planning and Performing an AuditISA 330 The Auditor’s Responses to Assessed RisksISA 402 Audit Considerations Relating to an Entity Using a Service OrganizationISA 450 Evaluation of Misstatements Identified during the AuditAudit EvidenceISA 500 Audit Evidence ISA 501 Audit Evidence – Specific Considerations for Selected ItemsISA 505 External Confirmations ISA 510 Initial Engagements – Opening Balances ISA 520 Analytical Procedures ISA 530 Audit SamplingISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related DisclosuresISA 550 Related Parties ISA 560 Subsequent Events ISA 570 Going Concern ISA 580 Written RepresentationsUsing Work of OthersISA 600 Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors)ISA 610 Using the Work of Internal AuditorsISA 620 Using the Work of an Auditor’s ExpertAudit Conclusions and ReportingISA 700 Forming an Opinion and Reporting on Financial StatementsISA 705 Modifications to the Opinion in the Independent Auditor’s ReportISA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s ReportISA 710 Comparative Information – Corresponding Figures and Comparative Financial StatementsISA 720 The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial StatementsSpecialised AreasISA 800 Special Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose FrameworksISA 805 Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial StatementISA 810 Engagements to Report on Summary Financial StatementsSections in ISAsIntroductory materialObjectivesDefinitionsRequirementsApplication and other explanatory materialSociety’s Expectations and the Auditor’s Responsibilities The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.Because of the nature of audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance that material misstatements are detected. The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not material to the financial statements will be detected.Ethics, Independence, and IFAC Code of Ethics for Professional AccountantsEthics refers to a system or code of conduct based on moral duties and obligations that indicates how we should behave. Professionalism refers to the conduct, aims, or qualities that characterise or mark a profession or professional person. All professions operate under some type of code of ethics or code of conduct.Ethics, Independence, and IFAC Code of Ethics for Professional AccountantsIFAC Code of EthicsConceptual Framework ApproachPrinciplesIntegrityObjectivityProfessional competence and due careConfidentiality Professional behaviourApplication to specific situations, including situations that threaten independence ofmind or independence in appearanceAudit FirmsAudit firms range in size from a single proprietor to thousands of owners (or “partners”) and thousands of professional and administrative staff employees.Big 4PwCDeloitteEYKPMGMid-TierBDOGrant ThorntonRSMPraxityBaker TillyCrowe HorwathNationalLocalAnnual Global Revenue of Major Audit Network Firms Audit TeamsTypes of Services Offered by Audit FirmsAssurance Services: Audit of financial statements, review of financial information, and other assurance services (e.g. assurance on a entity’s reporting on sustainability performance)Related Services: Agreed-upon procedures regarding financial information and compilation of financial informationOther Services: Tax services, advisory services, accounting services and specialised services (e.g. forensic audit)Global Practice Mix of Services by Major Audit Network Firms (Revenue)Types of AuditorsExternal AuditorsInternal AuditorsGovernment AuditorsForensic AuditorsContext of Financial Statement Auditing The primary context with which an auditor is concerned is the industry or business of his or her audit client. In other words, the context provided by the client’s business impacts the auditor and the audit, and is thus a primary component of the environment in which financial statement auditing is conducted. How would your concerns about the inventory account differ for a Computer Hardware Manufacturer and a Jewellery Store? What assertions would you be most concerned about and why?A Model of Business Board of Directors Audit CommitteeBusiness organizations exist to create value for their stakeholders. Due to the way resources are invested and managed in the modern business world, a system of corporate governance is necessary, through which managers are overseen and supervised.A Model of BusinessObjectivesStrategiesProcesses (5 broad categories) ControlsTransactionsReportsA Model of Business Processes: Five Components Financing ProcessPurchasing ProcessHuman Resource Management ProcessInventory Management ProcessRevenue ProcessAn Overview of BusinessManagement AssertionsFinancial statements issued by management contain explicit and implicit assertions. Management Assertions – An Example with InventoryWhich specific assertion from the relevant category is being described in the three examples below? Account BalancesManagement asserts that the entity owns the inventory represented in the inventory account. Presentation & DisclosureManagement asserts that the financial statements properly classify and present the inventory. TransactionsManagement asserts that transactions related to inventory actually occurred. OccurrenceRights and ObligationsClassificationEnd of Chapter 2