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Modern

Modern Auditing:
Auditing:

Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
th
of
Financial
Reporting,
8
of Financial Reporting, 8th Edition
Edition
William C. Boynton

California Polytechnic State


University at San Luis Obispo

Raymond N. Johnson
Portland State University

Chapter 1 Auditing and the Public Accounting


Profession Integrity of Financial Reporting

Chapter
Chapter 1
1 Overview
Overview

Auditing
Auditing Defined
Defined
Systematic process
Objectively obtaining and evaluating evidence
Assertions about economic actions and
events
Degree of correspondence

Auditing
Auditing Defined
Defined (cont.)
(cont.)
Established criteria

Communicating the results

Interested users

Comparative
Comparative Summary
Summary of
of Types
Types
of
of Audits
Audits

Types
Types of
of Auditors
Auditors
Independent Auditors

Internal Auditors

Government Auditors

Assurance
Assurance Services
Services Defined
Defined
Independence
Professional services
Quality of information
Decision maker

Example
Example Assurance
Assurance Services
Services
Audit Engagements
Attest Services

Examination
Review Engagement
Agreed-upon Procedures Engagement

Accounting Services
Compilation Services

Levels
Levels of
of Assurance
Assurance
Reasonable Assurance
Negative Assurance
Agreed-upon Procedures
Compilation Without Assurance

Universe
Universe of
of Assurance
Assurance Services
Services

The
The Accountants
Accountants Value
Value Chain
Chain

Study
Study Break
Break
1. This type of audit involves obtaining and
evaluating evidence about the efficiency
and effectiveness of an entitys operating
activities.
A. Financial Statement Audit
B. Compliance Audit
C. Operational Audit
D. Internal Control Audit
C. Operational Audit

Study
Study Break
Break
2. These auditors are typically CPAs
who render professional auditing
services to clients.
A. Independent Auditors
B. Internal Auditors
C. Government Auditors
D. IRS Auditors
A. Independent Auditors

The
The Roots
Roots of
of Auditing
Auditing
British influence and migration
Stock market crash
Legislation of the 1930s
Important changes in the 1940s

The
The Roots
Roots of
of Auditing
Auditing
Scrutiny of 1980s lead to changes
Increasing amount of consulting in
1990s
Growing numbers of earnings
restatements
Sarbanes-Oxley Act of 2002

Need
Need for
for Financial
Financial Statement
Statement
Audits
Audits
Conflict of Interest
Consequence
Complexity
Remoteness

Economic
Economic Benefits
Benefits of
of an
an Audit
Audit
Access to Capital Markets
Lower Cost of Capital
Deterrent to Inefficiency and Fraud
Control and Operational Improvements

Limitations
Limitations of
of aa Financial
Financial
Statement
Statement Audit
Audit
Economic Limitations

Reasonable Cost
Reasonable Length of Time

Accounting Framework Limitations


Alternative Accounting Principles
Accounting Estimates

Study
Study Break
Break
3. Which of the following is not an
economic benefit of a financial
statement audit?
A. Access to Capital Markets
B. Lower Cost of Capital
C. Control and Operational Improvements
D. Maintain Fair Competition
D. Maintain Fair Competition

Study
Study Break
Break
4. Which of the following is not an
inherent limitation of a financial
statement audit?
A. Reasonable Cost
B. Unlimited Timeframe
C. Alternative Accounting Principles
D. Accounting Estimates
B. Unlimited Timeframe

Organizations
Organizations Associated
Associated with
with
the
the Public
Public Accounting
Accounting Profession
Profession

Regulatory
Regulatory Framework
Framework for
for
Ensuring
Ensuring High-Quality
High-Quality Services
Services
Standard Setting
Firm Regulation
Inspection and Peer Review
Government Regulation

Standard-Setting
Standard-Setting Organizations
Organizations
in
in the
the United
United States
States

Study
Study Break
Break
5. Which organization is considered to
be a private sector organization?
A. State Boards of Accountancy
B. Securities and Exchange Commission
C. AICPA
D. IRS
C. AICPA

Study
Study Break
Break
6. This component of regulatory framework
includes the inspection of audits by the
PCAOB staff and peers in other accounting
firms.
A. Standard setting
B. Firm regulation
C. Inspection and peer review
D. Government regulation
C. Inspection and peer review