Chapter 1

An Introduction
to Assurance and
Financial
Statement
Auditing

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
 LO# 1

The Study of Auditing

The study of auditing is different from other accounting
courses that you have taken in college because …

OTHER COURSES AUDITING

Rules, Analytical and

techniques and logical skills
computations to
prepare and Much more
analyze financial conceptual in
information nature

1-2
 LO# 2

The Role of Auditing

Figure 1-1 Overview of the Principal-Agent Relationship Leading to the Demand for Auditing

1-3
 LO# 4

Relationships among Auditing,

Attest, and Assurance Services

1-4
 LO# 5

Auditing, Attest, and Assurance

Services Defined
Assurance
Auditing Attest
Services

A 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.
1-5
 LO# 5

Auditing, Attest, and Assurance

Services Defined
Assurance
Auditing Attest Services

Attest services occur when a

practitioner is engaged to issue ... a
report on subject matter, or an
assertion about subject matter, that is
the responsibility of another party.

1-6
 LO# 5

Auditing, Attest, and Assurance

Services Defined
Assurance
Auditing Attest
Services

Independent professional services that

improve the quality of information, or
its context, for decision makers.

1-7
 LO# 6

Fundamental Concepts in
Conducting a Financial Statement
Audit

Materiality
Audit
Risk Evidence

1-8
 LO# 6

Overview of the Financial

Statement Audit Process

1-9
 LO# 7

Sampling: Inferences Based on

Limited Observations
Auditors 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.
1-10
 LO# 8

Major Phases of the Audit

•Client acceptance/continuance
•Preliminary engagement activities
•Plan the audit
•Consider and audit internal control
•Audit business processes and related account (e.g.
revenue generation)
•Complete the audit
•Evaluate results and issue audit report

1-11
 LO# 9

Issue the Audit Report

The 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 scope paragraph, an opinion paragraph, an
explanatory paragraph referring to the audit of
internal control, the name of the auditor or audit
firm, and the date of the audit report.

Unqualified Qualified Adverse

1-12
 LO# 10

Auditing Demands Logic,

Reasoning, and Resourcefulness
An 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. 1-13
End of Chapter 1

1-14