ch.17 - auditing and evaluating the ais -...

Ch. 17Auditing and Evaluating the AIS

OUTLINETypes of audits

Audit Clarity Project

Generally accepted auditing standards

Financial statement audit steps

Learning objectives

1. Describe the various kinds of audits you might encounter in your accounting career.

2. Explain the purpose of the Audit Clarity Project and summarize its essential components.

3. Explain ten generally accepted auditing standards & their role in a financial statement audit.

4. Discuss the basic steps associated with a financial statement audit.

5. Explain the connection between auditing and accounting information systems.

AIS - Ch. 17 (http://ppt.cc/mJFq) 3

Types of audits (1/2)

Financial auditExpress an opinion on the fairness of a companys AIS/financial statements

Unmodified (clean) report () Qualified report () Adverse report () Disclaimer ()

Operational auditDetermine if a companys business processes & policies make sense

Systems auditAscertain whether information technology is producing expected results


Types of audits (2/2)

Compliance auditExamine the AIS and financial statements of Government and not-for-profit organizations (GNFPs) entities

Management auditDetermines the way management decisions are supported.The way of Better Thinking.

Investigative auditInvestigates the AIS and related data to determine if fraud has occurred, or say fraud audit. (Fig. 17.1)

International auditApplies and combines one or more of the other types in international contexts


Commonalities between types of audits

Checking existing conditions against some predetermined standard.

Questioning, firmly but professionally, managers and employees of the organization being audited.

Maintaining an independent attitude and appropriate professional distance from the client.


Audit Clarity Project (ACP)

The ACPs goals were to make audit standards easier to read and to converge them with International Audit

Standards (IAS).Four main change areas to financial

statement audit standardsFormatTerminologyAdditional requirementsAudit report


Format of Audit Clarity Project standards


Introduction

Objective

DefinitionsRequirements

Guidance and explanatory

material

Terminology of Audit Clarity Project

Applicable financial reporting frameworkUS GAAPIFRS

Emphasis of matter paragraphCalls attention to something in the statements and / or the disclosures


Additional requirementsof Audit Clarity Project

Ensure appropriateness of applicable financial reporting framework if other than US GAAP

Obtain agreement from management regarding their responsibilities for financial statements & internal control

Adhere to quality control standards throughout the audit


Elements of the unmodified auditors report


Element Explanation

Title Must include the phrase independent auditors report

Addressee May be the board of directors, management or other parties

Introductory paragraph Must identify the organization, the financial statements audited and related information

Managements responsibilities Financial statements and internal controls

Auditors responsibilities Performing an audit according to generally accepted auditing standards (GAAS)

Auditors opinion States that, in the auditors opinion, the statements are fairly presented

Signature, address and date Audit firms information

Generally Accepted Auditing Standards


Financial statement audit steps


Audit steps

1. Managements integrityEthical behaviorAct in the best interests of the organization

2. Managements credentialsTechnically competent?Financially competent?

3. Internal control systemAssess the organizations risk exposures

4. Compliance testingExamining a sample of transactions and verifying

5. Audit report


Assertions in the report

Existence or occurrenceRights and obligationsValuation and allocationCompletenessPresentation and disclosure


AIS and auditing

Design and implementation of AISDeveloping and exercising professional judgementDecision-making with Better Thinking

Internal control and auditingUnderstand the risk exposures and the types of

controls to reduce risksUnderstand an organizations environment

Internal and external environment Information technology skills

Graphical trend analysis Statistical testsDatabase queries


Q&A


ch.17 - auditing and evaluating the ais -...

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