CHAPTER 1 THE AUDITING PROFESSION WHAT IS AUDITING

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CHAPTER 1 THE AUDITING PROFESSION

CHAPTER 1 THE AUDITING PROFESSION

WHAT IS AUDITING? • THE ACCUMULATION AND EVALUATION OF EVIDENCE ABOUT INFORMATION TO DETERMINE

WHAT IS AUDITING? • THE ACCUMULATION AND EVALUATION OF EVIDENCE ABOUT INFORMATION TO DETERMINE AND REPORT ON THE DEGREE OF CORRESPONDENCE BETWEEN THE INFORMATION AND ESTABLISHED CRITERIA.

• GATHERING EVIDENCE ABOUT THE CORRESPONDENCE BETWEEN REPRESENTATIONS OF ANOTHER AND ESTABLISHED CRITERIA

• GATHERING EVIDENCE ABOUT THE CORRESPONDENCE BETWEEN REPRESENTATIONS OF ANOTHER AND ESTABLISHED CRITERIA FOR MAKING SUCH REPRESENTATIONS AND ISSUING A REPORT

AUDITING AND ACCOUNTING • ACCOUNTING IS CONSTRUCTIVE – CREATING REPORTS • AUDITING IS ANALYTICAL

AUDITING AND ACCOUNTING • ACCOUNTING IS CONSTRUCTIVE – CREATING REPORTS • AUDITING IS ANALYTICAL – DETERMINE “FAIRNESS” OF REPORTS

TYPES OF AUDITS • AUDITS OF FINANCIAL INFORMATION – PRESENTATION COMPARED TO CRITERIA •

TYPES OF AUDITS • AUDITS OF FINANCIAL INFORMATION – PRESENTATION COMPARED TO CRITERIA • OPERATIONAL AUDITS – EFFICIENCY AND EFFECTIVENESS – IMPROVE OPERATIONS • COMPLIANCE AUDITS – FOLLOWING RULES • TAX AUDITS • LAWS, REGULATIONS

TYPES OF AUDITORS • EXTERNAL – CPAS – GAO – IRS – BUREAU OF

TYPES OF AUDITORS • EXTERNAL – CPAS – GAO – IRS – BUREAU OF STATE AUDITS • INTERNAL – EMPLOYEES OF ENTITIES BEING AUDITED

WHY HAVE AUDITS? • CONTROL MECHANISM – COMPLIANCE WITH RULES • REDUCE LOSSES –

WHY HAVE AUDITS? • CONTROL MECHANISM – COMPLIANCE WITH RULES • REDUCE LOSSES – FRAUD – INEFFICIENCIES • ENHANCE CONFIDENCE – ADD CREDIBILITY TO NUMBERS – REDUCE INFORMATION RISK

INFORMATION RISK • RISK THAT INFORMATION IS UNRELIABLE – REMOTENESS OF INFORMATION – BIASES

INFORMATION RISK • RISK THAT INFORMATION IS UNRELIABLE – REMOTENESS OF INFORMATION – BIASES OF PROVIDER – VOLUMINOUS DATA – COMPLEXITY • REDUCTION IN RISK – USER VERIFIES INFO – AUDITED INFORMATION

CERTIFIED PUBLIC ACCOUNTANT • EDUCATIONAL REQUIREMENT – IN CALIFORNIA • BS IN SOMETHING •

CERTIFIED PUBLIC ACCOUNTANT • EDUCATIONAL REQUIREMENT – IN CALIFORNIA • BS IN SOMETHING • 30 SEMESTER UNITS OF ACCT, LAW, BUS • EXAM – UNIFORM IN ALL STATES • EXPERIENCE – IN CALIFORNIA • 2 YEARS WORKING FOR CPA • 500 HOURS OF ATTESTATION WORK

PROFESSION OF PUBLIC ACCOUNTING • WHAT IS A PROFESSION? – OCCUPATIONAL GROUPING – GENERAL

PROFESSION OF PUBLIC ACCOUNTING • WHAT IS A PROFESSION? – OCCUPATIONAL GROUPING – GENERAL CHARACTERISTICS • SPECIALIZED KNOWLEDGE BASED ON THEORY • LICENSE • RESPONSIBILITY TO PUBLIC • CODE OF ETHICS • CULTURE OF PROFESSIONAL

STRUCTURE OF PROFESSION • INTERNATIONAL CPA FIRMS – “BIG-5” • • • ARTHUR ANDERSEN

STRUCTURE OF PROFESSION • INTERNATIONAL CPA FIRMS – “BIG-5” • • • ARTHUR ANDERSEN KPMG PEAT MARWICK PRICEWATERHOUSECOOPERS DELOITTE AND TOUCHE ERNST AND YOUNG – AUDIT 95% OF PUBLIC COMPANIES

• NATIONAL FIRMS – GRANT THORNTON – BDO SIEDMAN • REGIONAL FIRMS –

• NATIONAL FIRMS – GRANT THORNTON – BDO SIEDMAN • REGIONAL FIRMS – MOSS ADAMS • LOCAL FIRMS – PERRY-SMITH – TATE, PROPP, BEGGS & SUGIMOTO

WHAT DO CPAS DO? • ATTESTATION ENGAGEMENTS – AUDITS – REVIEWS – OPINIONS ON

WHAT DO CPAS DO? • ATTESTATION ENGAGEMENTS – AUDITS – REVIEWS – OPINIONS ON OTHER INFO • ACCOUNTING AND BOOKKEEPING • TAX • CONSULTING

AMERICAN INSTITUTE OF CPAS • ESTABLISH STANDARDS – AUDITING STANDARDS – ETHICS STANDARDS –

AMERICAN INSTITUTE OF CPAS • ESTABLISH STANDARDS – AUDITING STANDARDS – ETHICS STANDARDS – ACCOUNTING AND REVIEW SERVICES STANDARDS – TAX PRACTICE STANDARDS – CONSULTING PRACTICE STANDARDS

GENERALLY ACCEPTED AUDITING STANDARDS • GENERAL STANDARDS – ADEQUATE TECHNICAL TRAINING – INDEPENDENCE IN

GENERALLY ACCEPTED AUDITING STANDARDS • GENERAL STANDARDS – ADEQUATE TECHNICAL TRAINING – INDEPENDENCE IN MENTAL ATTITUDE – DUE PROFESSIONAL CARE • FIELD WORK STANDARDS – PLANNING AND SUPERVISION – INTERNAL CONTROL – SUFFICIENT, COMPETENT EVIDENCE

• REPORTING STANDARDS – REPORT SHALL STATE WHETHER STATEMENTS ARE IN ACCORD WITH

• REPORTING STANDARDS – REPORT SHALL STATE WHETHER STATEMENTS ARE IN ACCORD WITH GAAP – REPORT SHALL IDENTIFY INCONSISTENCIES – REPORT SHALL INDENTIFY INADEQUATE DISCLOSURES – REPORT SHALL EXPRESS OPINION OR TELL WHY NO OPINION WAS FORMED

STATEMENTS ON AUDITING STANDARDS • • • INTERPRETATIONS OF GAAS GUIDANCE ON APPLICATION 87

STATEMENTS ON AUDITING STANDARDS • • • INTERPRETATIONS OF GAAS GUIDANCE ON APPLICATION 87 SASs SOPs AUDITING PROCEDURES

INSURING QUALITY • ELEMENTS OF QUALITY CONTROL • DIVISION OF FIRMS – SEC PRACTICE

INSURING QUALITY • ELEMENTS OF QUALITY CONTROL • DIVISION OF FIRMS – SEC PRACTICE SECTION • • ADHERE TO QUALITY CONTROL MANDATORY PEER REVIEW CONTINUING EDUCATION PARTNER ROTATION CONCURRING PARTNER REVIEW PROSCRIPTION OF SERVICES REPORT ON DISAGREEMENTS REPORT ON CONSULTING – PRIVATE COMPANIES PRACTICE SECTION • PEER REVIEW

SECURITIES AND EXCHANGE COMMISSION • REGULATE SECURITIES MARKETS • ESTABLISH REPORTING STANDARDS FOR REGISTERED

SECURITIES AND EXCHANGE COMMISSION • REGULATE SECURITIES MARKETS • ESTABLISH REPORTING STANDARDS FOR REGISTERED COMPANIES • REQUIRES AUDITS BY CPAS • ESTABLISHED BY SEC ACTS OF 1933 AND 1934

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