Auditing: Analytical and Logical Skills Essay

Submitted By jayful17
Words: 1268
Pages: 6
Open Document
ACG 4632
Introduction to Financial
Statement Auditing
Spring 2015 Section 422
Instructor: Devin Williams, CPA

1-1

Chapter 1
An Introduction to Assurance and
Financial
Statement
Auditing

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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

Rules, techniques and computations to prepare and analyze financial information AUDITING
Analytical and logical skills
Much more conceptual in nature 1-3

LO# 2

Principals and Agents
A public company is a company that sells its stocks or bonds to the public, giving the public a valid interest in the proper use of the company’s resources.

Managers

Stockholders

Agents

Principals
1-4

Why pay for audits?


Demand for reliable information
– In 1926, before audits were required by law,
82% of NYSE firms paid for audits.
– Increased when companies needed to raise capital 

Capital market
– Owners (stockholders, aka “principals”) need to monitor managers (aka “agents”)
– Information asymmetry problem
 Agent

may use information advantage to maximize self-interest at the expense of the owner (happens at accounting firms too)

The Role of Auditing

LO# 2

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

1-6

Lennox & Pittman 2011



Signaling with a voluntary audit.



Companies in the UK went from mandatory audits to voluntary audits 

Firms remaining audited get upgrades to their credit ratings
(2pts) while firms no longer being audited get downgraded (4 pts). This is due to both the loss of the signal and the loss of assurance. 

Costly auditing permits a separating equilibrium in which only the low-risk types appoint auditors



They look at 2 years (before and after) 67% of private firms remained audited! That says something right there.

Home Inspection Analogy
 Sellers

of old homes make assertions

 Can

you trust them?

 Hire

an inspector

 What

do you want him to do?

– Drive by?
– Take the house apart?
– Can she find everything?
 Who

hires the inspector?

When might you be willing to pay for an audit?
 Gas

station

– Gas price, accuracy of pump, quality of gas, availability of gas
 Ebay
 Craigslist
 What

assertions are being made in these cases?

LO# 2

The Role of Auditing

Table 1-2 Summary of Management Assertions by Category

1-10

LO# 3

Relationships among Auditing,
Attest, and Assurance Services

1-11

LO# 4

Auditing, Attest, and Assurance
Services Defined
Auditing

Attestation

Assurance
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.
1-12

LO# 4

Auditing, Attest, and Assurance
Services Defined
Auditing

Attestation

Assurance
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. (e.g., loan covenants)
1-13

LO# 4

Auditing, Attest, and Assurance
Services Defined
Auditing

Attestation

Assurance
Services

Independent professional services that improve the quality of information, or its context, for decision makers.

1-14

Overview of the Financial
Statement Audit Process

LO# 5

1-15

 https://www.youtube.com/watch?v=

LBko_3wT44Q

LO# 5

Fundamental Concepts in
Conducting a Financial Statement
Audit
Materiality
Audit
Risk

Evidence

1-17

LO# 5

Audit Risk
Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.
The auditor’s standard report states that the audit provides only reasonable assurance that
Show More

Related Documents: Auditing: Analytical and Logical Skills Essay

Essay on Audit notes

Chapter 1 The study of auditing focuses on learning the analytical and logical skills necessary to evaluate the relevance and reliability of the information as well as the systems and processes responsible for recording and summarizing that information. Important to understand that the relationship between owner and manager often results in information asymmetry between the two parties Information asymmetry means that the manager generally has more information about the “true” financial position…

Words 762 - Pages 4

Guilds to 2013 Aicpa Essay example

CONTENT AND SKILL SPECIFICATIONS FOR THE UNIFORM CPA EXAMINATION Approved by the Board of Examiners American Institute of Certified Public Accountants May 15, 2009 Update Approved on October 1, 2011 Effective Date: January 1, 2013 Examinations Team American Institute of Certified Public Accountants 100 Princeton South Suite 200 Ewing, NJ 08628 ii COPYRIGHT © 2011 BY AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, INC. CONTENT SPECIFICATION OUTLINES (CSOs) The outline portions…

Words 7307 - Pages 30

Auditing and Audit Procedures Essay

EXAM #1 STUDY GUIDE (CHAPTER 1-5) *Chapter 1—Introduction to Assurance & Financial Statement Auditing Auditing: analytical and logical skills; much more conceptual in nature; risk based assessments (RBA) Why is Auditing Necessary? House inspector analogy Provides reasonable assurance that financial statements are free from material misstatement Information asymmetry & conflicts of interest lead to information risk for the principal (absentee owner) Principal (Absentee Owner) provides capital…

Words 6939 - Pages 28

Essay on Exam Preparation Notes

mind Reporting- final stage in process is the auditor’s report, communication of findings to users GAAS General Qualifications and Conduct -auditor must be technically qualified in industry of client, need to have prerequisite knowledge and skills -due care is needed, must not be negligible or bad faith (ex. Completeness of working papers) -free of bias, objective state of mind an independence Examination: Performance of Engagement -auditor needs to conduct a risk based approach, taking…

Words 1845 - Pages 8

Essay about Marketing Planning

is to provide learners with the understanding and skills to develop marketing plans that meet marketing objectives, and meet the needs of the target market. Unit abstract Effective planning is essential for any marketing activity to ensure that an organisation realises its marketing objectives. Without planning, marketing activity can be inappropriate and waste resources and opportunities. This unit introduces learners to different ways of auditing, to looking at how internal and external factors…

Words 3355 - Pages 14

Accounting Information Systems Test Bank 10th Edition Essay

Accounting Information Systems Test Bank 10th Edition Chapter 1 (new version) MULTIPLE CHOICE 1. A set of two or more interrelated components that interact to achieve a goal is: a) A system b) An accounting information system c) Data d) Mandatory information 2. This results when a subsystem achieves its goals while contributing to the organization's overall goal. a) Goal conflict b) Goal congruence c) Value of information d) Systems congruence 3. Goal conflict may result when a) A decision…

Words 41103 - Pages 165

paperless or online banking

CHAPTER-01 INTRODUCTIONARY ASPECTS. 1.1 Introduction Online banking is growing popular day by day in Bangladesh. A number of private as well as local banks are going online now considering the demand and necessity of fast banking. Online banking not only provides banking facility round the clock but also helps a country to get attached to the international economy as well as business. People throughout the world are now getting engaged with more activity and business and hence…

Words 7987 - Pages 32

Managing Information Technology (7th Edition) Essay

CONTENTS: CASE STUDIES CASE STUDY 1 Midsouth Chamber of Commerce (A): The Role of the Operating Manager in Information Systems CASE STUDY I-1 IMT Custom Machine Company, Inc.: Selection of an Information Technology Platform CASE STUDY I-2 VoIP2.biz, Inc.: Deciding on the Next Steps for a VoIP Supplier CASE STUDY I-3 The VoIP Adoption at Butler University CASE STUDY I-4 Supporting Mobile Health Clinics: The Children’s Health Fund of New York City CASE STUDY I-5…

Words 239873 - Pages 960

Essay on Shared Service Center

Management control in Shared Service Centers - How to influence people in the striving towards organizational goals Authors: Emma Carlsson Ann Schurmann Avdelning, Institution Division, Department Ekonomiska institutionen 581 83 LINKÖPING Språk Language Svenska/Swedish X Engelska/English Rapporttyp Report category Licentiatavhandling Examensarbete C-uppsats X D-uppsats Övrig rapport ____ URL för elektronisk version http://www.ep.liu.se/exjobb/eki/2004/iep/015/ Titel Title Författare Author…

Words 42241 - Pages 169