Auditing and Assurance Services代写
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Auditing and Assurance Services代写
Auditing and Assurance Services in Australia 5th edition
Grant Gay and Roger Simnett
§Part 1
The auditing and
assurance services profession
Chapter 1
Assurance and auditing:
an overview
§Learning Objectives
1.1 Understand the framework for assurance engagements and the structure of assurance standards and pronouncements.
1.2 Define auditing and appreciate the fundamental principles underlying an audit.
1.3 Appreciate the attributes of accounting information.
1.4 Understand the reasons giving rise to demand for assurance and appreciate the relationship between the auditor, the client and the public.
1.5 Appreciate the evolution of the audit function.
1.6 Explain the concept of the expectation gap, especially in the areas of auditor’s report messages, corporate failures, fraud and communicating different levels of assurance.
1.7 Appreciate the role of auditing standards and the audit commitments under the Corporations Act 2001.
1.8 Obtain an overview of other applications of the assurance function, including compliance auditing, performance auditing, comprehensive auditing, internal auditing and forensic auditing, as well as providing assurance on subject matter other than historical financial information.
§Framework for Assurance Engagements
•Many parties provide reports to users as an aid to making decisions.
•Reports are potentially biased due to the vested interests of the report providers.
•Users may demand that the credibility of the report be enhanced by having an independent expert examine it.
•Financial statements are just one type—the most common—of report that can be assured.
§Definition of assurance engagement
An Assurance Engagement:
Is …‘an engagement in which an assurance practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria’.
§Diagram of assurance engagement
§Five elements of assurance engagement
1.Three-party relationships:
ØAssurance practitioner (auditor)
ØResponsible party (preparer)
ØIntended user
2.Subject matter
3.Suitable criteria
4.Sufficient appropriate evidence
5.Written assurance report
§Why is there value in the assurance service?
§Independence
Users derive value from the knowledge that the assurance provider has no interest in the information other than for its usefulness.
§Expertise
ØAssurers must have the competence to obtain sufficient relevant information to provide a reasonable basis for their conclusions.
ØRequires professional judgement and professional scepticism.
§Expertise: Professional judgment
and professional scepticism
§Professional judgement
Professional judgment is an ability/ knowledge that can be called practical wisdom. It is not formally taught and learnt but is acquired largely through experience and informal conversations with respected peers.
§Professional scepticism
An attitude that includes a questioning mind, being alert to conditions indicating possible misstatement and critically assessing audit evidence.
§Fig 1.2: Structure of assurance standards & pronouncements
§Levels of assurance
For any subject matter, three levels of assurance can be provided:
ØReasonable Assurance
•Also called Positive Assurance
•Attest Audit engagement.
ØLimited Assurance
•Also called Negative Assurance
•Review Engagement.
ØNo Assurance
•Compilation Engagement (e.g. putting together F/S from client supplied materials.
§Reasonable assurance (Figure 1.3)
§Limited assurance (Figure 1.3 cont’d)
§Level of assurance on F/S
§Reasonable assurance engagements are commonly called 'audit engagements'.
§Reasonable assurance = positive expression of opinion.
§Limited assurance engagements are commonly called 'review engagements'.
§Limited assurance = negative expression of opinion.
§There are also engagements that provide
no assurance:
Agreed-upon procedures engagements where auditor reports what their findings and doesn’t provide assurance.
§Attest vs. direct reporting
§Audit and review engagements can involve either an attest or a direct reporting engagement.
§Attest reporting engagement
The auditor issues an opinion on written assertions made by the party responsible for the subject matter.
§Direct reporting assurance engagement
The auditor issues an opinion directly on the subject matter (no written assertion is made by the party responsible for the subject matter).
§LO1.2: Auditing – Definition & fundamental principles
§A Statement of Basic Auditing Concepts (ASOBAC—American Accounting Association) defines auditing as:
“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.”
§Auditing defined (cont.)
§The important parts of this definition:
ØSystematic process—audits are structured activities.
ØObjectivity—freedom from bias.
ØObtaining and evaluating evidence—allows the auditor to determine the support for assertions or representations.
ØAssertions about economic actions and events—describes the subject matter of an audit.
ØDegree of correspondence … established criteria —the purpose of the audit is to determine conformity with some specified criteria.
ØCommunicating results—the results must be communicated to interested parties.
§Fundamental principles
underlying an audit
The International and Australian Auditing Standards Boards released a draft paper in which they outlined possible fundamental principles underlying an audit. These principles should:
•Underpin the objective(s) of an audit and help
drive the conduct of the auditor in using professional judgment to meet the professional requirements
of the auditing standards
•Be easily understood, both by auditors and other
readers of auditing standards
•Be universally applicable to all audits
•Entrench the expectations that auditors are
expected to accept and abide by.
§Ethical principles
Listed in national & international codes of ethics:
•Integrity
•Objectivity
•Professional competence & due care
•Confidentiality
•Professional behaviour
§Fundamental auditing principles
•Knowledge
•Responsibility
•Quality control
•Rigour and scepticism
•Professional judgment
•Evidence
•Documentation
•Communication
•Association
•Reporting
§Attributes of accounting information
From AASB/IASB framework, four attributes of accounting information provide the basis for the audit function:
•Relevance
•Reliability
•Comparability
•True and fair presentation.
§The demand for assurance and
auditor-client public relationship
Demand arises because users are not in a position to establish the credibility of the information they are presented with. This may be due to:
•Conflict of interest—managers may present biased information, as they are also evaluated on the information.
•Consequence—information provided forms the basis of many users’ decisions.
•Complexity—many users do not have the expertise required to determine the quality of information presented.
•Remoteness—the separation of owners from management prevents users from assessing information quality.
§Hypotheses explaining the demand for assurance
1.Agency theory
Auditing and Assurance Services代写
§The auditor/client/public relationship
§The auditor’s primary reporting responsibility
is to resource providers of the client entity.
§However, the client entity usually engages the auditor and pays the auditor’s fees. The auditor also discusses the audit findings
with management prior to releasing information to the resource providers.
§In order to combat erosion of independence and objectivity, the auditing profession has issued a series of ethical rulings and professional standards to guide the auditor in the conduct of his or her duties.
§LO1.5: The evolution of the audit function
§The audit function goes back to at least as far as the Roman Empire—when freed slaves would take an oral account to “audit” the performance of governors in their duties to Caesar.
§In the thirteenth century, Charlemagne commissioned auditors to verify the manorial accounts of the lords of his court.
§Until the early 1900s, audits focused on a company’s solvency and the detection of fraud and error. Audits from early 1900s to 1940s—added objectives of verification of financial report accuracy and attestation to financial report credibility.
§Since the 1940s, the role of detecting of fraud and error has been reduced and the overall objective of auditing is the expression of an opinion as to whether the F/S are materially misstated.
§Approaches to auditing
These have evolved over time:
§Statement of financial position approach—this involved the auditor auditing the assets and liabilities with little emphasis on profit and loss account items.
§Transactions cycle approach—this emphasised the review of controls that operated within each transaction cycle and provided for limited testing of balance sheet items.
§Prior to the 1970s, the focus was on stating whether the F/S were True and Accurate. This was derived from the True-Income Theory of accounting.
§During the last three decades of the 20th Century, the audit approach shifted to stating whether the F/S were True and Fair. This new approach recognises that due to the allocation problem and other issues, there is no one True-Income and the best we can hope for is a cluster of True and Fair incomes.
§More recent audit approaches
§Financial risk approach
The auditor considers relative financial risk and materiality in planning the audit, such that audit work is concentrated in areas where there is a higher risk of misstatement.
§Business risk (audit risk) approach
As well as financial risk, the auditor considers business strategy, associated business risks and management’s plans to respond to changes in the business environment.
§Example of business risk approach
§Refer Example 1.1 on page 13 of textbook.
§The auditor uses a risk-based assertion-based methodology in undertaking the audit—e.g., the assertions that management are implicitly making by recording an inventory balance of $1 million in the statement of financial position are:
ØInventory of $1 million exists (existence)
ØThe entity has the rights of ownership of this inventory (rights and obligations)
ØAll inventory that should have been recorded has been recorded (completeness)
ØInventory has been recorded in the financial report at the appropriate value, and any resulting valuation adjustment (such as obsolescence) has been correctly recorded (valuation and allocation).
§Example of business risk approach (cont.)
§The auditor uses a risk-based methodology to identify risks of misstatement and relates these through to assertions (Chapters 6–8). For example, consider that the auditor identifies major risk as entity wishing to overstate profit. They can achieve this by overstating inventory, which understates cost of goods sold (if goods are in inventory, they are not sold). The auditor assesses how the entity is likely to achieve this overstatement, and concentrates their audit attention on the related assertions.
§In this example, two ways of achieving overstatement of inventory are to include inventory that does not exist (for example, goods that have been sold) or overstate the valuation of the inventory items included in the statement of financial position (valuation and allocation). The auditor then uses specific procedures to test assertions at risk (Chapters 9-11).
§LO 1.6: Expectation gap
§Defined as: ‘the gap between society’s expectations of auditors and auditors’ performance as perceived by society’.
§There are three components of the expectation gap:
1.The reasonableness gap between what society
expects auditors to achieve and what they can
reasonably be expected to accomplish.
2.The performance gap arising from deficient
standards.
3.The performance gap arising from deficient
performance by auditors.
§The gap between audit expectation and audit performance
§Four major issues in the expectation gap
1.The nature and meaning of auditor’s report messages.
2.Early warning by auditors of corporate failure.
3.Auditor’s responsibility for the detection and reporting of earnings management and fraud.
4.The auditor’s ability to communicate different levels of assurance.
§LO 1.7 Role of auditing standards and audit commitments under Corporations Act 2001
§Auditing standards in Australia are developed by the Auditing and Assurance Standards Board (AUASB).
§The standards prescribe the basic principles and essential procedures governing the conduct of an auditor.
§For audits conducted under the Corporations Act 2001, the auditing standards (ASAs) must be applied, thus giving them legal authority.
§The role of auditing standards (cont.)
§Guidance Statements (GSs) or Auditing Guidance Statements (AGSs): provide guidance on procedural matters or industry-specific issues, but do not establish new principles or amend existing standards.
§Professional obligations extend application of standards to all other audit and assurance engagements by members of professional bodies.
§Authority of auditing standards
§Failure to observe these standards may expose a member to investigation and disciplinary action from the Australian Securities and Investments Commission (ASIC).
§Auditing standards applying to audits and reviews of financial reports prepared in accordance with the Corporations Act 2001:
ØAustralian auditing standards relating to these audits are now designated as ASAs, and have the same numbering as the equivalent ISAs.
ØNote: there are still a number of standards designated as AUSs, which relate to frameworks or assurance engagements on other than financial reports prepared in accordance with the Corporations Act 2001.
§Audit responsibilities per the Corporations Act 2001
§Management is responsible for the preparation
and presentation of appropriate accounts. Accounts are to be accompanied by a report of an independent auditor appointed by the shareholders.
§The Corporations Act 2001 (ss 292–306) indicates that directors must prepare a financial report (income statement, balance sheet, statement of changes in equity cash flow statement, directors’ declaration
and other related notes and reports), together with any other information or explanation necessary to give a true and fair view.
§Audit responsibilities per the Corporations Act 2001 (cont.)
§Auditors are responsible for reporting to company members on the directors’ financial report presented at the AGM.
§They say whether the financial report:
ØIs in accordance with the law, including compliance
with accounting standards (s 296)
ØProvides a true and fair view (s 297).
§Other applications of the assurance function
§Evidence-gathering methods of auditing are
also employable in the audit of activities other
than financial reports.
§Compliance audit
Examination for the purpose of reporting on legality and control of operations.
§Performance audit
Analyses organisation structure, internal systems, workflow and managerial performance—efficiency, effectiveness and economy of these items.
§Other applications of the assurance function (cont.)
§Comprehensive audit
Usually includes components of compliance, performance and financial report audits.
§Internal audit
Audits performed by employees of the entity as a part of the entity’s risk management process.
§Forensic audit
Associated many times with fraud detection.
§Assurance on subject matter other than historical financial information
Including prospective financial information, internal controls, and sustainability and carbon emissions reports.
§ Summary
§Assurance engagement by independent expert enhances user’s confidence in report
§Assurance can be applied to:
Øfinancial reports
Øprospective financial information
Øreports on internal controls
Øreports of an entity’s carbon emissions.
§Audit principles, concepts and methods can be applied to assurance services other than financial report assurance for all types of entities including private, public and not-for-profit entities.
Auditing and Assurance Services代写
