Chapter 1

An Introduction to Assurance and

Financial Statement Auditing

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

The Study of Auditing

Analytical and

logical skills

Much more

conceptual in

nature

Rules,

techniques and

computations to

prepare and

analyze financial

information

The study of auditing is different from other accounting

courses that you have taken in college because …

LO# 1

OTHER COURSES AUDITING

1-2

The Role of Auditing

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

LO# 2

1-3

LO# 4

Relationships among Auditing,

Attest, and Assurance Services

1-4

Auditing, Attest, and Assurance

Services Defined

Auditing 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.

Attest

LO# 5

1-5

Auditing, Attest, and Assurance

Services Defined

Auditing Attest 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.

LO# 5

1-6

Auditing, Attest, and Assurance

Services Defined

Auditing Attest Assurance

Services

Independent professional services that

improve the quality of information, or

its context, for decision makers.

LO# 5

1-7

Fundamental Concepts in

Conducting a Financial Statement

Audit

LO# 6

Audit

Risk

Materiality

Evidence

1-8

Overview of the Financial

Statement Audit Process

LO# 6

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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.

LO# 7

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Major Phases of the Audit

LO# 8

•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

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Issue the Audit Report

LO# 9

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.

Adverse Qualified Unqualified

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Auditing Demands Logic,

Reasoning, and Resourcefulness

LO# 10

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

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