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Chapter 1Chapter 1
An Introduction An Introduction to Assurance and to Assurance and
Financial Financial Statement Statement AuditingAuditing
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
The Study of AuditingThe 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 AuditingThe Role of AuditingFigure 1-1Figure 1-1 Overview of the Principal-Agent Relationship Leading to the Demand for Auditing
LO# 2
1-3
LO# 4
Relationships among Auditing, Relationships among Auditing, Attest, and Assurance ServicesAttest, and Assurance Services
1-4
Auditing, Attest, and Assurance Auditing, Attest, and Assurance Services Defined Services Defined
AuditingAssurance 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
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Auditing, Attest, and Assurance Auditing, Attest, and Assurance Services Defined Services Defined
Auditing AttestAssurance 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
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Auditing, Attest, and Assurance Auditing, Attest, and Assurance Services Defined Services Defined
Auditing AttestAssurance Services
Independent professional services that improve the quality of information, or
its context, for decision makers.
LO# 5
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Fundamental Concepts in Fundamental Concepts in Conducting a Financial Statement Conducting a Financial Statement
AuditAudit
LO# 6
AuditRisk
Materiality
Evidence
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Overview of the Financial Overview of the Financial Statement Audit ProcessStatement Audit Process
LO# 6
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Sampling: Inferences Based on Sampling: Inferences Based on Limited ObservationsLimited 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 AuditMajor 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
1-11
Issue the Audit ReportIssue 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 QualifiedUnqualified 1-12
Auditing Demands Logic, Auditing Demands Logic, Reasoning, and ResourcefulnessReasoning, 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 1End of Chapter 1
1-14
