Assurance services and the cpa profession (essch01.ppt)

1 - 1©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley

Assurance Services and theCPA Profession

Chapter 1


Learning Objective 1

Describe assurance services

and distinguish audit services

from other assurance and

nonassurance services

provided by CPAs.


Assurance Services

Assurance services are professionalservices that improve the quality of

information for decision makers.

Assurance services can beperformed by CPAs or by

a variety of other professionals.


Attestation Services

An attestation service is a type of assuranceservice in which the CPA firm issues a

report about the reliability of an assertionthat is the responsibility of another party.


Other Assurance Services

Most other assurance services do not meet theformal definition of attestation services.

The CPA must be independent.

The CPA is not required to provide a written report.

The CPA must provide assurance.


Assurance Services onInformation Technology

There is an increased demand for assuranceabout computer controls surroundinginformation transacted electronicallyand the security of the information

related to the transactions.

– assurance over Web site controls

– assurance about information system reliability



WebTrust is an attestation service, and theWebTrust seal is a symbolic representation

of the CPA’s report on management’sassertions about its disclosure ofelectronic commerce practices.



SysTrust is an attest-type engagement to evaluate and test system reliability inareas such as security and data integrity.


Assurance Services onOther Types of Information

CPA Performance View

CPA ElderCare Services

CPA Risk Advisory Services


Assurance, Attestation, and Nonassurance Services

ASSURANCE SERVICES

Other Attestation Services(e.g., WebTrust, SysTrust)

Other Assurance Services(e.g., CPA Performance View)

CertainManagementConsulting

ATTESTATION SERVICES

Audits Reviews


Assurance, Attestation, and Nonassurance Services

NONASSURANCE SERVICES

Other ManagementConsulting

TaxServices

CertainManagementConsulting

Accounting andBookkeeping



Explain the causes of

information risk and the

importance of auditing in

reducing this risk.


Economic Demandfor Auditing

Information risk reflects the possibility thatthe information upon which the businessrisk decision was made was inaccurate.

Auditing can have a significant effecton information risk.


Causes of Information Risk

1. Remoteness of information

2. Biases and motives of the provider

3. Voluminous data


Reducing Information Risk

1. User verifies information

2. User shares information risk with management

3. Audited financial statements are provided



Describe auditing

and distinguish between

auditing and accounting.

Describe auditing

and distinguish between

auditing and accounting.


Nature of Auditing

Auditing is the accumulation andevaluation of evidence aboutinformation to determine and

report on the degree ofcorrespondence between the

information and established criteria.

Auditing should be done by a competent, independent person.


Accumulating andEvaluating Evidence

Evidence is any information used by the auditorto determine whether the information being

audited is stated in accordance with theestablished criteria.


Competent, Independent Person

The auditor must be qualified to understand thecriteria used and must be competent to know

the types and amount of evidence to accumulateto reach the proper conclusion after the

evidence has been examined.

The competence of the individual performing the audit is of little value if he or she is biased in the

accumulation and evaluation of evidence.


Reporting

The final stage in the auditing processis preparing the Audit Report which is

the communication of the auditor’sfindings to users.


Audit of a Tax Return – Example

Internalrevenue

agent

Examines cancelledchecks and other

supporting records

Federal taxreturns filedby taxpayer

Internal RevenueCode and all

interpretations

Report on taxdeficiencies

Competent,independent

person

Information

Established criteria

Determinescorrespondence

Accumulates andevaluates evidence

Report on results


Distinction BetweenAuditing and Accounting

Accounting is the recording, classifying,and summarizing of economic eventsfor the purpose of providing financialinformation used in decision making.

Auditing is determining whetherrecorded information properly

reflects the economic events thatoccurred during the accounting period.



Differentiate the three

main types of audits.

Differentiate the three

main types of audits.


Types of Audits

Financial Statement Audit

Operational Audit

Compliance Audit

Efficiency Effectiveness


Operational Audit

ExampleEvaluate computerized payroll system

for efficiency and effectiveness

InformationNumber of records processed, cost ofthe department, and number of errors

EstablishedCriteria

Company standards for efficiency andeffectiveness in payroll department

AvailableEvidence

Error reports, payroll records, andpayroll processing costs


Compliance Audit

ExampleDetermine whether bank requirementsfor loan continuation have been met

Information Company records

EstablishedCriteria

Loan agreement provisions

AvailableEvidence

Financial statements andcalculations by the auditor


Financial Statement Audit

ExampleAnnual audit of Boeing’s

financial statements

InformationBoeing's financial

statements

EstablishedCriteria

Generally accepted accountingprinciples

AvailableEvidence

Documents, records, and outsidesources of evidence



Identify the primary

types of auditors.

Identify the primary

types of auditors.


Types of Auditors

Internal Auditors

Certified Public Accounting Firms

Internal Revenue Agents

General Accounting Office Auditors



Discuss how e-commerce

and the Internet affect

CPA firm operations.

Discuss how e-commerce

and the Internet affect

CPA firm operations.


E-Commerce and CPA Firm Operations

CPA firms are using the Internetto market their services.

They also use the Internet to connecttheir global professional staff.

Sender’smail

server

Receiver’smail

server



Describe the requirements

for becoming a CPA.

Describe the requirements

for becoming a CPA.


Three Requirementsfor Becoming a CPA

Educational

Passing the CPA Exam

Experience



Describe the AICPA and

its role in setting standards.

Describe the AICPA and

its role in setting standards.


The AICPA sets professional requirementsfor CPAs, conducts research, and publishesmaterials on many different subjects related

to accounting, auditing, attestation andassurance services, managementconsulting services, and taxes.

AICPA


Vision for the Future

The AICPA has established the CPA Vision Projectto provide a core purpose and a vision for the CPA

profession in the year 2011 and beyond.

The core purpose of the CPA Vision Project is“CPAs…making sense of a changing

and complex world.”



The future success of the CPA professionrelies a great deal on public perceptions

of CPAs’ abilities and roles.

CPAs must become market driven andnot dependent on regulations to keep

them in business.

The market demands less audit andaccounting and more value-adding

consulting services.



Specialization is critical for the future of the CPA profession.

The market demands that CPAs be conversant in global business

practices and strategies.


The AICPA is empowered to set standards(guidelines) and rules that all members and

other practicing CPAs must follow.

The requirements are set bycommittees made up of AICPA members.

Establishing Standardsand Rules


Establishing Standardsand Rules

1. Auditing Standards

2. Compilation and Review Standards

3. Other Attestation Standards

4. Code of Professional Conduct



Use generally accepted

auditing standards as a

basis for further study.

Use generally accepted

auditing standards as a

basis for further study.


1. The audit is to be performed by a person orpersons having adequate technical trainingand proficiency as an auditor.

2. In all matters relating to the assignment,an independence in mental attitude is tobe maintained by the auditor or auditors.

General Standards

3. Due professional care is to be exercised inthe planning and performance of the auditand the preparation of the report.


1. The work is to be adequately planned andassistants, if any, are to be properlysupervised.

2. A sufficient understanding of internalcontrol is to be obtained to plan the auditand to determine the nature, timing, andextent of tests to be performed.

Standards of Field Work


Standards of Field Work

3. Sufficient competent evidential matter is tobe obtained through inspection, observation,inquiries, and confirmations to afford areasonable basis for an opinion regardingthe financial statements under audit.


1. The report shall state whether the financialstatements are presented in accordance withgenerally accepted accounting principles.

2. The report shall identify those circumstancesin which such principles have not beenconsistently observed in the current periodin relation to the preceding period.

Standards of Reporting


3. Informative disclosures in the financialstatements are to be regarded as reasonablyadequate unless otherwise stated in the report.

4. The report shall contain an expression ofopinion regarding the financial statements,taken as a whole.

Standards of Reporting


Summary ofGeneral Standards

Generally Accepted Auditing Standards

General

1. Adequate training and proficiency2. Independence in mental attitude3. Due professional care

Field Work

1. Proper planning and supervision2. Internal control understanding3. Sufficient competent evidence

Reporting

1. Statements prepared in accordance with GAAP2. Circumstances when GAAP not followed3. Adequacy of disclosures4. Expression of opinion on financial statements



Identify quality control

standards and practices

within the accounting

profession.

Identify quality control

standards and practices

within the accounting

profession.


Elements of Quality Control

Independence, integrity, and objectivity

Personnel management

Acceptance and continuation of clientsand engagements

Engagement performance

Monitoring


Relationships

Quality controlstandards

Generally acceptedauditing standards

Division ofCPA firms

Peerreview



Summarize the role of the

Securities and Exchange

Commission in accounting

and auditing.

Summarize the role of the

Securities and Exchange

Commission in accounting

and auditing.


The overall purpose of theSecurities and Exchange Commission (SEC)

is to assist in providing investorswith reliable information upon

which to make investment decisions.

Securities and Exchange Commission


CPAs Encouraged to ConductThemselves at a High Level

CPAexamination

GAAS andinterpretations

Conduct of CPA firm personnel

Continuing educationrequirements




SECPeer

review

Quality control




Legalliability

Division ofCPA firms

Code of ProfessionalConduct


End of Chapter 1