Modern Auditing:

Assurance Services and the Integrity of Financial Reporting, 8th Edition

William C. Boynton
California Polytechnic State University at San Luis Obispo

Raymond N. Johnson
Portland State University

Chapter 1 Auditing and the Public Accounting Profession Integrity of Financial Reporting

Chapter 1 Overview

Auditing Defined
Systematic process Objectively obtaining and evaluating evidence

Assertions about economic actions and events

Degree of correspondence

Auditing Defined (cont.)

Established criteria

Communicating the results

Interested users

Comparative Summary of Types of Audits

Types of Auditors
Independent Auditors

Internal Auditors

Government Auditors

Assurance Services Defined

Independence Professional services Quality of information Decision maker

Example Assurance Services

Audit Engagements Attest Services
Examination Review Engagement Agreed-upon Procedures Engagement

Accounting Services
Compilation Services

Levels of Assurance
Reasonable Assurance Negative Assurance Agreed-upon Procedures Compilation Without Assurance

Universe of Assurance Services

The Accountants Value Chain

Study Break
1. This type of audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an entitys operating activities. A. Financial Statement Audit B. Compliance Audit C. Operational Audit D. Internal Control Audit C. Operational Audit

Study Break
2. These auditors are typically CPAs who render professional auditing services to clients. A. Independent Auditors B. Internal Auditors C. Government Auditors D. IRS Auditors A. Independent Auditors

The Roots of Auditing

British influence and migration Stock market crash Legislation of the 1930s Important changes in the 1940s

The Roots of Auditing

Scrutiny of 1980s lead to changes Increasing amount of consulting in 1990s Growing numbers of earnings restatements Sarbanes-Oxley Act of 2002

Need for Financial Statement Audits

Conflict of Interest Consequence Complexity Remoteness

Economic Benefits of an Audit

Access to Capital Markets Lower Cost of Capital Deterrent to Inefficiency and Fraud

Control and Operational Improvements

Limitations of a Financial Statement Audit

Economic Limitations
Reasonable Cost Reasonable Length of Time

Accounting Framework Limitations

Alternative Accounting Principles Accounting Estimates

Study Break
3. Which of the following is not an economic benefit of a financial statement audit? A. Access to Capital Markets B. Lower Cost of Capital C. Control and Operational Improvements D. Maintain Fair Competition D. Maintain Fair Competition

Study Break
4. Which of the following is not an inherent limitation of a financial statement audit? A. Reasonable Cost B. Unlimited Timeframe C. Alternative Accounting Principles D. Accounting Estimates B. Unlimited Timeframe

Organizations Associated with the Public Accounting Profession

Regulatory Framework for Ensuring High-Quality Services

Standard Setting Firm Regulation Inspection and Peer Review Government Regulation

Standard-Setting Organizations in the United States

Study Break
5. Which organization is considered to be a private sector organization? A. State Boards of Accountancy B. Securities and Exchange Commission C. AICPA D. IRS C. AICPA

Study Break
6. This component of regulatory framework includes the inspection of audits by the PCAOB staff and peers in other accounting firms. A. Standard setting B. Firm regulation C. Inspection and peer review D. Government regulation C. Inspection and peer review