BUS 425

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BUS 425 Auditing

• Chapter 1
• The Demand for Audit Services

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WorldCom Cynthia Cooper

• The company had recorded billions of dollars of
  regular fees paid to local telephone companies as
  capital assets. This accounting trick allowed the
  company to turn a 662 million loss into a 2.4
  billion profit in 2001.

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WorldCom Cynthia Cooper

• Line cost expense 3,062
• Cash 3,062
• Adjusting JE
• PPE 3,062
• Line cost expense 3,062

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Madyson

• What is the definition of Auditing?

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financial statements

• Auditing ----
• Is the accumulation and evaluation of evidence
  about information to determine and report on the
  degree of correspondence between the information
  and established criteria.
• Page 2

GAAP
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Page 33
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Vivian

• What is audit evidence?

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• Evidence ----
• is any information used by the auditor to
  determine whether the information being audited
  is stated in accordance with the established
  criteria.
• page 2

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• Evidence ----
• electronic data about transactions
• documented data about transactions
• written communications
• observations by the auditor
• oral testimony (responses to questions)

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Fiona

• What is the objective of AU-C 330

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AU-C 330 response to RoMM

• The objective of the auditor is to obtain
  sufficient appropriate audit evidence regarding
  the assessed risk of material misstatement
  through designing and implementing appropriate
  responses to those risks.

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Marc

• What is the objective of AU-C 500

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AU-C 500 Audit Evidence

• The objective of the auditor is to design and
  perform audit procedures that enable the auditor
  to obtain sufficient appropriate audit evidence
  to be able to draw reasonable conclusions on
  which to base the auditors opinion.

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Page 59
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Vouch or Trace project
Go to web site http//clubs.cob.calpoly.edu/cmi
ller/ACTG2042520page.html look up sales
journal - talk about overstatement /
occurrence look at sales journal talk about
overstatement / valuation look at sales orders
talk about understatement / completeness
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• Independent Auditors Report
• Report on the Financial Statements
• We have audited the accompanying financial
  statements of ABC Company, which comprise the
  balance sheet as of December 31, 20X1, and the
  related statements of income, changes in
  stockholders' equity, and cash flows for the year
  then ended, and the related notes to the
  financial statements.
• Managements Responsibility for the Financial
  Statements
• Management is responsible for the preparation and
  fair presentation of these financial statements
  in accordance with accounting principles
  generally accepted in the United States of
  America this includes the design,
  implementation, and maintenance of internal
  control relevant to the preparation and fair
  presentation of financial statements that are
  free from material misstatement, whether due to
  fraud or error.
• Auditors Responsibility
• Our responsibility is to express an opinion on
  these financial statements based on our audit. We
  conducted our audit in accordance with auditing
  standards generally accepted in the United States
  of America. Those standards require that we plan
  and perform the audit to obtain reasonable
  assurance about whether the financial statements
  are free from material misstatement.
• An audit involves performing procedures to obtain
  audit evidence about the amounts and disclosures
  in the financial statements. The procedures
  selected depend on the auditor's judgment,
  including the assessment of the risks of material
  misstatement of the financial statements, whether
  due to fraud or error. In making those risk
  assessments, the auditor considers internal
  control relevant to the entity's preparation and
  fair presentation of the financial statements in
  order to design audit procedures that are
  appropriate in the circumstances, but not for the
  purpose of expressing an opinion on the
  effectiveness of the entity's internal control.2
  Accordingly, we express no such opinion. An audit
  also includes evaluating the appropriateness of
  accounting policies used and the reasonableness
  of significant accounting estimates made by
  management, as well as evaluating the overall
  presentation of the financial statements.
• We believe that the audit evidence we have
  obtained is sufficient and appropriate to provide
  a basis for our audit opinion.
• Opinion
• In our opinion, the financial statements referred
  to above present fairly, in all material
  respects, the financial position of ABC Company
  as of December 31, 20X1, and the results of its
  operations and its cash flows for the year then
  ended in accordance with accounting principles
  generally accepted in the United States of
  America.
• Auditor's signature, city and state, date of
  report

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• Independent Auditors Report
• Report on the Financial Statements
• We have audited the accompanying financial
  statements of ABC Company, which comprise the
  balance sheet as of December 31, 20X1, and the
  related statements of income, changes in
  stockholders' equity, and cash flows for the year
  then ended, and the related notes to the
  financial statements.
• Managements Responsibility for the Financial
  Statements
• Management is responsible for the preparation and
  fair presentation of these financial statements
  in accordance with accounting principles
  generally accepted in the United States of
  America this includes the design,
  implementation, and maintenance of internal
  control relevant to the preparation and fair
  presentation of financial statements that are
  free from material misstatement, whether due to
  fraud or error.
• Auditors Responsibility

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• Auditors Responsibility
• Our responsibility is to express an opinion on
  these financial statements based on our audit. We
  conducted our audit in accordance with auditing
  standards generally accepted in the United States
  of America. Those standards require that we plan
  and perform the audit to obtain reasonable
  assurance about whether the financial statements
  are free from material misstatement.
• An audit involves performing procedures to obtain
  audit evidence about the amounts and disclosures
  in the financial statements. The procedures
  selected depend on the auditor's judgment,
  including the assessment of the risks of material
  misstatement of the financial statements, whether
  due to fraud or error. In making those risk
  assessments, the auditor considers internal
  control relevant to the entity's preparation and
  fair presentation of the financial statements in
  order to design audit procedures that are
  appropriate in the circumstances, but not for the
  purpose of expressing an opinion on the
  effectiveness of the entity's internal control.
  Accordingly, we express no such opinion. An audit
  also includes evaluating the appropriateness of
  accounting policies used and the reasonableness
  of significant accounting estimates made by
  management, as well as evaluating the overall
  presentation of the financial statements.
• We believe that the audit evidence we have
  obtained is sufficient and appropriate to provide
  a basis for our audit opinion.
•  

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•  
• Opinion
• In our opinion, the financial statements referred
  to above present fairly, in all material
  respects, the financial position of ABC Company
  as of December 31, 20X1, and the results of its
  operations and its cash flows for the year then
  ended in accordance with accounting principles
  generally accepted in the United States of
  America.
• Report on Other Legal and Regulatory Requirements
• Auditor's signature
• Auditor's city and state
• Date of the auditor's report

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Materiality page 118

• The magnitude of an omission or misstatement of
  accounting information that, in light of the
  surrounding circumstances, makes it probable that
  the judgment of a reasonable person relying on
  the information would have been changed or
  influenced by the omission or misstatement,

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Ciara

• What is our operational definition of
  independence?

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Independence

• A member should maintain objectivity and be free
  of conflicts of interest in discharging
  professional responsibilities. A member in public
  practice should be independent in fact and
  appearance when providing professional auditing
  or attestation services.

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Independence

• Independence enhances the auditors ability to
  act with integrity, to be objective, and to
  maintain an attitude of professional skepticism.
• Independence includes
• independence of mind (fact)
• Independence of appearance

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Jonathan S

• What does FASB stand for ?

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Jena

• What is the Sarbanes Oxley Act of 2002?

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Christina

• Which of the following are government agencies ?
• FASB
• SEC
• PCAOB

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Julia

• What does GAAS stand for ?
• What does GAAP stand for ?

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• GAAP
• FASB
• FAS
• ASC 310-10-25-3
• ASU

GAAS public private PCAOB AICPA AS
SAS
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Katherine

• What is Business Risk?
• What is Information Risk?

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• Business Risk - the risk (probability) that an
  entity will fail to meet its objectives
• Information Risk - the probability that the
  information upon which the decision was made was
  inaccurate.

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Loren

• What is the Risk-Free interest rate?

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Alyssa

• You are a bank lending officer
• In relation to the risk-free interest rate
• What interest rate would you charge to a company
  with a great deal of business risk?

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Lauren

• You are a bank lending officer
• In relation to the risk-free interest rate
• What interest rate would you charge to a company
  with a great deal of information risk?

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Xiaodan

• What are some conditions that create demand for
  auditing?

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conditions which create demand for audits

• Page 5
• Remoteness owner separate from management
• Motives of the provider
• Voluminous data
• Complex transactions

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Jake M

• Talk about the difference between
• assurance
• attestation
• auditing

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• Assurance improves the quality of information
• Attestation report regarding the reliability of
  specific assertions made by management
• Audit opinion regarding managements assertions
  embodied in financial statements

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Important

• Specified audit objectives
• AU-C 200, 315, 500, 700 Independence)
• Unmodified Audit Report
• Managements Assertions p. 59

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Nicole

• What are the three lines of service typically
  provided by a public accounting firm ?

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Typical lines of business

• Audit (accounting, attestation, audit)
• Tax
• Consulting (advisory services)

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Huyen

• What are the various job levels or career levels
  in a public accounting firm ?

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CPA partnership structure

• Partner P
• Senior Mngr SM SM
• Manager X Y Z
• Senior X X X Y Y Y Z Z
• Staff XXX XXX XXX YYY YYY YYY ZZZ ZZ

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Education cpa exam

• As of Dec. 31, 2013 / Jan. 1, 2014
• Bachelors degree
• 225 quarter hours
• 36 business
• 36 30 accounting
• 20 accounting
• 10 ethics
• 1 year experience
• http//www.dca.ca.gov/

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transactions Account balances Presentation disclosure
occurrence existence occurrence rights obligations
completeness completeness completeness
accuracy valuation allocation accuracy valuation
classification classification understandability
cutoff
rights obligations