Professional Documents
Culture Documents
Presentation Outline
I. The Demand for Reliable Information II. Understanding Assurance Services III. Management Assertions IV. Sarbanes-Oxley Act of 2002 V. Becoming a CPA
B. Environmental Conditions
I lost my savings in a bad investment!
Complexity Decisions makers are not trained to collect, compile, and summarize the key operating information themselves. Remoteness Investors are not able to personally visit locations to check on investments. Time sensitivity Decisions must often be made on a moments notice. Consequences A drop in investment value can wipe out ones life savings.
C. Information Risk
Information risk is the probability that the information circulated by a company will be false or misleading. Client management has an incentive to make the business appear better than it actually may be. This can create a conflict of interest between client management and investors.
Financial Statements
A. Definition of Assurance Services B. Definition of Attestation Services C. Definition of Auditing D. Overview of Financial Statement Auditing E. Graphical Representation of Assurance Services
Assurance services are (1) independent (2) professional services that (3) improve the quality of information, or its context, (4) for decision makers. Assurance services include many areas of information, including nonfinancial areas. (See examples on page 7 of text)
C. Definition of Auditing
(See Auditing Insight on p. 5 of text)
Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria GAAP and communicating the results to Auditor's Report/ interested users.
Other Reports
Source: American Accounting Association Committee on Basic Auditing Concepts. 1973. A Statement of Basic Auditing Concepts, American Accounting Association (Sarasota, FL).
E. Graphical Representation of Assurance Services The Relationships Among Auditing, Attestation, and Assurance Engagements
A. Presentation and Disclosure B. Existence or Occurrence C. Rights and Obligations D. Completeness E. Valuation or Allocation
B. Existence or Occurrence
Assets, liabilities, and equities on the balance sheet actually exist. Each of the revenue and expense transactions actually occurred.
D. Completeness
All transactions, events, assets, liabilities, and equities that should have been recorded have been recorded. All disclosures that should have been discussed in the footnotes are there.
Cutoff refers to accounting for revenue, expense, and other transactions in the proper period (neither postponing some recordings to the next period (i.e., completeness) nor accelerating next periods transactions into the current year accounts (i.e., existence or occurrence)). The cutoff date refers to the clients year-end balance sheet date.
E. Valuation or Allocation
Determine whether proper values have been assigned to assets, liabilities, and equities. Examples include collectibility of receivables, recalculating depreciation, obtaining lower of cost or market data, etc.
A. Major Provisions of Sarbanes-Oxley B. Management Responsibility Under SOX C. Prohibited Services to Audit Clients
2. They are not aware of any false or misleading statements (or any key omitted disclosures).
3. They believe that the financial statements present an accurate picture of the companys financial condition. Source: U.S. Congress, Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat/ 745 (2002).
V. Becoming a
A. Education
Most states require 150 semester hours of college education to sit for the exam. Continuing professional education of 120 contact hours (not college semester or quarter hours) over three year reporting periods with no less than 20 hours in any one year is a common requirement in most states.
B. Examination
The AICPA Board of Examiners administers the Uniform CPA Exam as a computer-based examination in four parts 1. Auditing and attestation4.5 hrs 2. Financial accounting and reporting4 hrs 3. Regulation3 hrs. 4. Business environment2.5 hrs Consists of multiple-choice testlets (24-30 questions each) and simulation problems where students electronically research a solution to a problem. Revealing exam material can result in certifications being revoked. Testing is on demand with 75% considered a passing score.
C. Experience
Although not a requirement to sit for the CPA exam, accounting experience supervised by a competent accountant is required to become certified. Generally 2 years for persons with a bachelors degree and 1 year for those with a masters. Some states require the experience to be in public accounting.
Summary
Audit process considers business risk, information risk. Environmental factors result in need for audits. Understanding assurance, attestation, and auditing The effect of Sarbanes-Oxley on the audit process. CPA requirements include education, examination, and experience.