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Overview of Week One (May 19-May 24)

Objective and Coverage: During the first week of the course you should gain an understanding
of the auditing profession and the rules governing it. There are two general types of risk;
business and information. Society looks to the auditor to provide assurance that a firms financial
information is fairly stated and can be relied upon. In other words, auditors provide assurance
that the risk of misstating information, either intentionally or by error is at a reasonable level.
The profession does not give absolute assurance because it would not be cost effective for
auditors to eamine everything.
!uditors have a significant responsibility to public and private stakeholders in providing
assurance as to the fairness of financial statement reporting. Stakeholders such as banks,
communities, pension funds, etc make billion dollar investments and commitments based, in
part, on financial information. The audit role is so important that the S"# re$uires an annual
audit of public companies and states, bankers, owners often re$uire an audit of non%profit and
private firms. &hen the financial information is incorrect, the public and investors stand to lose
their investments, pensions, savings, etc. as was illustrated in the early '(((s with frauds such
as "on and &orldcom. These frauds led to the passage of the Sarbanes%)ley !ct which
established federal governmental regulation of the auditing of publically traded companies.
There are a number of organi*ations which impact the role of an auditor. The public accounting
profession is regulated in its audits of publically traded companies by the +#!), and the S"#.
The !I#+! sets standards for the audit of private companies. !n individual cannot sign an audit
opinion unless he-she is a #+!. States issue the #+! licenses. !t the conclusion of #hapter )ne
you should have a sense of the importance of auditing and the organi*ations that influence
auditors and the audit process.
!uditors discharge their audit responsibilities by epressing an opinion on the financial
statements. The opinion epresses whether the financial statements are fairly stated in
accordance with ..S. /!!+. To form the basis for their opinion, the auditors gather evidence.
To help ensure the evidence process is sufficient to support auditors opinion, the +#!), and
the !I#+! issue auditing standards referred to as generally accepted auditing standards 0/!!S1.
!t the core of the standards were what was known as 2( generally accepted standards which
addressed the characteristics of the auditor, the nature of the evidence gathered and
characteristics of the audit opinion. These 2( standards were supplemented by auditing
interpretations of the 2( standards known as statements of auditing standards 0S!S1 although
everything came to be known as /!!S. &hen the +#!), was established by the Sarbanes 3
)ley !ct to regulate auditors of public companies, it adopted the eisting auditing standards
0the !uditing Standards ,oard 0!S,1 of the !I#+! issued audit standards for all companies
prior to Sarbanes1 of the !I#+! as its interim standards. )ver the years the +#!), has issued
its own standards which slowly replace many of the old !I#+! standards. To date they have
developed and adopted 24 standards. 5owever, for public companies, the 2( core standards
remain 0page 67 of the tet1.
In '(2', the !I#+! replaced the 2( core standards with what it called principles 08igure '.',
page 641 and rewrote all of the standards 0approimately 2691 they had issued to improve their
clarity 0now coded !.%# by standard1 and to be more consistent with the international auditing
standards developed by the International !uditing and !ssurance Standards ,oard 0I!!S,1.
#hapter Two discusses auditing standards and the concept of professional standards. In addition
to auditing standards 0how to gather evidence and epress opinions1, the chapter discusses
$uality control standards or those procedures and controls that accounting firms are epected to
have to help ensure the auditing standards are met.
I included #hapter 29 at this stage of the course because the standards discuss audit reporting
and I think it is better 0as in most auditing tets1 to actually see the types of opinions that are
issued early in the course. !s you might anticipate, there is a divergence in the form of the audit
opinion between private and public companies but the substance is essentially the same. To give
you an eample of the type of opinions, I included a file of actual audit opinions for public
companies. See if you can relate the opinions to what is discussed in the tet.
5owever, as an indication that your professional education is :ust starting, the +#!), has
proposed changes to the audit report of public companies in the .S to provide additional
information 0see +#!), ;elease <o. '(26%((=, !ugust 26, '(261. !ccording to the +#!),
release, the Board's proposed auditor reporting standard would retain the pass/fail model,
including the basic elements of the current auditor's report, and would provide more information
to investors and other financial statement users regarding the audit and the auditor. Most
significantly, the proposed auditor reporting standard would require the auditor to communicate
in the auditor's report "critical audit matters" that would be specific to each audit. The auditor's
required communication would focus on those matters the auditor addressed during the audit of
the financial statements that involved the most difficult, subective, or comple! auditor
udgments or posed the most difficulty to the auditor in obtaining sufficient appropriate audit
evidence or forming an opinion on the financial statements. "+#!), ;elease <o. '(26%((=, pp. =%41.
The comment period on the proposed standard has closed and the +#!), has been conducting
public meetings 0the last being !pril 6, '(2>1. 8or this course, we will review the reporting
models presented as no final ruling has been approved. The general reporting concepts will be
consistent, but epanded. So by the time you are #+!s, audit opinions for public companies will
most likely be epanded.
<ow, all of this may sound confusing because we have different organi*ations developing
different standards. ,ut, if you eamine the standards of each, you will see that the form may be
different, but the concepts and intent are similar.
It is important that you understand the concept of auditing standards because everything in this
book or any auditing book for that matter is based on the auditing standards. The entire audit
process is based on standards. If you have any difficulty with the material, please contact me.
To assist you in your learning, I have included the following information in my#ourses.
I. +ublisher powerpoints for each of the #hapters
II. #hapter outlines cross referenced to appropriate +ower+oint slides.
III. +roblem solutions for each of the homework problems assigned.
I?. ! file containing eamples of audit opinions for public companies.
?. ! ;egulation 8ile in mycourses that highlights the provisions and impact of Sarbanes%
The suggested study schedule and assignment due dates are presented below.
Qe!tion!: If you have any $uestions, please contact me or post your $uestion in the @uestion
Discussion ,o.
Week 1 "!!ign#ent! and $gge!ted $c%ed&e:
'ate (o)ic "!!ign#ent
Aonday, Aay 27
;eview syllabus and read
#hapter )ne of the tet.
;egister on #onnect and
become familiar with the
In the syllabus acknowledgement drop bo
send me that you read and understand the
syllabus and include any $uestions you
may have about the course or #onnect by
Aonday Aay 27 at 7B((+A.
;eview the websites, particularly the
+#!), and the !I#+!, to see the auditing
standards and responsibilities.
Tuesday, Aay '( 3
&ednesday, Aay '2
;ead #hapters 2 and ',
;eview the ;egulation of
!ccounting +rofession
folder in mycourses to
gain an understanding of
,ecome familiar with terms for #hapter 2
0pp. '>%'=1 and #hapter ' 0pp. ==%=41
#omplete $uestions 2%'C, 2%66, 2%6>, '%6(,
'%6=, '%64.. !nswers are in file in
my#ourses or you can do the problems in
#)<<"#T if you prefer.
&ednesday Aay '2
#omplete Submission for
#redit +roblem D2 for
#hapter '
;ead +roblem '%67 in the tet 0"normo
#orporation1. The Submission is due by 7
+A on Aay '2 in the #hapter '
Submission for #redit Drop ,o under
&eek )ne in #ourse Aaterials. 0There is
no submission for #hapter )ne.1
Thursday, Aay ''
and 8riday, Aay '6
;ead #hapter 29
,ecome familiar with terms for #hapter 29
#omplete $uestions 29%'=, 29%'4, 29%'7,
29%62. !nswers are in file in my#ourses or
you can do the problems in #)<<"#T if
you prefer.
Thursday, Aay ''
;espond to &eekly
Discussion @uestion
+ost your response to &eek )ness
discussion $uestion in my#ourses and
respond to other students responses by
Thursday, Aay '' at 7B((+A 0C points1.
8riday, Aay '6
#omplete Submission for
#redit +roblem D' for
#hapter 29.
#omplete Submission for #redit +roblem
for #hapter 29 in #)<<"#T by 7 +A on
Aay '6.
Saturday Aay '>
#omplete !ssessment for
&eek 2
#omplete !ssessment for &eek 2 in
#)<<"#T by 7+A on Aay '>. The
!ssessment is available from Aay '' at
7+A until Aay '> at 7 +A.