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The Attest Function - The assertion of the subject matter of another party through an examination, a review, or an agreed-upon procedures

report. Examination - Limits the amount of information risk (by adding credibility) in the financial statements by expressing a professional opinion to a low level with reasonable (positive) assurance through open-ended scope of evidence gathering. Review - Includes an examination to a lesser extent and limits information risk to a moderate level with limited (negative) assurance through limited scope of evidence gathering. "We are not aware of any material modifications necessary to make the F/S present fairly...". Meant to serve smaller businesses that cannot afford examination (audit). Agreed-Upon Procedure - Looks at the procedures required and can vary in risk and assurance. Assertion - What someone puts forth as fact. Also, it is a determination of the valuation of the accounts being looked at by auditors. Contemporary Auditing - Internal control systems, sampling, and fraud detection. Types of Audits - Financial audits are audits of financial accounting information of an entity. Compliance audits are dependent on verifiable data and recognized criteria or standards, such as laws and regulations. Operational audits look at a specific unit of an organization to determine its performance. Types of Auditors - Financial audits are completed by government accountability office auditors who audit government contractors. Compliance audits: Internal Revenue Agents. Operational audits: internal auditors. Statements on Auditing Standards - These are the top level authority in the practice of auditing. These are a series of pronouncements on auditing by the Auditing Standards Board. They currently only apply to nonpublic companies since the establishment of the PCAOB, however, the old standards were adopted and are acceptable standards. General Standards - 1. The auditor must have adequate technical training and proficiency to perform the audit. This includes a technical knowledge of the industry in which the client operates, college education, participating in continuing education programs, and public accounting experience. 2. The auditor must maintain independence in mental attitude in all matters relating to the audit. This means they must conduct themselves in a manner in which the public will have no reason to doubt their independence. The auditor is impartial without bias. 3. The auditor must exercise due professional care in the performance of the audit and the preparation of the report. This means that auditors will perform every step in an alert and diligent manner. Standards of Fieldwork - 1. The auditor must adequately plan the work and must properly supervise any assistants. This is accomplished through proper discussions with the client over the extent and scope of the audit. 2. The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures. Where the risk of

material misstatement is high, the auditors must plan and perform more extensive audit procedures. 3. The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. Reporting Standards - 1. The auditor must state in the auditor's report whether financial statements are presented in accordance with generally accepted accounting principles (GAAP). 2. The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. 3. When the auditor determines that informative disclosures are not adequate, the auditor must so state in the auditor's report. These disclosures are stated as the endnotes to the financial statements. 4. The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. When the auditor cannot express an overall opinion the auditor should state the reasons therefore in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report. Auditing Procedures - Auditing procedures are more detailed, but less authoritative, guidelines on audit problems. Guidance on procedures can be obtained from appendixes to SASs, AICPA Audit and Accounting Guides, and AICPA auditing Statements of Position. Most auditing procedures are not required. Professional skepticism - Professional skepticism involves having a questioning mind and a critical assessment of the evidence presented throughout the audit process (AU 230.07). Independence - Independence means being impartial without bias with respect to the client so that the auditor is ultimately impartial. Structure of "Standard" Audit Report - The "standard" audit report for an unqualified opinion has three paragraphs. The introductory paragraph clarifies the responsibilities of management and the auditors in regards to financial statements. The scope paragraph describes the nature of the audit. The opinion paragraph provides a concise statement of the auditors' opinion based on the audit (41). Qualified Opinion - Indicates some limitation on the scope of the audit (when auditor is unable to gain access to all evidence necessary: circumstantial is nobody's fault, client imposed is when the client will not let the auditor look into a certain area of business) or when one or more items in the financials are not presented in accordance to GAAP (includes the words except for). Adverse Opinion - States that the financials are not fairly presented because they contain a pervasively material departure from GAAP. Disclaimer of opinion - Issued if the auditor is unable to determine the overall fairness of the financials (46). The auditors do not express an opinion.

Reason for only reasonable assurance - Nature of audit procedure (sampling), nature of audit analysis (do not ensure authenticity), internal controls are subject to possibility of managerial override. "Fair presentation in conformity with GAAP" - The defining characteristics are that the auditor should base his/her judgment on the accounting principles selected and applied have general acceptance; the accounting principles are appropriate for the circumstances; the financial statements, including the related notes, are informative of matters that may affect their use, understanding, and interpretation; the information presented in the financial statements is classified and summarized in a reasonable manner; and the financial statements reflect the underlying transactions and events in a manner that presents the financial position, results of operations, and cash flows stated within a range of acceptable limits (AU 411.04). Peer review - A peer review is performed by a CPA, a CPA firm, or a team of CPAs. Peer reviews apply to nonpublic companies. Inspection - A PCAOB inspection is conducted by PCAOB staff for public companies. Characteristics of a profession - The characteristics of a profession include responsibility to serve the public, complex body of knowledge, standards of admission to the profession, and need for public confidence. Principles of the AICPA Code of Professional Conduct - The six articles are responsibilities, public interest, integrity, objectivity and independence, due care, and scope and nature of services (69). The principles are goal-oriented, positively stated discussions of the profession's responsibility to the public, clients, fellow practitioners. Assertions within financial statements - Existence (most important for assets and revenues), Rights and obligations, completeness (most important for liabilities and expenses), valuation and allowance, presentation and disclosure, and clerical accuracy (AU 326.15). Audit Risk - Audit risk is the risk that the auditor will mistakenly fail to modify an opinion on financial statements that contain material misstatements (139). The components include inherent risk, control risk, and detection risk (138). Substantive Audit Procedures - Procedures performed by the auditor to detect material mistatements in account balances, classes of transactions, and disclosures. These are variable on the dimensions of the nature of the specific procedure, timing of the audit procedures (either before the client's year end or subsequent to year end), and extent of the risk of material misstatements (147). Accounting Information System Audit Procedure - Comparison - agreeing amounts from different internal records Documentary evidence Audit Procedure - Tracing - establishing completeness by following a transaction forward through accounting records. Vouching - establishing existence by following a transaction back to supporting documents. Inspection reading of a record or document. Reconciliation - establishing agreement between two sets of independently maintained but related records. Third-Party Representations Audit Procedure - Confirmation - obtaining a response from a third party contact in reply to a request for information about a particular item affecting the financial statements. Physical Evidence Audit Procedure - Physical Examination and Observation

Computations - Reperformance - repeating a client activity such as footing or cross footing. Data Interrelationships - Analytical Procedures - comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by the auditor Client Representations - Inquiries of client personnel Expectations of Analytical Procedures - Expectations should be based on financial information from prior periods, anticipated results - budgets or forecasts, relationships among elements of financial information (ratio analysis), information regarding the industry in which the client operates, and relationships of financial information with relevant nonfinancial information Uses of Analytical Procedures - These are significant for audits because they are used to assist the auditor in planning the audit, as a substantive test to obtain audit evidence about particular assertions, and as an overall review of the financial information (AU 329.04). Analytical procedures must be applied in the planning and review stages of the audit. Workpaper Schedule - Summary of elements comprising the balance in a certain account. Workpaper Analysis - Show changes in the individual pieces of identifiable items in certain accounts.