Professional Documents
Culture Documents
The Financial Statement Auditing Environment: © Mcgraw-Hill Education 2014
The Financial Statement Auditing Environment: © Mcgraw-Hill Education 2014
The Financial
Statement
Auditing
Environment
© McGraw-Hill Education 2014
Types of Auditors
Government
Forensic Auditors
Auditors
Audit Services:
Financial statements audits, internal control audits, compliance audits,
operational audits and forensic audits
Review Services:
Review of financial information, e.g. review of interim financial
information
Other Assurance Services:
Assurance other than audit and reviews of historic financial
information, e.g. assurance on a entity’s reporting on its sustainability
performance
Related Services:
Agreed-upon procedures regarding financial information and
compilation of financial information
Other Non-Assurance Services:
Tax services and management advisory services
© McGraw-Hill Education 2014
Audit Firms
Audit firms range in size from a single proprietor to
thousands of owners (or ‘partners’) and thousands of
professional and administrative staff employees.
EY Crowe
Horwath
KPMG Grant
Thornton
PwC Praxity
RSM
© McGraw-Hill Education 2014
Audit Teams
Table 2–1 Selected Duties of Audit Team Members
1990 2000
Enron WorldCom
Parmalat
Lernout &
Hauspie
Ahold
Arthur
Andersen
© McGraw-Hill Education 2014
An Explosion of Scandals
Corporate
Giants
Brokerage
Firms
Stock
Exchanges
Mutual Fund
Managers Accounting
Firms
Stricter regulation
More public oversight and stricter
enforcement
Banks Rating
Agencies
Supervisors
Hedge Central
Funds Banks
Accounting
Firms
© McGraw-Hill Education 2014
Society’s Expectations and
the Auditor’s Responsibilities
The auditor has a responsibility to plan and
perform the audit to obtain reasonable
assurance about whether the financial
statements are free of material
misstatement, whether caused by error or
fraud.
Because of the nature of audit evidence and
the characteristics of fraud, the auditor is able
to obtain reasonable, but not absolute,
assurance that material misstatements are
detected.
© McGraw-Hill Education 2014
Context of Financial
Statement Auditing
Thought Question:
How would your concerns about the
inventory account differ for a Computer
Hardware Manufacturer versus a Jewelry
Store?
© McGraw-Hill Education 2014
A Model of Business
Business organizations exist to create value for their
stakeholders. Due to the way resources are invested
and managed in the modern business world, a
system of corporate governance is necessary,
through which managers are overseen and
supervised.
Board of Directors
Audit
Committee
Objectives Strategies
Processes
(5 broad
categories)
Transactions
Controls
Reports
Five Components
Financing Purchasing
Process Process
Human Resource
Management
Process
Inventory
Revenue
Management
Process
Process
• Introductory material
• Objectives
• Definitions
• Requirements
• Application and other
explanatory material
IESBA Code of
Ethics
Conceptual
Framework Approach
Principles
•Integrity
•Objectivity Application to specific
•Professional competence situations, including
and due care situations that threaten
independence of
•Confidentiality
mind or independence
• Professional behaviour in appearance
Legal doctrines:
• Joint and several liability
• Proportional liability
• Liability caps