Overview
This lecture reviews key homework questions from Chapter 1, focusing on types of audits, auditor responsibilities, standard-setting organizations, and the evolving nature of auditing.
Types of Audits
- Compliance audits check if rules, regulations, and laws are followed.
- Operational audits evaluate the efficiency and effectiveness of a unit or department.
- Financial statement audits provide assurance on the fairness of financial statements.
- Forensic audits investigate situations where fraud is suspected or has already occurred.
Auditor Independence and Responsibilities
- Internal auditors can never be as independent as external auditors since they are employees but should report directly to the audit committee.
- External auditors (CPAs) are responsible for the fairness of financial statements prepared by management.
- Peer review refers to one CPA firm reviewing another's quality control.
Audit Standards and Oversight Organizations
- IAASB sets international auditing standards and encourages harmonization.
- PCAOB oversees audits of public companies and sets independence and auditing standards.
- SEC oversees financial reporting and requires registration statements for public offerings.
- FASAB sets standards for US government agencies; GASB for state/local governments; FASB for private companies.
Assurance and Attestation
- Assurance services enhance information quality for decision-makers.
- Attest services require auditor independence and include audits, reviews, and agreed-upon procedures.
Internal Control in Audits
- Assessing internal control helps auditors determine the nature, timing, and extent of testing.
- Stronger controls allow auditors to perform less detailed testing.
Evolution of Auditing
- Early audits emphasized transaction review and balance sheet accuracy.
- Modern audits focus on internal controls, sampling, financial statement fairness, and regulatory compliance.
Matching Audits to Auditors
- CPAs perform financial statement audits and consulting.
- GAO audits government operations for effectiveness and compliance.
- Bank examiners review banks for compliance with banking laws.
- IRS auditors conduct tax compliance audits.
- Internal auditors focus on operational audits within organizations.
Key Terms & Definitions
- Compliance Audit — Assesses adherence to laws and regulations.
- Operational Audit — Examines effectiveness and efficiency of operations.
- Peer Review — Quality control review by another CPA firm.
- IAASB — Sets international audit standards.
- PCAOB — Regulates public company audits in the US.
- Attest Services — Engagements that require auditor independence.
- Assurance Services — Services enhancing information credibility for users.
- Internal Control — Processes to ensure accuracy and reliability in financial reporting.
Action Items / Next Steps
- Post any questions from Chapter 1 on the discussion board or email the instructor for clarification.
- Review Chapter 1 main points and ensure understanding of audit types, standards, and auditor roles.