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    PPT 01

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    Diaz Hesron Deo Simorangkir
    The document discusses audit quality and minimizing lawsuits. It defines the objective of external auditing as providing reliable financial information and assessing internal controls. It outlines the audit process and emphasizes obtaining sufficient evidence and communicating findings. It describes factors that necessitate independent assurance such as potential bias and complexity. Maintaining independence, participating in review programs, and ensuring quality documentation are cited as ways to achieve audit quality and minimize lawsuits.

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    © All Rights Reserved
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    PPT 01

    Uploaded by

    Diaz Hesron Deo Simorangkir
    22 views36 pages
    The document discusses audit quality and minimizing lawsuits. It defines the objective of external auditing as providing reliable financial information and assessing internal controls. It outlines the audit process and emphasizes obtaining sufficient evidence and communicating findings. It describes factors that necessitate independent assurance such as potential bias and complexity. Maintaining independence, participating in review programs, and ensuring quality documentation are cited as ways to achieve audit quality and minimize lawsuits.

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    20230414163412_PPT 01

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    The document discusses audit quality and minimizing lawsuits. It defines the objective of external auditing as providing reliable financial information and assessing internal controls. It outlines the audit process and emphasizes obtaining sufficient evidence and communicating findings. It describes factors that necessitate independent assurance such as potential bias and complexity. Maintaining independence, participating in review programs, and ensuring quality documentation are cited as ways to achieve audit quality and minimize lawsuits.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    22 views36 pages

    PPT 01

    Uploaded by

    Diaz Hesron Deo Simorangkir
    The document discusses audit quality and minimizing lawsuits. It defines the objective of external auditing as providing reliable financial information and assessing internal controls. It outlines the audit process and emphasizes obtaining sufficient evidence and communicating findings. It describes factors that necessitate independent assurance such as potential bias and complexity. Maintaining independence, participating in review programs, and ensuring quality documentation are cited as ways to achieve audit quality and minimize lawsuits.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 36

    Audit and Internal Control

    Week 1 - Auditing: Integral to the Economy


    LEARNING OUTCOME
     LO 1: Define the objective of external auditing for reliable
    financial and internal control information
     LO 2: Explain technique and procedure used by auditor in
    audit process
    OUTLINE
    • Overview of the External Auditing Profession
    • Audit Quality
    • Achieving Audit Quality and Minimizing Lawsuits
    • Client Acceptance and Continuance Decisions
    OVERVIEW OF THE EXTERNAL AUDITING
    PROFESSION
    External Auditing Profession

    Financial statement audit


    • Systematic process of objectively obtaining and evaluating
    evidence regarding assertions about economic actions and
    events to ascertain the degree of correspondence between
    those assertions and established criteria and communicating
    the results to interested users
    External Auditing Profession

    • Objectives of external auditing are to provide opinions on:


    • Reliability of financial statements
    • Internal control effectiveness
    • Integrated audit: Provided when an external auditor is
    engaged to perform an audit of the effectiveness of internal
    control over financial reporting that is integrated with an
    audit of financial statements
    External Auditing Profession

    Unqualified audit report: When


    External audit is intended to the auditor issues this type of
    enhance confidence that users report, it implies that the auditor
    can place on management- has no reservations about
    prepared financial statements management’s financial
    statements or internal controls
    External Auditing Profession

    When the auditor


    has reservations • Audit report is modified to explain
    about the fair
    presentation of the
    the nature of the reservations
    financial statements

    Adverse opinion is • Financial statements taken as a


    expressed when whole are not presented fairly in
    auditors believe conformity with GAAP and/or
    that: • Client’s internal controls not effective
    External Auditing: A Special
    Function
    Described Most important party
    by Chief served by the auditors is
    Justice the public
    Warren Technical competence
    Burger - Auditing requires:
    Captures Freedom from bias

    the essence Concern for the integrity of the financial


    of the reporting process

    external
    Auditors - Guardians of
    auditing
    the capital markets
    profession
    External Auditing: A Special
    Function
    • Find fraud
    • Require that management use accounting principles that best portray
    the spirit of the concepts adopted by accounting standard setters
    Public expects
    auditors to: • Be independent of management

    • Keeping fees low


    • Making careful decisions regarding independence
    Auditing profession
    faces many • Conducting a quality audit
    pressures
    Exhibit 1.2 - Users of Audited Financial Statements
    and decisions they make based on the reports
    Need for Unbiased Reporting and
    Independent Assurance - FACTORS
    Why is there Management has incentives to
    a risk that
    information
    Potential bias financial information to
    convey a better impression of
    provided by bias financial data than real
    circumstances might merit
    management
    may not
    always be Organization and users of its
    reliable?
    Remoteness financial information are distant
    from each other in terms of
    either geographic distance or
    the extent of information
    available to the both parties
    Need for Unbiased Reporting and
    Independent Assurance - FACTORS

    Complexity

    • Difficulty in determining a proper presentation of complex


    transactions, information, and processing systems

    Consequences

    • With unreliable information, investors lose a significant


    source of information needed to make important decisions
    Overall Objectives in Conducting an
    Audit

    Obtaining assurance about


    Reporting on financial
    financial statements being
    statements based on
    free from material
    auditor’s findings
    misstatement
    Overall Objectives in Conducting
    an Audit

    • Complies with relevant ethical


    requirements
    • Plans and performs an audit with
    In completing professional skepticism
    these objectives, • Exercises professional judgment
    the auditor: • Obtains sufficient appropriate evidence on
    which to base the auditor’s opinion
    • Conducts audit in accordance with
    professional auditing standards
    Revenue cycle

    • Receiving a customer’s order


    Process of:
    • Approving credit for a sale
    • Determining whether goods are available for shipment
    • Shipping the goods
    • Billing the customers
    • Collecting cash
    • Recognizing effect of this process on other related accounts
    AUDIT QUALITY
    Providers of External Auditing
    Services

    External auditing profession includes:

    • Sole-practitioner firms
    • Local and regional firms
    • Large multinational professional services
    firms
    Providers of External
    Auditing Services
    • Organizational hierarchy of audit firms
    • Responsible for overall conduct of each audit
    Partners/Owners • Responsible for many audit engagements
    being conducted simultaneously
    • Review audit work of seniors and staff
    Managers • Responsible for fewer audit engagements
    being conducted simultaneously
    • Responsible for overseeing day-to-day
    Seniors activities on a specific audit
    • Oversee performance of auditing procedures
    Skills and Knowledge Needed for
    External Auditing Profession
    Technical Understand accounting and
    knowledge Auditors auditing authoritative literature
    and
    expertise must: Develop industry and client-
    specific knowledge
    Develop and apply computer
    skills
    Evaluate internal controls

    Assess and respond to fraud risk


    Skills and Knowledge Needed for
    External Auditing Profession
    • Leadership, teamwork, communication, decision
    making and other professional skills
    • Make presentations to management and audit
    committee members
    • Exercise logical reasoning
    • Communicate decisions to users
    • Manage and supervise by providing
    meaningful feedback
    • Act with integrity and ethics and interact in a
    team environment
    • Collaborate and maintain a professional
    presence
    • Performing an audit in accordance with
    accepted auditing standards (GAAS)
    • Providing assurance that audited
    Audit Quality financial statements and disclosures are
    presented in accordance with GAAP
    • Providing assurance that those financial
    statements are not materially misstated
    whether due to errors or fraud
    Drivers of Audit Quality

    • Primary drivers of audit quality included in Audit Quality Framework developed


    by Financial Reporting Council (FRC)
    ACHIEVING AUDIT QUALITY AND MINIMIZING
    LAWSUITS
    Achieving Audit Quality and
    Minimizing Lawsuits

    • Professional requirements that help to achieve audit quality


    • Maintaining auditor independence
    • Participating in review programs
    • Issuing engagement letters
    • Evaluating the audit firm’s limitations
    • Maintaining quality audit documentation
    SEC independence requirements
    Taking principles-based
    approach
    Mutual or conflicting
    interest between
    accountant and audit client
    Applicable to auditors of
    public companies
    Accountant auditing own
    work
    Principles dictate that
    auditor independence is
    impaired when: Accountant acting as
    management or employee
    of audit client

    Accountant being an
    advocate for audit client
    AICPA independence requirements

    Threats to independence
    Undue Management
    Self-review Advocacy Adverse Familiarity Financial self-
    influence participation
    threat threat interest threat threat interest threat
    threat threat
    AICPA independence requirements
    Safeguards to Safeguards created by
    avoid profession or regulation
    independence
    problems Safeguards created by audit
    include: client
    Safeguards created by audit
    firm
    Review Programs

    External inspections/peer reviews

    Engagement quality reviews

    Interoffice reviews
    States scope of work to be done on audit

    There should be no doubt in the mind of client,


    external auditor, or court system - regarding
    expectations agreed to by external auditor and
    client

    Engagement
    letter Includes:

    • Audit fee
    • Timing description of external auditor’s work
    • Documentation that client is expected to provide to
    external auditor
    Audit firm
    limitations • An external audit firm should not
    undertake engagement that it is not
    qualified to handle
    • Important for smaller and growing firms
    Audit documentation

    Document everything done on audit

    Documentation should clearly show evidence of supervisory review

    Documentation should indicate:

    What tests were performed Who performed them Any significant judgments made
    CLIENT ACCEPTANCE AND CONTINUANCE
    DECISIONS
    Audit firm portfolio
    management
    Reference
    • Karla M. Johnstone. (2016). Auditing : a risk-based approach to conducting a
    quality audit. 10th ed. Cengage Learning. Boston. ISBN: 9781305080577.
    • Iain Gray, Stuart Manson, Louise Crawford. (2015). The Audit Process Principles,
    Practices and Cases. 06. Cengage Learning. Hampshire. ISBN: 9781408081709.
    Thank You

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