1. Modern Auditing:
Assurance Services and the Integrity of Financial Reporting, 8th Edition
William C. Boynton
California Polytechnic State University at San Luis Obispo
Raymond N. Johnson
Portland State University
Chapter 1 – Auditing and the Public Accounting Profession – Integrity of Financial Reporting

2. Chapter 1 Overview

3. Auditing Defined Systematic process
Objectively obtaining and evaluating evidence
Assertions about economic actions and events
Degree of correspondence

4. Auditing Defined (cont.)
Established criteria
Communicating the results
Interested users

5. Comparative Summary of Types of Audits

6. Types of Auditors Independent Auditors Internal Auditors
Government Auditors

7. Assurance Services Defined
Independence
Professional services
Quality of information
Decision maker

8. Example Assurance Services
Audit Engagements
Attest Services
Examination
Review Engagement
Agreed-upon Procedures Engagement
Accounting Services
Compilation Services

9. Levels of Assurance Reasonable Assurance Negative Assurance
Agreed-upon Procedures
Compilation Without Assurance

10. Universe of Assurance Services

11. The Accountant’s Value Chain

12. Study Break
1. This type of audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity’s operating activities.
Financial Statement Audit
Compliance Audit
Operational Audit
Internal Control Audit
C. Operational Audit

13. Study Break
2. These auditors are typically CPA’s who render professional auditing services to clients.
Independent Auditors
Internal Auditors
Government Auditors
IRS Auditors
A. Independent Auditors

14. The Roots of Auditing British influence and migration
Stock market crash
Legislation of the 1930’s
Important changes in the 1940’s

15. The Roots of Auditing Scrutiny of 1980’s lead to changes
Increasing amount of consulting in 1990’s
Growing numbers of earnings restatements
Sarbanes-Oxley Act of 2002

16. Need for Financial Statement Audits
Conflict of Interest
Consequence
Complexity
Remoteness

17. Economic Benefits of an Audit
Access to Capital Markets
Lower Cost of Capital
Deterrent to Inefficiency and Fraud
Control and Operational Improvements

18. Limitations of a Financial Statement Audit
Economic Limitations
Reasonable Cost
Reasonable Length of Time
Accounting Framework Limitations
Alternative Accounting Principles
Accounting Estimates

19. Study Break
3. Which of the following is not an economic benefit of a financial statement audit?
Access to Capital Markets
Lower Cost of Capital
Control and Operational Improvements
Maintain Fair Competition
D. Maintain Fair Competition

20. Study Break
4. Which of the following is not an inherent limitation of a financial statement audit?
Reasonable Cost
Unlimited Timeframe
Alternative Accounting Principles
Accounting Estimates
B. Unlimited Timeframe

21. Organizations Associated with the Public Accounting Profession

22. Regulatory Framework for Ensuring High-Quality Services
Standard Setting
Firm Regulation
Inspection and Peer Review
Government Regulation

23. Standard-Setting Organizations in the United States

24. Study Break
5. Which organization is considered to be a private sector organization?
State Boards of Accountancy
Securities and Exchange Commission
AICPA
IRS
C. AICPA

25. Study Break
6. This component of regulatory framework includes the inspection of audits by the PCAOB staff and peers in other accounting firms.
Standard setting
Firm regulation
Inspection and peer review
Government regulation
C. Inspection and peer review