1. Introduction to Audit & Other Assurance Services By David N. Ricchiute
AUDITING CHAPTER 1
Introduction to Audit & Other Assurance Services By
David N. Ricchiute

2. TOPICS Nature audit & attestation services
Demand for financial statement audits
Audit standard-setting process
Influences on accounting & auditing
Other audits & nonattest services
Other attestation services
Consulting & other assurance services
GBW 8th ed., Ch. 1

3. INTRODUCTION Audits reduce Professional challenges Information risk
Cost of capital
Professional challenges
Rebuild confidence in auditor credibility
Incorporate changes stemming from Sarbanes-Oxley Act
GBW 8th ed., Ch. 1

4. ASSURANCE SERVICES Three-party contracts Common attestation services
Agreed-upon procedures engagements
Review engagements
Financial statement audit
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5. ATTESTATION SERVICES Agreed-upon procedures engagements
Uses procedures agreed by contracting parties
Review engagements
Limited assurance whether financial statements conform to GAAP
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6. PROFESSIONAL SERVICE FIRMS
Attestation & audit offered by public accounting firms
Professional staff are certified public accountants
Organized as limited liability partnerships (LLP)
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7. FINANCIAL STATEMENT AUDIT
Performed by certified public accountants
Auditor offers assurances about management’s financial statement assertions
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8. INFORMATION RISK MODEL
Definition: risk that information is materially misstated
Interested parties rely on information in decision making
Audit provides assurance about quality of financial statement information
Assurance offsets information risk
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9. DEMAND FOR AUDITS Minimize information risk
Unbiased monitor reduces information risk
Reports on quality of financial statement information
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10. VALUE OF AUDIT Reduces information risk to interested parties
Investors, creditors, employees, suppliers, regulatory agencies, tax agencies, etc.
Reduces cost of capital to company
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11. FINANCIAL STATEMENTS Representations of management Examined by auditor
Responsible for assertions embodied in financial statements
Examined by auditor
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12. WHO IS AUDIT CLIENT? Board of directors
Auditor is engaged by board of directors
Elected by shareholders
Represents shareholder interests
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13. DEFINING THE AUDIT PROCESS
Auditing is a 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.
Committee on Basic Auditing Concepts, “A Statement of Basic Auditing concepts,” The Accounting Review, supplement to v. 47, 1972, p. 18
GBW 8th ed., Ch. 1

14. UNDERSTANDING THE AUDIT PROCESS
Investigation
Gathering, investigating evidence
Using scientific method of inquiry
Report
Issue opinion whether management’s financial statement assertions correspond in all material respects to GAAP
GBW 8th ed., Ch. 1

15. SCIENTIFIC METHOD OF INQUIRY
Scientific Method Auditing
Observe problem
Opinion on fair presentation of financials
Formulate hypothesis
Financial statements are fairly presented
Gather evidence
Assess risk; design procedures
Evaluate evidence & conclude
Evaluate evidence to support or refute hypothesis
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16. AUDIT STANDARD SETTING: AICPA
Trade association for CPAs
Audit Standards Board (ASB)
Senior technical body that issues authoritative pronouncements for non-public company audits and attestation services
Accounting & Review Services Committee:
Senior technical body that issues pronouncements for non-public company accounting & review services
GBW 8th ed., Ch. 1

17. AUDIT STANDARD SETTING Securities & Exchange Commission
Created 1934 to protect investors
Oversight authority for accounting and auditing
Regulates registration & exchange of securities
Issues Staff Accounting Bulletins (SAB)
Unofficial interpretations to guide practitioners
GBW 8th ed., Ch. 1

18. AUDIT STANDARD SETTING: PCAOB
Created 2003 by Congress in Sarbanes-Oxley Act
Private sector non-profit organization
Issues audit, attestation standards for public companies
Oversees auditors of public companies to
Protect investors
May adopt AICPA auditing standards or establish new standards
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19. AUDITING DESCRIBED
Auditing is analytic, not constructive; it is critical, investigative, concerned with the basis for accounting measurements and assertions. Auditing emphasizes proof, the support for financial statements and data. Thus auditing has its principal roots, not in accounting which it reviews, but in logic on which it leans heavily for ideas and methods.
R.K. Mautz & H.A. Sharaf. The Philosophy of Auditing. Sarasota: AAA, 1961, p. 14
GBW 8th ed., Ch. 1

20. ACCOUNTING STANDARD SETTERS
Financial Accounting Standards Board (FASB) & Governmental Accounting Standards Board (GASB)
Independent standard-setting bodies issuing authoritative standards (GAAP) for non-governmental and governmental entities
Auditor must express opinion on financial statements in conformity with GAAP
GBW 8th ed., Ch. 1

21. RELATIONSHIP OF ACCOUNTING & AUDITING
Hypothesis: financial statements are fairly presented in accordance with GAAP
FASB writes accounting standards that become part of GAAP
GASB writes accounting standards for governmental accounting
GAAP standards are criteria for fair presentation
GBW 8th ed., Ch. 1

22. OTHER AUDIT & ATTEST SERVICES
Operational audits
Assess effectiveness & efficiency of operations
Compliance audits
Assess whether entity has complied with applicable laws & regulations
Mostly for Not-for-Profit organizations
Agreed-upon procedures
Attest service with contractual procedures
GBW 8th ed., Ch. 1

23. CONSULTING & OTHER ASSURANCE SERVICES
Business valuation
Financial planning
Litigation support
Information system design & processing
Forecasts & projections
Sarbanes-Oxley prohibits many services to public companies
GBW 8th ed., Ch. 1

24. AICPA VISION STATEMENT
CPAs are trusted professional who enable people and organizations to shape their future. Combining insight with integrity, CPAs deliver value by communicating the total picture with clarity and objectivity, translating complex information into critical knowledge, anticipating and creating opportunities and designing pathways that transform vision into reality
Source: AICPA Vision Project (
GBW 8th ed., Ch. 1