Chapter 1: Relationships among Auditing, Attest, and Assurance Services Assuranceincludes both Attest and Auditing. Assurance services are to lend reliability and trustworthiness to a company. Example: PWC tallied the votes for the Academy Awards. That is an assurance service. Reports are not necessarily made for Assurance services Attest includes Auditing: Attest services have three parts: Agreed upon procedure (less common than reviews and examinations), reviews (give limited assurance), and examinations (Audit) give high or reasonable level of assurance For public companies, you will do three quarterly reviews and one-year end examination (audit) Examinations (Audit)are much more detailed and stringent than Reviews Non Assurance Services:Tax services, Management Consulting Services, Other. Do not have to be independent from the company. For Assurance Services you must be independent of the company Suitable Criteria:Standards established or developed by groups of experts. Example: Internal Control Audit-- standards established by COSO framework Financial Statement Audit:Auditors gather evidence and provide a high level of assurance (referred to as reasonable assurance) that the financial statements follow GAAP, or some other appropriate accounting framework Audit involves searching and verifying accounting records and examining internal and external evidence Audit Evidence: Evidence focuses on whether financial statements are presented in accordance with GAAP. Examples: Balance sheet, Income statement, Financial statement amounts Balance Sheet: All included assets and obligations exist. Includes all assets and obligations, Assets and obligations are properly valued Income Statement: Sales accurately occurred. Sales have been recorded at appropriate amounts. Recorded costs and expenses are applicable to period. All expenses have been recognized Financial Statement amounts: Accurate, properly classified and summarized. Notes are informative and complete What creates demand for Audits? Audits lend credibility to information by reducing information risk, the risk that information is materially misstated Financial statement misstatements arise due to: Accidental errors, Lack of knowledge of accounting principles, unintentional bias, deliberate falsification (fraud) Audits do not address business risk, the risk that a company will not be able to meet its financial obligations due to economic conditions or poor management decisions United States v Arthur Young: Supreme Court described the auditors’ role as being that of a public watchdog Do not focus on history before 2000 when studying Relevant Recent History – Study this
