auditing.docx - The Auditing Profession Auditing the...

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The Auditing Profession 08/29/2017 ° Auditing: the accumulation and evaluation of evidence about information to determine an report on the degree of correspondence between the information an established criteria. ° ° Auditors provide assurance on financial statements and on the effectiveness of internal control over financial reporting. ° ° To do an audit the information must be in a verifiable form and some criteria by which the auditor can evaluate the information. Criteria for financial statement audits must be GAAP or IFRS Criteria for internal control audits over financial reporting must be based on COSO Criteria for tax return audits are based on IRC. ° ° Evidence: any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria. Evidence must be of sufficient quality and quantity. ° ° Auditor must be: Competent to know types and amounts of evidence. Have an independent mental attitude. (independent auditors conduct audits). ° Reporting: Final stage is the audit report, which communicates the auditors findings to users. ° ° STEPS OF AUDIT: 1. Established criteria and verifiable information (IRC and Tax Returns )
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2. evidence 3. competent and independent auditor 4. reporting ° ° Auditing vs Accounting Accounting is the recording, classifying and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making Auditing focuses on determining whether recorded information reflects events. DEMENAD FOR AUDITING : Loan decisions Interest rates are determined by 3 factors o Risk free interest rates o Business risk for customer: risk that the business cant pay back the loan due to business conditions or poor management. o Information risk: reflects the possibility that the information upon which the business risk decision was made was inaccurate due to inaccurate financial statements. Auditing can affect this risk. Auditing can reduce information risk and lead to a lower interest rate. Auditing increases the perceived creditability of the auditee and people act on their perceptions. Increases credibility by reducing information risk ° ° CAUSES OF INFORMTATION RISK: Remoteness of information: information is difficult to access by the financial statement user. o Information provided by others must be relied upon.
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Biases and motives of the provider: company mgmt has motivation to distort information. o Info may be biased in favor of the provider. Voluminous data: information is to much to process o Businesses increase and their data increases as well as the chance of error in records. Complex exchange transactions: info is too complicated to comprehend o Increase in complexity and accounting standards ° ° REDUCING RISK: ° Larger companies provide audited financial statements to lower risk.
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  • Summer '11
  • MORFF
  • Financial audit

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