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smiel_ch01 - Introduction to Auditing Public Practice and...

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CHAPTER Professional Practice Chapter 1 gives you an introduction to professional accounting practice. Other accounting courses helped you learn the principles and methods of accounting, but here you will begin to study the ways and means of practising accounting and auditing outside the classroom. 1 After completing this chapter, you will be able to: 1 Explain the importance of auditing. 2 Distinguish auditing from accounting. 3 Explain the role of auditing in information risk reduction. 4 Describe the current audit environment, in- cluding regulatory oversight. 5 Describe the other major types of audits and auditors. 6 Outline how public accountants (PAs) are regulated. 7 Provide an overview of international auditing. 8 Research websites on accounting and auditing activities of PA organizations. (Appendix 1A) 9* Chronicle the historical development of audit- ing standards, including the criticisms and responses of the profession. (Appendix 1B) 10* Describe alternative theories of the role of auditing in society. (Appendix 1C) * Learning objectives marked with an asterisk (*) and their corresponding topics are considered advanced material. Note: Appendices 1B and 1C are located on the text Online Learning Centre. 1 LEARNING OBJECTIVES PART I Introduction to Auditing, Public Practice, and Professional Responsibilities
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2 PART I Introduction to Auditing, Public Practice, and Professional Responsibilities I NTRODUCTION : T HE C OMING OF A GE OF THE A UDIT S OCIETY Auditing is a field of study that has received considerable media attention lately. In fact, in the business press, audit-related issues are mentioned daily. Headlines such as “Auditors: The Leash Gets Shorter,” “The Betrayed Investor,” “Dirty Rotten Numbers,” and “Accounting in Crisis” indicate that the attention has not been all positive. This attention arises from the fact auditing is critical to the proper functioning of capital markets. And, when audits are perceived to fail, capital markets can fail as well. Without effective audits modern capitalist societies cannot fulfill their role of being the most efficient economic sys- tems resulting in the highest living standards. An example of an effective auditor follows: The preceding example illustrates effective auditors in the new business environment of the early twenty-first century. The role of audits is so critical to advanced capitalism that some refer to such societies as audit societies . Audit societies are those in which there is extensive monitoring of economic (and other politically important) activities to help assure that capital markets are efficient. Audit societies also include those in which auditors mon- itor the effectiveness and efficiency of government. For example, the Gomery commission inquiry (www.gomery.ca) that caused a political uproar in Canada in 2005 began as a result of an audit investigation of questionable sponsorship payments that resulted in “no value” for taxpayer money spent. As a result of these and similar developments, auditing is increas- ingly recognized as part of a broader process of social control. This expanding role of audit-
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