Chap002 Student

Chap002 Student - Chapter 2 The Financial Statement...

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Chapter 2 The Financial Statement Auditing Environment
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2-2 Problems and Warning Signs 1990 2000 During the economic boom of the late 1990s and the early 2000s, accounting firms aggressively sought opportunities to market a variety of high-margin nonaudit services to their audit clients. LO# 1
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2-3 Problems and Warning Signs LO# 1
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2-4 An Explosion of Scandals Enron WorldCom Tyco Xerox Adelphia LO# 1
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2-5 Government Regulation In July 2002, Congress passed the Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act. The Sarbanes-Oxley Act effectively ended the profession’s era of “self- regulation,” creating and transferring authority to set and enforce standards to the Public Company Accounting Oversight Board (PCAOB) . LO# 1
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2-6 Sarbanes-Oxley Act of 2002 Management Boards of Directors Audit Committees Accounting Firms Wall Street Investment Banking Firms Law Firms Stock Exchanges Securities and Exchange Commission
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2-7 Context of Financial Statement Auditing The primary context with which an auditor is concerned is the industry or business of his or her audit client. For example, if you are auditing a computer hardware manufacturer, one of your concerns will be whether your client has inventories that are not selling quickly and are becoming obsolete due to industry innovation. Such inventory might not be properly valued on the client’s financial records. If you are auditing a jeweler you will probably not be as worried about obsolescence, but you will be interested in whether the diamonds and other gems in inventory are valued properly. You may need to hire a qualified gemologist to help you assess the valuation assertion, and you would want to keep up on the dynamics of the international diamond and gem markets. In other words, the context provided by the client’s business impacts the auditor and the audit, and is thus a primary component of the environment in which financial statement auditing is conducted.
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Chap002 Student - Chapter 2 The Financial Statement...

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