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CHAPTER 1 Public Company— sells stock to public for interest in company Agents— Managers Principles— Owners Information Asymmetry— Manager knows more about the company’s true financial position  Conflict of Interest— goals do not coincide Information Risk— the risk that information circulated by a company will be false or misleading Assurance Services o Independent o Professional Services o Improve the Quality of Information o For Decision Makers o Improves: Reliability, Credibility, Relevance and Timeliness o Attest Services Practitioner is engaged  To issue a report On an Assertion That is the responsibility of another Improves: Reliability and Credibility Auditing Systematically and Objectively Obtaining and Evaluating Evidence Regarding Assertions of Economic Events To ascertain degree of correspondence between those assertions and  established criteria And communicating results to interested users Improves: Reliability and Credibility Audit Risk— The risk that auditor may unknowingly fail to appropriately modify opinion on materially  misstated statements Reasonable Assurance— Implies some risk that material misstatement may be present and not detected Materiality— Magnitude of omission that would likely change the opinion of a reasonable person o Total: 3-5% of Net Income Sampling— Inverse relation between sample size and materiality o Direct relation between sample size and desired level of assurance Auditor  collects evidence in 3 stages  of clients accounting system to find out if fairly stated: 1. Internal Control 2. Transactions 3. Ending Account Balances Major phases of the Audit o Client Acceptance o Preliminary Engagement Activities o Determining the audit engagement team requirements by gaining understanding of entity and  environment
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o Ensuring independence of audit team and firm o Establish Materiality and Assess Risks o Plan the Audit o Consider and Audit Internal Control o Audit Business processes and related accounts o Complete the Audit o Evaluate results and Issue Audit Report Unqualified Audit Report— free of material misstatements o Title o Addressee—Intended Recipient o Introductory o Scope o Opinion o Explanatory o Auditor  o Date Qualified Report— Material misstatement included, but should not affect the overall financial statements Adverse Opinion— Financial Statements are too materially misstated for the auditor to verify their contents CHAPTER 2 Sarbanes Oxley o Transferred Authority to set and enforce auditing standards for public companies to Public  Accounting Oversight Board (PCAOB) o Audit Firms rotate auditors every 5 years
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This note was uploaded on 05/11/2010 for the course ACCT 3222 taught by Professor Delaune,l during the Spring '08 term at LSU.

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