Chapter 2-Auditing

Chapter 2-Auditing - Chapter 2-Auditing Environment...

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Unformatted text preview: Chapter 2-Auditing Environment 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) . -SOX started a process of broad reform in corporate governance (people, processes, and activities in place to ensure proper stewardship over an entity’s assets) practices that affect the duties and practices of public companies, financial analysts, external auditors, and securities exchange markets -SOX mandated that SEC impose strict independent rules, prohibiting the provision of many types of nonaudit services to public companies it also mandated that audit firms rotate audit partners off audit engagements every 5 years, and that public companies obtain an integrated audit (audit of FS and internal controls)-Auditors evaluate management assertions as they are applied to: • Transactions • Account Balances • Presentation and Disclosure Auditing Standards-Serve as guidelines for and measures of the quality of the auditor’s performance -Help ensure that FS audits are conducted in a thorough and systematic way that produces reliable conclusions -ASB (Auditing Standards Board ) established auditing standards for all nongovernmental audits until 2003-After SOX, PCAOB had the authority to set auditing standards for public company audits -Standards of the ASB and the PCAOB are similar -PCAOB adopted the ASB’ auditing standards that existed as of 2003- ASB first issued 10 GAAP (auditing principles) that the PCAOB adopted that are composed of three categories of standards: 1. General Standards 2. Standards of fieldwork 3. Standards of reporting 1. Three General Standards- Concerned with the auditor’s qualifications and the quality of his work 1. Must have adequate ongoing training and proficiency gained through formal education, continuing education programs, and experience 2. Must be independent: • Independence in fact-actually be objective • Independence in appearance- avoid actions/relationships that may appear to affect independence 3. 3....
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Chapter 2-Auditing - Chapter 2-Auditing Environment...

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