Auditing%20Lecture%202 - Lecture 2 Chapter 1 Audit and...

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Page 1 of 5 Lecture 2 Chapter 1 Audit and Assurance Services Distinction between Auditing and Accounting c Many financial statement users and the general public confuse auditing with accounting. c The confusion results because most auditing is usually concerned with accounting information, and many auditors have considerable expertise in accounting matters. c The confusion is increased by giving the title "certified public accountant" to many individuals who perform audits. c Accounting is the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making. c To provide relevant information, accountants must have a thorough understanding of the principles and rules that provide the basis for preparing the accounting information. c In addition, accountants must develop a system to make sure that the entity's economic events are properly recorded on a timely basis and at a reasonable cost. c Auditors focus on determining whether recorded information properly reflects the economic events that occurred during the accounting period. c Auditors must thoroughly understand accounting standards. c Auditor must possess expertise in the accumulation and interpretation of audit evidence. c It is this expertise that distinguishes auditors from accountants. c Determining the proper audit procedures, deciding the number and types of items to test, and evaluating the results are unique to the auditor. Causes of Information Risk c As society becomes more complex, decision makers are more likely to receive unreliable information. There are several reasons for this: Remoteness of information. Biases and motives of the provider. Voluminous data. Complex exchange transactions. Remoteness of Information: c In a global economy, it is nearly impossible for a decision maker to have much firsthand (immediate) knowledge about the organization with which they do business. c Information provided by others must be relied upon. c When information is obtained from others, the likelihood of it being intentionally or unintentionally misstated increases
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Page 2 of 5 Biases and Motives of the Provider: c If information is provided by someone whose goals are inconsistent with those of the decision maker, the information may be biased in favor of the provider. c The reason can be honest optimism about future events or an intentional emphasis designed to influence users. c In either case, the result is a misstatement of information. c The misstatement could be incorrect dollar amounts or inadequate or incomplete disclosures of information. c
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This note was uploaded on 03/23/2012 for the course ECONOMICS eco 403 taught by Professor Talatafza during the Spring '10 term at Aachen University of Applied Sciences.

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Auditing%20Lecture%202 - Lecture 2 Chapter 1 Audit and...

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