TAXX 301 Lecture Notes - Lecture 2: Financial Statement
Chapter 2 Auditing Notes
The Structure of Public Accounting Firms
1) The need for independence from clients. Independence permits auditors to
remain unbiased in drawing conclusions about their clients’ financial
statements.
2) The importance of a structure to encourage competence. The ability of the
structure to encourage competence permits auditors to conduct audits and
perform other services efficiently and effectively.
3) The increased litigation risk faced by auditors. Firms continue to experience
increases in litigation related-costs. Some organizational structures afford a
degree of protection from lawsuits to individual firm members.
Risk Assessment Approach (overview):
Step 1: The auditor must identify and assess the potential risks of material
misstatement in the financial statements.
Step 2: Based upon these risks, the auditor will provide a risk response, which
includes the design and execution of the evidence-gathering process to assess
the likelihood of these material misstatements actually occurring.
Step 3: The auditor continually evaluates evidence to enable preparation of the
audit report. The audit report is an opinion, not a guarantee, that provides
reasonable assurance that the financial statements are free of material
misstatement.
Assurance Standards- a framework for the auditor to use to assist him or her in
the conduct of an audit engagement; the authority underlying the audits and
related services activities carried on by public accountants; the requirements
sections of CASs and the italicized portions of Other Canadian Standards in the
CICA Handbook. They are issued by the Auditing and Assurance Standards
Board.
Auditing and Assurance Board- an independent board of the CICA that has the
responsibility for issuing auditing and assurance standards for financial
statement audits and other types of assurance and related services engagements.
Assurance and Related Services Guidelines- interpretations of Assurance
Standards or views of the Auditing and Assurance Standards Board on particular
matters of concern; less authoritative than Assurance Recommendations.
Quality Control- policies and procedures used by a public accounting firm to
make sure that the firm meets its professional responsibilities.
→ these methods include the organizational structure of a firm and the
procedures a firm sets up.
**Table 2-2 pg 39**
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Document Summary
The structure of public accounting firms: the need for independence from clients. Independence permits auditors to remain unbiased in drawing conclusions about their clients" financial statements: the importance of a structure to encourage competence. The ability of the structure to encourage competence permits auditors to conduct audits and perform other services efficiently and effectively: the increased litigation risk faced by auditors. Firms continue to experience increases in litigation related-costs. Some organizational structures afford a degree of protection from lawsuits to individual firm members. Step 1: the auditor must identify and assess the potential risks of material misstatement in the financial statements. Step 2: based upon these risks, the auditor will provide a risk response, which includes the design and execution of the evidence-gathering process to assess the likelihood of these material misstatements actually occurring. Step 3: the auditor continually evaluates evidence to enable preparation of the audit report.
