TAXX 301 Lecture Notes - Lecture 1: Financial Statement, Data Integrity, American Institute Of Certified Public Accountants
Auditing Chapter 1 Notes
Auditing- the accumulation and evaluation of evidence about information to
determine and report on the degree of correspondence between the information
and established criteria. Auditing should be done by a competent, independent
person.
To do an audit there must information in a verifiable form and some standards by
which the auditor can evaluate the information. Auditors routinely perform audits
of quantifiable information, including companies’ financial statements and
individual’s federal tax returns. Auditors also perform audits of more subjective
information, such as the effectiveness of computer systems and the efficiency of
manufacturing operations.
Evidence- any information used by the auditor to assess whether the information
being audited is stated in accordance with the established criteria. I.E.- oral
representation of the client, written communication with outsiders, and
observations by the auditor.
Independent Auditors- a public accountant or accounting firm that performs audits
of commercial and non-commercial entities.
Internal Auditors- an auditor employed by a company to audit for the company’s
board of directors and management
Independent Auditors Report- the communication of the audit’s findings to users.
Must inform readers of the degree of correspondence between information and
established criteria.
Determining a rate of interest depends on:
1) Risk free interest rate. This is approx. the rate the bank could earn by
investing in Canada Treasury Bills for the same length of time as the business
loan.
2) Business risk for the customer. This risk reflects the possibility that the
business will not be able to repay its loan because of economic or business
conditions such as a recession, poor management decisions, or unexpected
competition in the industry.
3) Information risk. This risk reflects the possibility that the information upon
which the business decision was made was inaccurate. A likely cause of the
information risk is inaccurate financial statements.
• Auditing has no effect on either the risk free interest rate or the business risk.
It can have a significant effect on information risk.
Three main ways to reduce information risk:
1) the user many go to the business premises to examine records and obtain
information about the reliability of the statements.
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Document Summary
Auditing- the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person. To do an audit there must information in a verifiable form and some standards by which the auditor can evaluate the information. Auditors routinely perform audits of quantifiable information, including companies" financial statements and individual"s federal tax returns. Auditors also perform audits of more subjective information, such as the effectiveness of computer systems and the efficiency of manufacturing operations. Evidence- any information used by the auditor to assess whether the information being audited is stated in accordance with the established criteria. I. e. - oral representation of the client, written communication with outsiders, and observations by the auditor. Independent auditors- a public accountant or accounting firm that performs audits of commercial and non-commercial entities. Internal auditors- an auditor employed by a company to audit for the company"s.