ACC 411 Lecture 1: 1

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12 Feb 2017
Auditing Lecture Notes- May 16th 2016
Chapter One
Demand for Audit & Assurance Services why do we even have the assurance
services? World com opening story, should always be read. Do not feel the need to
memorize the details of the story. Read it. Learn from it, do not consider a studying
Vignette Discussion-
Assurance Services improving the quality of information.
(Figure 1-3) Textbook: if it is an assurance services or it is not??
One grey area is the management consulting. Because it can sit in both places. Sarbanes-
Oxley: audit committee can help us decide what can do and what cannot do. Arthur
Anderson: all the fraud came along during the late 1980s. 50% of the revenues coming in
from consulting, the independence issues. Everything went back because they don’t want
to ruin the consulting relationship.
Assurance Services independent professional services that improve the quality of
information for decision makers. What do you have to do to prove your independence?
Thinking with your own brain, what do you own? Another step: looking through lists of
clients to see if there is connection. Some type of ownership? Relationship? Wanting to
improve quality information. How could we really improve it if there is bias? Intentional
attempt to improve bias. Looking at FS to tell if it is fair. It is difficult to say if it is fair.
Somebody completely independent. “I am not saying it is right, when I sign the financial
statements there is some mistakes for sure. Reasonableness and fairness. To the best of
our cpa firm’s ability, we say it is reasonable and fair. We want the investors right there
to know if it is fair. Assurance can be done by CPAs or consumers union, nonprofit
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Attestation Services type of assurance that has a written conclusion comes from a
report. In audit, that conclusion is called an opinion. It is a report.
5 types of Attestation only provided by CPAs
1. Audit of Historical Financial Statements (High level of assurance)
Auditor issues a written report expressing an opinion the company’s FS. That the FS are
in conformity with GAAP, not GAAS. generally accepted auditing standards is a
tool to make sure that you are in conformity with GAAP.
2. Review of Historical Financial Statements
Similar to an audit, but an audit has high level of assurance and a review has a moderate
level of assurance, less evidence less work less cost. Report turns into an audit, similar
types of things look at evidence, so minimum compare to a review. She spent in new
jersey hotel for four months. (The original workload one week review turn into 4 months
3. Audit of Internal Control over Financial Reporting
Making sure that internal controls have been developed and implemented with well-
established criterion.
(Internal controls have gotten so weak. We have not have so many problems.
4. Attestation Services on Information Technology
Read about it in the textbook
Reliability of electronic info. (sys trust/ web trust- which you can read more in chapter 25
if you are crazy) management makes various assertions about the reliability and security
of electronic information.
5. Other Attestation Services
Debt covenant (; debt to equity ratio cannot exceed some criteria like this. Strict debt
covenant requirements. To make sure debt covenant requirements are met. If it is missed,
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