Management and Organizational Studies 3363A/B Chapter 1-2: MOS 3363 - Chapter 1&2

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Western University
Management and Organizational Studies
Management and Organizational Studies 3363A/B
Michelle Loveland

Chapter 1: The Demand for an Auditing and Assurance Profession • Accumulate evidence, and based on the evidence you determine whether the financial statements are in line with standards • 5 components of auditing: 1. Quantifiable information – related to the entity being audited ▪ For example: a tax return 2. Criteria ▪ Normally GAAP/IFRS/ASPE, Income Tax Act, etc. 3. Evidence gathering and evaluation ▪ Information from the client, third parties, and observation ▪ Information from third parties is generally more reliable than from the client 4. Competent, independent person performing the audit 5. Report of findings ▪ Conclusion ▪ Telling users of the financial statements whether the statements are materially correct • Accounting is the recording, classifying and summarizing of economic events for decision making • Auditing involves examining accounting information and auditors must have expertise in accounting • Auditing is a systematic process of objectivity obtaining and evaluating evidence regarding assertions about economic events and actions to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. Factors that affect the demand for audits: • Remoteness of information • Bias and motives of provider • Voluminous data • Complex echange transactions • Perceived cost/benefit Economic Demand for Auditing • Reduces information risk associated with financial statements • Helps users of the statements to make good business/investment decisisons • Managers have superior information to that of the users (investers and lenders) o The independent audit provides assurance to users that the financial statements are without material error Assurance Services • Assurance services are auditing services • Issue a report about the reliability of some kind of information • Attestation services are a type of assurance service • A review of financial statements requires less evidence; states that financial statements are plausible Audit of Historical Financial Statements • Fair presentation • The financial statements being audited are the responsibility of both the auditor and management. • A review is a lower level of assurance than an audit o Still compared to a framework Attestation on Internal Controls over Financial Reporting • In the USA consider the SOA (Enron) • Internal Controls: • Processes the company uses to complete transitions; for example: o For cash, making sure you have two people signing the cheques. It makes sure that people aren’t writing cheques to themselves/making fraudulent payments o To buy/sell goods, a purchase order must be completed. • Increases users confidence of future transactions Other Attestation Services • Providing an opinion on financial information other than financial statements or on compliance with an agreement or regulations • Almost no limits to the types of assurance services that auditors can provide o For example: A company that receives rent based on revenue may request an audit for revenue only (not complete financial statements) Non-Assurance Services • Compilation, tax ser
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