审计学一种整合方法阿伦斯英文版第12版RRChapter09ppt课件
审计学：一种整合方法_第12版_英文版Chapter01-46页精选文档
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1 - 10
Distinguish Between Auditing and Accounting
Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making.
Auditing should be done by a competent, independent person.
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Information and Established Criteria
The competence of the individual performing the audit is of little value if he or she is biased in the accumulation and evaluation of evidence.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 12
Economic Demand for Auditing
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
审计学一种整合的方法1ppt课件
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Understanding of the Client’s Business and Industry
Factors that have increased the importance of understanding the client’s business and industry:
Accept client and perform initial audit planning.
Understand the client’s business and industry.
Assess client business risk.
Perform preliminary analytical procedures.
8-7
Initial Audit Planning
➢ Client acceptance and continuance ➢ Identify client’s reasons for audit ➢ Obtain an understanding with the client ➢ Develop overall audit strategy
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Learning Objective 3
Gain an understanding of the client’s business and industry.
审计学：一种整合方法_第12版_英文版Cha(1)
Accumulating Evidence and Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
Determines correspondence
Report on results
Report on tax deficiencies
Established criteria
Internal Revenue Code and all
interpretations
Learning Objective 2
Auditing is determining whether recorded information properly reflects the economic events that occurred during the accounting period.
Learning Objective 3
The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users.
Audit of a Tax Return Example
Learning Objective 1
Describe auditing.
Nature of Auditing
审计学：一种整合方法_第12版_英文版Chapter18-32页PPT资料
18 - 5
Accounts in the Payroll and Personnel Cycle
In most systems the accrued wages and salaries account is used only at the end of an accounting period.
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18 - 9
Timekeeping and Payroll Preparation
Time Card Job Time Ticket Payroll Transaction File Payroll Journal
Begins Ends
Hiring of personnel Payments
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18 - 8
Personnel and Employment
Personnel records Deduction authorization form Rate authorization form
Accounts in the Payroll and Personnel Cycle
The overall objective in the audit of the payroll and personnel cycle is to evaluate whether the account balances affected by the cycle are fairly stated in accordance with generally accepted accounting principles.
审计学一种整合的方法.pptx
statements and internal control
from the auditor’s responsibility
for verifying the financial
statements and effectiveness
of internal control.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6-8
Learning Objective 3
Explain the auditor’s responsibility for discovering material misstatements.
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6-6
Management’s Responsibilities
Management is responsible for the financial statements and for internal control.
The Sarbanes-Oxley Act increases management’s responsibility for the financial statements.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Steps to Develop Audit Objectives
1. Understand objectives and responsibilities for the audit.
审计学：一种整合方法阿伦斯英文版第12版课后问题详解Chapter18SolutionsManual
Chapter 18Audit of the Payroll andPersonnel CycleReview Questions18-1 General ledger accounts that are likely to be affected by the payroll and personnel cycle in most audits include the following:Cash Direct laborInventory Salary expenseConstruction in progress Commission expenseWages payable Payroll tax expensePayroll taxes withheldAccrued payroll taxes18-2In companies where payroll is a significant portion of inventory, as in manufacturing and construction companies, the improper account classification of payroll can significantly affect asset valuation for accounts such as work in process, finished goods, and construction in process. For example, if the salaries of administrative personnel are incorrectly charged to indirect manufacturing overhead, the overhead charged to inventory on the balance sheet can be overstated. Similarly, if the indirect labor cost of individual employees is charged to specific jobs or processes, the valuation of inventory is affected if labor is improperly classified. When some jobs are billed on a cost plus basis, revenue and the valuation of inventory are both affected by improperly classifying labor to jobs.18-3Five tests of controls that can be performed for the payroll and personnel cycle are:1. Examine time card for indication of approval to ensure thatpayroll payments are properly authorized. The purpose ofthis test is to determine that recorded payroll payments arefor work actually performed by existing employees(occurrence).2. Account for a sequence of payroll checks to ensure existingpayroll payments are recorded. The purpose of this test isto determine that existing payroll transactions are recorded(completeness).3. Examine time cards to ensure that recorded payroll paymentsare for work actually performed by existing employees. The purpose of this test is the same as in item 1 above.4. Compare postings to the chart of accounts to ensure thatpayroll transactions are properly classified.(Classification)5. Observe when recording takes place to ensure that payrolltransactions are recorded on a timely basis. (Timing)18-4The percentage of total audit time in the cycle devoted to performing tests of controls and substantive tests of transactions is usually far greater in the payroll and personnel cycle than for the sales and collection cycle because there is relatively little independent third party evidence, such as confirmation, to verify the related payroll accounts. In contrast, the accounts related to the sales and collection cycle can usually be verified for the most part by confirmations from customers. In addition, in the sales and collection cycle, verification of the realizability of receivables and sales cutoff tests are important and time- consuming tasks.18-5The auditor should be concerned with whether the human resources department is following the proper hiring and termination procedures. An obvious reason for this would be to ensure that there are adequate safeguards against hiring and retaining incompetent and untrustworthy people. The ramifications of hiring such people can range from simple inefficiency and waste to outright fraud or theft. More importantly, though, it is necessary for the auditor to assure himself or herself that the client is hiring and terminating according to operations standards and procedures. It is necessary to see if the internal controls are working as planned before they can be effectively evaluated. To say that the auditor doesn't care who is hired and who is fired is to suggest that he or she doesn't care if the internal controls work according to any standards. Failure to follow proper termination procedures could lead to fraudulent payments for work not performed.18-6To trace a random sample of prenumbered time cards to the related payroll checks in the payroll register and compare the hours worked to the hours paid is to test if those employees who worked are being paid for their time actually worked. Employees are likely to inform management if they are not paid, or underpaid. To trace a random sample of payroll checks from the payroll register and compare the hours worked to the hours paid is to test if the recorded payroll payments are for work actually performed by existing employees. This test, in effect, attempts to discover nonexistent employees or duplicate payments, if there are any. For this reason, the second procedure is typically more important to the audit of payroll.18-7In auditing payroll withholding and payroll tax expense, the emphasis should normally be on evaluating the adequacy of the payroll tax return preparation procedures rather than the payroll tax liability, because a major reason for misstatements in the liability account is incorrect preparation of the returns in the past. If the preparationprocedures are inadequate, and the amounts do not appear reasonable, then the auditor should expand his or her work and recompute the withholding and expense amounts to determine that the proper amount has been accrued. In addition, the auditor should consider the amount of penalties which may be assessed for inadequate withholdings and include these amounts in the accrual if they are significant.18-8Several analytical procedures for the payroll and personnel cycle and misstatements that might be indicated by significant fluctuations are as follows:18-9An auditor should perform audit tests primarily designed to uncover fraud in the payroll and personnel cycle when he or she has determined that internal controls are deficient (or the opportunity exists for management to override the internal controls) or when there are other reasons to suspect fraud. Audit procedures that are primarily for the detection of fraud in the payroll and personnel cycle include:1. Examine cancelled payroll checks for employee name,authorized signature, and proper endorsement (especially forsecond endorsements) to discover checks going to nonexistentemployees. The endorsement should be compared to signatureson W-4 forms.2. Trace selected transactions recorded in the payroll journalor listing to the human resources department files to determine whether the employees were actually employed during the period.3. Select several terminated employees from payroll records todetermine whether each former employee received his or her termination pay in accordance with company policy and to determine that the employee's pay was discontinued on the date of termination.18-9 (continued)4. Examine the subsequent payroll periods of terminatedemployees to ascertain that the employees are no longerbeing paid.5. Request a surprise payroll payoff to observe if anyunclaimed checks result, which will necessitate extensiveinvestigation.18-10 The Payroll Master File is maintained for each employee indicating the gross pay for each payment period, deductions from the gross pay, the net pay, the check number, and the date. The purpose of this record is to provide detailed information for federal and state income tax purposes, and to serve as the final record of what each employee was actually paid.The W-2 Form is issued to each employee at the end of each calendar year and indicates his or her gross pay, income taxes withheld, and FICA withheld for the year. In serving as a summary of the employee's earnings record, the W-2 form conveniently provides information necessary for the employee to fill out his or her income tax returns.A Payroll Tax Return is the form required by and submitted to the local, state and federal governments for the payment of withheld taxes and the employer's portion of FICA taxes and state and federal unemployment compensation taxes.18-11 Where the primary objective is to detect fraud, the auditor will examine the following supporting documents and records:1. Cancelled payroll checks for employee name, authorizedsignature and proper endorsement, watching specifically forunusual or recurring second endorsements.2. Payroll journal or listing, tracing transactions to thepersonnel files to determine whether the employees wereactually employed during the payroll period.3. Payroll journal or listing and individual payroll records,selecting terminated employees to determine whether eachterminated employee received his or her termination pay inaccordance with company policy and whether each employee waspaid in the subsequent payroll period.4. Payroll checks, observing each employee as he or she picksup and signs for his or her check.5. Time cards, testing them for reasonableness or observingwhether they are being punched by the proper employees.18-12 Types of authorizations in the payroll and personnel cycle are:1. Deduction authorization, without which the wrong amount (orno deduction) may be deducted from the employee's paycheck.2. Rate authorizations, without which the employee may begetting paid at the wrong rate.3. Time card authorization, without which the employee may begetting paid for the wrong quantity of hours worked.18-12(continued)4. Payroll check authorization, without which unauthorizedfunds may be paid out.5. Commission rate authorization, without which the salespeoplemight be improperly compensated for their sales efforts.6. Authorization to hire a new employee, without whichnonexistent or unqualified personnel may be added to thepayroll.18-13 It is common to verify total officers' compensation even when the tests of controls and substantive tests of transactions results in payroll are excellent because the salaries and bonuses of officers must be included in the SEC's 10-K Report and the federal income tax return and because management may be in a position to pay themselves more than the authorized amount, since the controls over the officers' payroll are typically weaker and therefore easier to override than those of the normal payroll.The usual audit procedure used to verify the officers' compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it to the related earnings record.18-14 An imprest payroll account is a separate payroll bank account in which a constant balance, either zero or small, is maintained. When a payroll is paid, the exact amount of the net payroll is transferred by check or electronic funds transfer from the general account to the imprest account. The purpose and advantage of an imprest payroll account is that it limits the company's exposure to payroll fraud by limiting the amount that may be misappropriated.18-15 Several audit procedures the auditor can use to determine whether recorded payroll transactions are recorded at the proper amounts are:1. Recompute hours worked from time cards.2. Compare pay rates with union contract, approval by the boardof directors, or other source.3. Recompute gross pay.4. Check withholdings by reference to tax tables andauthorization forms in personnel files.5. Recompute net pay.6. Compare cancelled check with payroll journal or listing foramount.18-16 Attributes sampling can be used in the payroll and personnel cycle in performing tests of controls and substantive tests of transactions with the following objectives:1. Time card hours agree with payroll computations.2. Overtime hours are approved.3. Foreman approves all time cards.4. Hourly rates agree with personnel files and union contracts.18-16 (continued)5. Gross pay calculation is verified.6. Exemptions taken agree with W-4.7. Income tax, other deductions, and net pay calculations areverified.8. Authorizations are available for voluntary withholdings andmiscellaneous deductions.9. Paycheck endorsement is same as signature on W-4 form.The frequency of control deviations or monetary errors must be estimated prior to performing the tests. This estimate together with the acceptable risk of assessing control risk too low (ARACR) and the tolerable exception rate will enable the auditor to determine the sample size required. Once the tests are performed on the sample, evaluation of the results will indicate whether the exception rate is lower than, equal to, or higher than that anticipated. The auditor must then use this judgment to decide the appropriate action to take.Multiple Choice Questions From CPA Examinations18-17 a. (2) b. (1) c. (3)18-18 a. (1) b. (4) c. (4) d. (4)Discussion Questions and Problems18-1918-2018-2118-2218-23 A flowchart of steps for each type of test is given below(requirements a, b, and c):18-24 a. Brendin's approach to determining why this year's payroll tax expense was so high suffers from two seriousdeficiencies: First, it lacks relevance, and second, it istoo narrowly focused. The approach lacks relevance in thathe is testing payroll withholding which is not the same aspayroll tax expense. Some payroll taxes are related towithholding such as FICA, but income tax withheld does notgive rise to an expense, and certain payroll taxes, such asunemployment compensation, are not withheld. The approach istoo narrowly focused in that the analytical test resultscould have resulted from a misstatement of the payrollitself; Brendin does not appear to be considering thispossibility.b. A more suitable approach for determining whether payroll taxwas properly stated in the current year would be to evaluatethe reasonableness of the total payroll, reconcile thepayroll to amounts shown on payroll tax reports, and checkcomputations as shown on those reports for reasonableness.18-25 The following audit procedures should be used to verify the payroll related accounts:1. Accrued payroll:a. Review the company's policy for computing the accrualand whether it is consistent with the prior year.b. Assess whether 60 percent is a reasonableapproximation of the portion of the subsequent payrollapplication to the current year.c. Test the subsequent payroll for cutoff and accuracy.d. Determine that the computation of the accrual iscorrect.2. Withheld payroll taxes:a. Compare the balance in the liability account with thepayroll journal or listing.b. Reconcile the amount to subsequent payroll tax reportsand cash disbursed.c. Review in light of the subsequent period's payroll.3. Accrued payroll taxes:a. Trace FICA withheld from payroll journal or listing topayroll tax reports.b. Review amounts on payroll tax reports forreasonableness.c. Reconcile accruals to payroll tax reports.d. Examine subsequent cash disbursed.18-26 a. The purpose of a surprise payroll payoff is to determine whether or not nonexistent personnel are included in thepayroll.b. Procedures other than a surprise payroll payoff that can beused to discover nonexistent employees are:1. Examine cancelled payroll checks for employee name,authorized signature, and proper endorsement that agreeswith the employee's signed W-4 form.18-26(continued)2. Select several terminated employees from payroll recordsto determine whether each former employee received his orher termination pay in accordance with company policy andwas not paid in subsequent payrolls.c. When the payroll payoff is taking place, the client shouldobserve these control procedures:1. All employees must prove identity.2. Unclaimed paychecks must be further investigated.Unclaimed paychecks might be accounted for byemployees who are sick or on vacation. After allpresent employees have received their checks, theremaining paychecks should be traced to the personnelfiles to determine if these employees were everemployed by the client. Thereafter, if practical, theremaining checks should be held until the employeescan be present with proper identification to claim thecheck.d. See c.2 above.18-2718-27 (continued)18-28 a. An audit program to verify sales commission expense is as follows:1. Select a sample of office copies of sales invoices.a. Check commissions rate to commissions rate file.b. Check computation of sales commissions.c. Examine invoices for internal verification byaccounts receivable clerk.d. Trace sales commission amounts to salescommission ledger.2. Foot the sales commission ledger for one or moremonths, and trace the total to the general ledger.3. Compare totals for periods in the sales commissionledger to period balances of sales commission expense.b. An audit program to verify accrued sales commissions is:1. Compare the accrual with that of the previous year.Investigate any significant change.2. Compare the amount of commissions paid to the salesmenon the fifteenth of the month following year-end tothe total accrued commissions at year-end. Obtain areconciliation and explanation for any reconcilingitems.3. Send confirmations to salesmen for the larger amountsof accrued commissions and a sample of the smalleramounts.Case18-29 a. Conventional forms and documents in a payroll system include the following:Personnel recordsDeduction authorization formsRate authorization formsTime cards and job time ticketsPayroll checksPayroll journal or listing and labor distributionEarnings recordW-2 formPayroll tax returnsIn using the computer service center, it appears that there is no loss in documentation in substance; however, theearnings record is not printed out each pay period, thus,the current version is usually in machine readable form.(This assumes that authorization forms exist although theyare not discussed in the case.) The fact that the earningsrecord is in magnetic form is not a problem, as long as theservice bureau has adequate backup and recovery controls.The above analysis reflects the fact that Leggert's internal controls in the payroll area are generally good.There is good segregation of duties between the Presidentand Clark, assuming both are trustworthy, honest people.Procedures, forms, records, and reports are comprehensiveand well-designed.The only potential deficiency in internal control is that errors in details could be made by the service bureauand not necessarily be caught. It is difficult to imagine that these would be material.18-29 (continued)b.c. Procedures in performance format:1. Make observations of the following activities by MaryClark:a) Control, collection and processing of time cards.b) Rechecking of hours on time cards.c) Processing and approval of payroll journal or listing.d) Posting of general ledger.2. Make observations of the following activities by thePresident:a) Maintenance of personnel files.b) Distribution of paychecks.c) Processing and approval of payroll journal or listing.d) Posting of general ledger.3. Make observations of the following general matters andactivities:a) Use of time clock by employees.b) Existence and use of adequate chart of accounts.4. Select a sample of payroll check numbers and:a) Account for existence and recording of paychecks.b) Examine paychecks for President's signature.c) Examine checks for proper endorsement.d) Compare cancelled checks with personnel records. 18-29 (continued)e) Compare date on check with date recorded inpayroll journal or listing and on the time card.5. Select a sample of payroll entries from the payrolljournal or listing and perform the following steps:a) Obtain time cards, examine for President'sapproval, and trace hours to payroll journal orlisting.b) Examine personnel files and authorization forrates and deductions.c) Recompute gross pay, deductions, and net pay.d) Compare account classification with chart ofaccounts or procedures manual.6. Select a sample of payroll journals and perform thefollowing steps:a) Examine payroll journal for approval by Clark.b) Trace postings to general ledger.d. A sampling data sheet follows. Note that this sampling datasheet was prepared using attributes sampling. The onlydifference between this approach and a nonstatisticalapproach is the determination of sample size. Undernonstatistical sampling, students’ sample sizes will vary.Internet Problem Solution: Outsourcing the Payroll Function18-1 You have just landed a new client for your firm - a new hotel constructed in Atlanta, Georgia. Although construction of the hotel is complete, the company has not completed hiring all the necessary employees. The company's president has approached you with several questions related to the company's payroll. Please answer the following questions posed by the president about outsourcing the payroll function. (Hint: Visit [/] to find some of your answers. You may need to do other research on the Internet to answer these questions.)1.“I'm considering outsourcing our payroll function. What aresome of the issues that I should think about before deciding to outsource?”Answer: Student responses will vary. However, the following issues are among those that the president should consider:∙Typical outsourcing agreements are long-term. A long-term contract with the outsourcing provider mayprove inflexible if future business needsnecessitate a change.∙Outsourcing results in a loss of control over the company’s data. The president may be concernedabout sharing of data with competitors.∙The president should also consider the adequacy of the service provider’s system. Does the providerutilize the most current technology? Can theprovider manage a significant increase in volume oftransactions? Will the provider continue to offerexcellent service?∙Can the service provider deliver all of the necessary salaries and wages reports and analysesthat the company may want or need?∙Costs are typically lower when outsourcing major IS functions. The company will be able to avoidinvestments in certain hardware and software as wellas in personnel if the payroll function isoutsourced.2.“If I decide to outsource the payroll function, whatpayroll service companies would you suggest I consider?”Answer: There are a variety of payroll service companies including ADP [/] and Ceridian [/].18-1 (continued)3.“I have several vacant positions at my new hotel. I'mconcerned that my beginning salaries might be too low. Couldyou find out what nationwide median salaries are for thevacant positions? The vacant positions are: restaurantmanager, catering sales manager, security director, and thefront office manager. Make certain that you let me know whatsalaries are in our region of the country. I may have notconsidered that properly when I advertised the positions.”Answer: Median salary information can be found on’s web site. The “HCECompensation”link[/careerresources/lodgprop.asp] will direct students to the appropriate location.There they will have to select the appropriate categorywhich, in this case, is a “lodging property.”Studentsshould then scroll down the salaries information until theyfind data for the South Atlantic Region. The median salariesare: restaurant manager - $37,151.62; catering sales manager- $38,472.10; security director - $52,810.67; and frontoffice manager - $37,947.73. You might wish to point out tothe students the difficulty in interpreting such data asthat presented on this site. Specifically, median salariesdata are presented for a number of categories such as sizeof facility, geographic region, and location. Theinquisitive student should inquire about these differencesand so a liberal view may be appropriately applied whengrading this component of the problem.(Note: Internet problems address current issues using Internet sources. Because Internet sites are subject to change, Internet problems and solutions are subject to change. Current information on Internet problems is available at /arens).。
审计学：一种整合方法_第12版_英文版Chapter06-43页PPT资料
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6-9
6-8
Auditor’s Responsibilities
➢ Material versus immaterial misstatements ➢ Reasonable assurance ➢ Errors versus fraud ➢ Professional skepticism ➢ Fraud resulting from fraudulent financial
6-7
Learning Objective 3
Explain the auditor’s responsibility for discovering material misstatements.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
It requires the CEO and the CFO of public companies to certify the quarterly and annual financial statements submitted to the SEC.
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Steps to Develop Audit Objectives
4. Know general audit objectives for classes of transactions and accounts.
审计学：一种整合方法_第12版_英文版Cha
Financial Statements Cycles
Learning Objective 4
• Classify transactions and account • balances into financial statement • cycles and identify benefits of a • cycle approach to segmenting • the audit.
Objective of Conducting an Audit o f Financial Statements
The objective of the ordinary audit of financial statements is the expression of an opinion of the fairness with which they present fairly, in all respects, financial position, result of operations, and its cash flows in conformity with GAAP.
Management’s Responsibilities
Management is responsible for the financial statements and for internal control.
The Sarbanes-Oxley Act increases management’s responsibility for the finຫໍສະໝຸດ ncial statements.
The Sarbanes-Oxley Act provides for criminal penalties for anyone who knowingly falsely certifies the statements.
审计学：一种整合方法-阿伦斯-英文版-第12版RRChapter10课件
Existing sales transactions are recorded
Sales for goods shipped are correctly billed
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Internal Control Objectives
1. Reliability of financial reporting 2. Efficiency and effectiveness of operations 3. Compliance with laws and regulations
➢ Auditor responsibilities for testing internal control
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Sales Transaction-related Audit Objectives
Transaction-related Audit Objective – General form
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Five Components of Internal Control
Risk assessment
审计学：一种整合方法-阿伦斯-英文版-第12版 RRChapter10
Learning Objective 2
• Contrast management’s • responsibilities for maintaining • and reporting on internal controls • with the auditor’s responsibilities • for understanding, testing, and • reporting on internal controls.
阿伦斯 审计学：一种整合方法 课后习题答案ch01
Chapter 1The Demand for Audit and Other Assurance Services Review Questions1-1The relationship among audit services, attestation services, and assurance services is reflected in Figure 1-3 on page 13 of the text. An assurance service is an independent professional service to improve the quality of information for decision makers. An attestation service is a form of assurance service in which the CPA firm issues a report about the reliability of an assertion that is the responsibility of another party. Audit services are a form of attestation service in which the auditor expresses a written conclusion about the degree of correspondence between information and established criteria.The most common form of audit service is an audit of historical financial statements, in which the auditor expresses a conclusion as to whether the financial statements are presented in conformity with generally accepted accounting principles. An example of an attestation service is a report on the effe ctiveness of an entity’s internal control over financial reporting. There are many possible forms of assurance services, including services related to business performance measurement, health care performance, and information system reliability. 1-2 An independent audit is a means of satisfying the need for reliable information on the part of decision makers. Factors of a complex society which contribute to this need are:1.Remoteness of informationa.Owners (stockholders) divorced from managementb.Directors not involved in day-to-day operations ordecisionsc.Dispersion of the business among numerous geographiclocations and complex corporate structures2.Biases and motives of providerrmation will be biased in favor of the providerwhen his or her goals are inconsistent with thedecision maker's goals.3.Voluminous dataa.Possibly millions of transactions processed daily viasophisticated computerized systemsb.Multiple product linesc.Multiple transaction locationsplex exchange transactionsa.New and changing business relationships lead toinnovative accounting and reporting problemsb.Potential impact of transactions not quantifiable,leading to increased disclosures1-3 1. Risk-free interest rate This is approximately the rate the bank could earn by investing in U.S. treasury notes for thesame length of time as the business loan.2.Business risk for the customer This risk reflects thepossibility that the business will not be able to repay itsloan because of economic or business conditions such as arecession, poor management decisions, or unexpectedcompetition in the industry.rmation risk This risk reflects the possibility thatthe information upon which the business risk decision wasmade was inaccurate. A likely cause of the information riskis the possibility of inaccurate financial statements.Auditing has no effect on either the risk-free interest rate or business risk. However, auditing can significantly reduce information risk.1-4The four primary causes of information risk are remoteness of information, biases and motives of the provider, voluminous data, and the existence of complex exchange transactions.The three main ways to reduce information risk are:er verifies the information.er shares the information risk with management.3.Audited financial statements are provided.The advantages and disadvantages of each are as follows:1-5 To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information. Examples of established criteria include generally accepted accounting principles and the Internal Revenue Code. Determining the degree of correspondence between information and established criteria is determining whether a given set of information is in accordance with the established criteria. The information for Jones Company's tax return is the federal tax returns filed by the company. The established criteria are found in the Internal Revenue Code and all interpretations. For the audit of Jones Company's financial statements the information is the financial statements being audited and the established criteria are generally accepted accounting principles.1-6The primary evidence the internal revenue agent will use in the audit of the Jones Company's tax return include all available documentation and other information available in Jones' office or from other sources. For example, when the internal revenue agent audits taxable income, a major source of information will be bank statements, the cash receipts journal and deposit slips. The internal revenue agent is likely to emphasize unrecorded receipts and revenues. For expenses, major sources of evidence are likely to be cancelled checks, vendors' invoices and other supporting documentation.1-7This apparent paradox arises from the distinction between the function of auditing and the function of accounting. The accounting function is the recording, classifying and summarizing of economic events to provide relevant information to decision makers. The rules of accounting are the criteria used by the auditor for evaluating the presentation of economic events for financial statements and he or shemust therefore have an understanding of generally accepted accounting principles (GAAP), as well as auditing standards. The accountant need not, and frequently does not, understand what auditors do, unless he or she is involved in doing audits, or has been trained as an auditor.1-81-9Five examples of specific operational audits that could be conducted by an internal auditor in a manufacturing company are:1.Examine employee time cards and personnel records todetermine if sufficient information is available to maximizethe effective use of personnel.2.Review the processing of sales invoices to determine if itcould be done more efficiently.3.Review the acquisitions of goods, including costs, todetermine if they are being purchased at the lowest possiblecost considering the quality needed.4.Review and evaluate the efficiency of the manufacturingprocess.5.Review the processing of cash receipts to determine if theyare deposited as quickly as possible.1-10 When using a strategic systems auditing approach in an audit of historical financial statements, an auditor must have a thorough understanding of the client and its environment. This knowledge should include the client’s regulatory and operating environment, business strategies and processes, and measurement indicators. The strategicsystems approach is also useful in other assurance or consulting engagements. For example, an auditor who is performing an assurance service on information technology would need to understand the client’s business strategies and processes related to information technology, including such things as purchases and sales via the Internet. Similarly, a practitioner performing a consulting engagement to evaluate the efficiency and effectiveness of a cli ent’s manufacturing process would likely start with an analysis of various measurement indicators, including ratio analysis and benchmarking against key competitors.1-11 The major differences in the scope of audit responsibilities are:1.CPAs perform audits in accordance with auditing standards ofpublished financial statements prepared in accordance withgenerally accepted accounting principles.2.GAO auditors perform compliance or operational audits inorder to assure the Congress of the expenditure of publicfunds in accordance with its directives and the law.3.IRS agents perform compliance audits to enforce the federaltax laws as defined by Congress, interpreted by the courts,and regulated by the IRS.4.Internal auditors perform compliance or operational auditsin order to assure management or the board of directors thatcontrols and policies are properly and consistentlydeveloped, applied and evaluated.1-12 The four parts of the Uniform CPA Examination are: Auditing and Attestation, Financial Accounting and Reporting, Regulation, and Business Environment and Concepts.1-13 It is important for CPAs to be knowledgeable about e-commerce technologies because more of their clients are rapidly expanding their use of e-commerce. Examples of commonly used e-commerce technologies include purchases and sales of goods through the Internet, automatic inventory reordering via direct connection to inventory suppliers, and online banking. CPAs who perform audits or provide other assurance services about information generated with these technologies need a basic knowledge and understanding of information technology and e-commerce in order to identify and respond to risks in the financial and other information generated by these technologies.Multiple Choice Questions From CPA Examinations1-14 a. (3) b. (2) c. (2) d. (3)1-15 a. (2) b. (3) c. (4) d. (3)Discussion Questions And Problems1-16 a. The relationship among audit services, attestation services and assurance services is reflected in Figure 1-3 on page 13of the text. Audit services are a form of attestationservice, and attestation services are a form of assuranceservice. In a diagram, audit services are located within theattestation service area, and attestation services arelocated within the assurance service area.b. 1. (1) Audit of historical financial statements2.(2) An attestation service other than an auditservice; or(3) An assurance service that is not an attestationservice (WebTrust developed from the AICPASpecial Committee on Assurance Services, but theservice meets the criteria for an attestationservice.)3.(2) An attestation service other than an auditservice4.(2) An attestation service other than an auditservice5.(2) An attestation service other than an auditservice6.(2) An attestation service that is not an auditservice (Review services are a form ofattestation, but are performed according toStatements on Standards for Accounting andReview Services.)7.(2) An attestation service other than an auditservice8.(2) An attestation service other than an auditservice9.(3) An assurance service that is not an attestationservice1-17 a. The interest rate for the loan that requires a review report is lower than the loan that did not require a review becauseof lower information risk. A review report provides moderateassurance to financial statement users, which lowersinformation risk. An audit report provides further assuranceand lower information risk. As a result of reduced information risk, the interest rate is lowest for the loan with the audit report.b.Given these circumstances, Vial-tek should select the loanfrom City First Bank that requires an annual audit. In this situation, the additional cost of the audit is less than the reduction in interest due to lower information risk. The following is the calculation of total costs for each loan:1-17 (continued)c. Vial-tek may desire to have an audit because of the manyother positive benefits that an audit provides. The auditwill provide Vial-tek’s management with assurance aboutannual financial information used for decision-makingpurposes. The audit may detect errors or fraud, and providemanagement with information about the effectiveness ofcontrols. In addition, the audit may result inrecommendations to management that will improve efficiencyor effectiveness.d. Under a strategic systems audit approach, the auditor musthave a thorough understanding of the client and itsenvironment, including the client’s e-commerce technologies,industry, regulatory and operating environment, suppliers,customers, creditors, and business strategies and processes.This thorough analysis helps the auditor identify risksassociated with the client’s strategies that may affectwhether the financial statements are fairly stated. Whenapplying the strategic systems audit approach, the auditoroften discovers ways to help the client improve businessoperations, thereby providing added value to the auditfunction.1-18 a. The services provided by Consumers Union are very similar to assurance services provided by CPA firms. The servicesprovided by Consumers Union and assurance services providedby CPA firms are designed to improve the quality ofinformation for decision makers. CPAs are valued for theirindependence, and the reports provided by Consumers Union are valued because Consumers Union is independent of the products tested.b.The concepts of information risk for the buyer of anautomobile and for the user of financial statements are essentially the same. They are both concerned with the problem of unreliable information being provided. In the case of the auditor, the user is concerned about unreliable information being provided in the financial statements. The buyer of an automobile is likely to be concerned about the manufacturer or dealer providing unreliable information.c.The four causes of information risk are essentially the samefor a buyer of an automobile and a user of financial statements:(1)Remoteness of information It is difficult for a userto obtain much information about either an automobilemanufacturer or the automobile itself withoutincurring considerable cost. The automobile buyer doeshave the advantage of possibly knowing other users whoare satisfied or dissatisfied with a similarautomobile.(2)Biases and motives of provider There is a conflictbetween the automobile buyer and the manufacturer. Thebuyer wants to buy a high quality product at minimumcost whereas the seller wants to maximize the sellingprice and quantity sold.(3)Voluminous data There is a large amount of availableinformation about automobiles that users might like tohave in order to evaluate an automobile. Either that information is not available or too costly to obtain.1-18 (continued)(4)Complex exchange transactions The acquisition of anautomobile is expensive and certainly a complexdecision because of all the components that go intomaking a good automobile and choosing between a largenumber of alternatives.d.The three ways users of financial statements and buyers ofautomobiles reduce information risk are also similar:(1)User verifies information him or herself That can beobtained by driving different automobiles, examiningthe specifications of the automobiles, talking toother users and doing research in various magazines.(2)User shares information risk with management Themanufacturer of a product has a responsibility to meetits warranties and to provide a reasonable product.The buyer of an automobile can return the automobilefor correction of defects. In some cases a refund maybe obtained.(3)Examine the information prepared by Consumer ReportsThis is similar to an audit in the sense thatindependent information is provided by an independentparty. The information provided by Consumer Reports iscomparable to that provided by a CPA firm that auditedfinancial statements.1-19 a. The following parts of the definition of auditing are related to the narrative:(1)Virms is being asked to issue a report aboutqualitative and quantitative information for trucks.The trucks are therefore the information with which the auditor is concerned.(2)There are four established criteria which must beevaluated and reported by Virms: existence of the trucks on the night of June 30, 2005, ownership of each truck by Regional Delivery Service, physical condition of each truck and fair market value of each truck.(3)Susan Virms will accumulate and evaluate four types ofevidence:(a)Count the trucks to determine their existence.(b)Use registrations documents held by Oatley forcomparison to the serial number on each truck todetermine ownership.(c)Examine the trucks to determine each truck'sphysical condition.(d)Examine the blue book to determine the fairmarket value of each truck.(4)Susan Virms, CPA, appears qualified, as a competent,independent person. She is a CPA, and she spends most of her time auditing used automobile and truck dealerships and has extensive specialized knowledge about used trucks that is consistent with the nature of the engagement.1-19(continued)(5)The report results are to include:(a)which of the 35 trucks are parked in Regional'sparking lot the night of June 30.(b)whether all of the trucks are owned by RegionalDelivery Service.(c)the condition of each truck, using establishedguidelines.(d)fair market value of each truck using thecurrent blue book for trucks.b.The only parts of the audit that will be difficult for Virmsare:(1)Evaluating the condition, using the guidelines of poor,good, and excellent. It is highly subjective to do so.If she uses a different criterion than the "bluebook," the fair market value will not be meaningful.Her experience will be essential in using thisguideline.(2)Determining the fair market value, unless it isclearly defined in the blue book for each condition.1-20 a. The major advantages and disadvantages of a career as an IRS agent, CPA, GAO auditor, or an internal auditor are:1-20 (continued)EMPLOYMENT ADVANTAGES DISADVANTAGESINTERNAL AUDITOR 1.Extensive exposure to allsegments of theenterprise with whichemployed.2.Constant exposure to oneindustry presentingopportunity for expertisein that industry.3.Likely to have exposureto compliance, financialand operational auditing.1.Little exposure totaxation and the auditthereof.2.Experience is limited toone enterprise, usuallywithin one or a limitednumber of industries.(b)Other auditing careers that are available are:Auditors within many of the branches of the federalgovernment ., Atomic Energy Commission)Auditors for many state and local government units .,state insurance or bank auditors)1-21 The most likely type of auditor and the type of audit for each of the examples are:1-22 a. The conglomerate should either engage the management advisory services division of a CPA firm or its own internalauditors to conduct the operational audit.b.The auditors will encounter problems in establishingcriteria for evaluating the actual quantitative events andin setting the scope to include all operations in whichsignificant inefficiencies might exist. In writing thereport, the auditors must choose proper wording to state that no financial audit was performed, that the procedures were limited in scope and that the results reported do not necessarily include all the inefficiencies that might exist.1-23 a. The CPA firm for the Internet company described in this problem could address these customer concerns by performinga WebTrust attestation engagement. The WebTrust assuranceservice was created by the profession to respond to thegrowing need for assurance resulting from the growth ofbusiness transacted over the Internet.b.The appropriate WebTrust principle for each of the customerconcerns noted in the problem is as follows:1.Accuracy of product descriptions and adherence tostated return policies: (3) Processing Integrity.2.Credit card and other personal information: (1) OnlinePrivacy and (2) Security.3.Selling information to other companies: (1) OnlinePrivacy and (2) Security.4.System failure: (4) Availability.Internet Problem Solution: Assurance Services1-1 This problem requires students to work with the AICPA assurance services Web site.1.Considering the assurance needs of customers and thecapabilities of CPAs, the Special Committee on AssuranceServices developed business plans for six assurance services.Chapter 1 of the textbook discussed several of theseservices. Go to the service description for the assuranceservice that most interests you (any one of the six). Whatare the major aspects or sections of the associated businessplan ., does the plan address market potential, competition,etc.)Answer: Each business plan provides background information,describes the service, assesses market potential, discussesissues such as competition and why CPAs should offer theservice, identifies practice tools available and steps thatCPAs must take to begin offering the services.2.The Special Committee's report on Assurance Servicesdiscusses competencies needed by assurance providers todayand in the coming decade. Briefly describe the 5 generalcompetencies needed in the next decade (Hint: See the“About Assurance Services” link. Then follow the“Assurance Services and Academia” link.)Answer:The Committee identified the following five majorimperatives regarding future competencies, each of whichimplies increasing emphasis on the competencies noted:1-1 (continued)Customer focus.Assurance service providers need tounderstand user decision processes and how informationshould enter into those processes. Increased emphasis isneeded on: understanding user needs, communication skills,relationship management, responsiveness and timeliness.Migration to higher value-added information activities. To provide more value to client/decision makers and others, assurance service providers need to focus less on activities involved in the conversion of business events into information ., collecting, classifying, and summarizing activities) and more on activities involved in the transformation of information into knowledge ., analyzing, interpreting, and evaluating activities) that effectively drives decision processes. This will require: analytical skills, business advisory skills, business knowledge, model building (including sensitivity analysis), understanding the client’s business processes, measurement theory (development of operational definitions of concepts, design of appropriate measurement techniques, etc.).Information technology (IT).Assurance services deal in information. Hence, the profound changes occurring in information technology will shape virtually all aspects of assurance services. As information specialists, assurance service providers need to embrace information technology in all of its complex dimensions. Embracing IT means understanding how it is transforming all aspects of business. It also means learning how to effectively use new developments in hardware, software, communications, memory, encryption, etc., in everything assurance service providers do as information specialists, not only in dealing with clients, but also in dealing with each other as individuals,teams, firms, state societies, and national professionalorganizations.Pace of change and complexity. Assurance services will takeplace in an environment of rapid change and increasingcomplexity. Assurance service providers need to investheavily in life-long learning in order to maintain up-to-date knowledge and skills. They will require: intellectualcapability, learning and rejuvenation.Competition.Growth in new assurance services will dependless on franchise/regulation and more on market forces.Assurance service providers need to develop their marketingskills —the ability to see clients’ latent informationand assurance needs and rapidly design and deploy cost-effective services to meet those needs —in order toeffectively compete for market-driven assurance services.Required skills include: marketing and selling,understanding customer needs, designing and deployingeffective solutions.1-1 (continued)(Note: Internet problems address current issues using Internet sources. Because Internet sites are subject to change, Internet problems and solutions are subject to change. Current information on Internet problems is available at。
审计学一种整合方法第12版英文版Chapter09ppt课件
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-2
Materiality
It is a major consideration in determining the appropriate audit report to issue.
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9-7
Set Preliminary Judgment About Materiality
Auditors decide early in the audit the combined amount of misstatements of the financial statements that would be considered material.
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Factors Affecting Judgment
Materiality is a relative rather than an absolute concept.
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9-3
Materiality
The auditor’s responsibility is to determine whether financial statements are materially misstated.
经济学审计学一种整合方法第12版英文版
1
Overall Audit Plan and Audit Program
Chapter 13
Learning Objective 1
Use the five types of audit tests to determine whether financial statements are fairly stated.
Relationship Between Further Audit Procedures and Evidence
Type of Evidence
Physical examination Confirmation Documentation Observation
Further Audit Procedures
Risk Assessment Procedures
A major part of these procedures are done to obtain an understanding of internal control.
Role of All Audit Tests in the
Sales and Collection Cycle
➢ Program change controls ➢ Access controls
Learning Objective 4
Understand the concept of evidence mix and how it should be varied in different circumstances.
Types of Tests
➢ Risk assessment procedures ➢ Further audit procedures
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1-4
Information and Established Criteria
The Act established the Public Company Accounting Oversight Board.
It also requires auditors to attest to management reports on the effectiveness of internal control over financial reporting.
1-3
Nature of Auditing
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.
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1-6
Competent, Independent Person
The auditor must be qualified to understand the criteria used and must be competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined.
审计学-一种整合的方法
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6 - 12
Learning Objective 4
6 - 15
Transaction Flow Example
Transactions
Cash disbursements
Payroll services and disbursements
Journals Cash
disbursements journal
Payroll journal
Ledgers, Trial Balance, and Financial
General ledger and subsidiary
records
General ledger trial balance
Acquisition of goods
and services
Acquisitions journal
Financial statements
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6-6
Management’s Responsibilities
Management is responsible for the financial statements and for internal control.
The Sarbanes-Oxley Act increases management’s responsibility for the financial statements.
审计学：一种整合方法_第12版_英文版Chapter01-46页PPT资料
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-1
Learning Objective 1
Describe auditing.
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1-2
Nature of Auditing
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.
1-7
Audit of a Tax Return Example
Competent, independent
person
Information
Federal tax returns filed by taxpayer
Internal Revenue
审计学一种整合方法第12版英文版Cha课件
It requires the CEO and the CFO of public companies to certify the quarterly and annual financial statements submitted to the SEC.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Classify transactions and account balances into financial statement cycles and identify benefits of a cycle approach to segmenting the audit.
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6-6
Management’s Responsibilities
The Sarbanes-Oxley Act provides for criminal penalties for anyone who knowingly falsely certifies the statements.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6 - 15
Relationships Among Transaction Cycles
General cash
Capital acquisition and repayment cycle
审计学：一种整合方法-阿伦斯-英文版-第12版-课后答案-Chapter-7-Solutions-Manual
Chapter 7Audit EvidenceReview Questions7-1In both a legal case and in an audit of financial statements, evidence is used by an unbiased person to draw conclusions. In addition, the consequences of an incorrect decision in both situations can be equally undesirable. For example, if a guilty person is set free, society may be in danger if the person repeats his or her illegal act. Similarly, if investors rely on materially misstated financial statements, they could lose significant amounts of money. Finally, the guilt of a defendant in a legal case must be proven beyond a reasonable doubt. This is similar to the concept of sufficient appropriate evidence in an audit situation. As with a judge or jury, an auditor cannot be completely convinced that his or her opinion is correct, but rather must obtain a high level of assurance.The nature of evidence in a legal case and in an audit of financial statements differs because a legal case relies heavily on testimony by witnesses and other parties involved. While inquiry is a form of evidence used by auditors, other more reliable types of evidence such as confirmation with third parties, physical examination, and documentation are also used extensively. A legal case also differs from an audit because of the nature of the conclusions made. In a legal case, a judge or jury decides the guilt or innocence of the defendant. In an audit, the auditor issues one of several audit opinions after evaluating the evidence.7-2The four major audit evidence decisions that must be made on every audit are:1.Which audit procedures to use.2.What sample size to select for a given procedure.3.Which items to select from the population.4.When to perform the procedure.7-3An audit procedure is the detailed instruction for the collection of a type of audit evidence that is to be obtained. Because audit procedures are the instructions to be followed in accumulating evidence, they must be worded carefully to make sure the instructions are clear.7-4An audit program for accounts receivable is a list of auditprocedures that will be used to audit accounts receivable for a given client. The audit procedures, sample size, items to select, and timing should be included in the audit program.7-5The auditor must obtain sufficient appropriate evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. There are three major phrases of the standard.7-5(continued)7-6There are two primary reasons why the auditor can only be persuaded with a reasonable level of assurance, rather than be convinced that the financial statements are correct:1.The cost of accumulating evidence. It would be extremelycostly for the auditor to gather enough evidence to becompletely convinced.2.Evidence is normally not sufficiently reliable to enable theauditor to be completely convinced. For example,confirmations from customers may come back with erroneousinformation, which is the fault of the customer rather thanthe client.7-7The two determinants of the persuasiveness of evidence are appropriateness and sufficiency. Appropriateness refers to the relevance and reliability of evidence, or the degree to which evidence can be considered believable or worthy of trust. Appropriateness relates to the audit procedures selected, including the timing of when those procedures are performed. Sufficiency refers to the quantity of evidence and it is related to sample size and items to select.7-8Following are six characteristics that determine reliability and an example of each.7-97-9 (continued)7-10The four characteristics of the definition of a confirmation are:1.Receipt2.Written or oral response3.From independent third party4.Requested by the auditorA confirmation is prepared specifically for the auditor and comes from an external source. External documentation is in the hands of the client at the time of the audit and was prepared for the client's use in the day-to-day operation of the business.7-11Internal documentation is prepared and used within the client's organization without ever going to an outside party, such as a customer or vendor.Examples:check request formreceiving reportpayroll time cardadjusting journal entryExternal documentation either originated with an outside party or was an internal document that went to an outside party and is now either in the hands of the client or is readily accessible.Examples:vendor's invoicecancelled checkcancelled notevalidated deposit slip7-12Analytical procedures are useful for indicating account balances that may be distorted by unusual or significant transactions and that should be intensively investigated. They are also useful in reviewing accounts or transactions for reasonableness to corroborate tentative conclusions reached on the basis of other evidence.7-13The most important reasons for performing analytical procedures are the following:1.Understanding the client's industry and business2.Assessment of the entity's ability to continue as a goingconcern3.Indication of the presence of possible misstatements in thefinancial statements4.Reduction of detailed audit tests7-14The decrease of the current ratio indicates a liquidity problem for Harper Company since the ratio has dropped to a level close to the requirements of the bond indenture. Special care should be exercised by the auditor to determine that the 2.05 ratio is proper since management would be motivated to hide any lower ratio. The auditor should expand procedures to test all current assets for proper cutoff and possible overstatement and to test all current liabilities for proper cutoff and possible understatement.7-15Attention directing analytical procedures occur when significant, unexpected differences are found between current year's unaudited financial data and other data used in comparisons. If an unusual difference is large, the auditor must determine the reason for it, and satisfy himself or herself that the cause is a valid economic event and not an error or misstatement due to fraud.When an analytical procedure reveals no unusual fluctuations, the implication is minimized. In that case, the analytical procedure constitutes substantive evidence in support of the fair statement of the related account balances, and it is possible to perform fewer detailed substantive tests in connection with those accounts.Frequently, the same analytical procedures can be used for attention directing and for reducing substantive tests, depending on the outcome of the tests. Simple procedures such as comparing the current year account balance to the prior year account balance is more attention directing (and provides less assurance) than more complex analytical procedures; i.e., those which rely on regression analysis. More sophisticated analytical procedures help the auditor examine relationships between several information variables simultaneously. The nature of these tests may provide greater assurance than simpleprocedures.7-16The statement is correct. Except for certain accounts with small dollar balances, analytical procedures are essential to help the auditor identify trends in a client's business and to see the relationship between the client's performance and industry averages. However, the auditor is responsible for gathering sufficient appropriate evidence in addition to the evidence obtained as a result of the analytical procedures.7-17The purposes of audit documentation are as follows:1.To provide a basis for planning the audit. The auditor mayuse reference information from the previous year in order toplan this year's audit, such as the evaluation of internalcontrol, the time budget, etc.2.To provide a record of the evidence accumulated and theresults of the tests. This is the primary means ofdocumenting that an adequate audit was performed.3.To provide data for deciding the proper type of audit report.Data are used in determining the scope of the audit and thefairness with which the financial statements are stated.4.To provide a basis for review by supervisors and partners.These individuals use the audit documentation to evaluatewhether sufficient appropriate evidence was accumulated tojustify the audit report.Audit documentation are used for several purposes, both during the audit and after the audit is completed. One of the uses is the review by more experienced personnel. A second is for planning the subsequent year audit. A third is to demonstrate that the auditor has accumulated sufficient appropriate evidence if there is a need to defend the audit at a later date. For these uses, it is important that the audit documentation provide sufficient information so that the person reviewing an audit schedule knows the name of the client, contents of the audit schedule, period covered, who prepared the audit schedule, when it was prepared, and how it ties into the rest of the audit files with an index code.7-18The two criteria used by auditors of public companies when determining whether memos, correspondence, and other documents must be maintained in the audit files are as follows:1.The materials are created, sent, or received in connectionwith the audit or review.2.The materials contain conclusions, opinions, analyses, orfinancial data related to the audit or review.7-19 The Sarbanes-Oxley Act of 2002 requires auditors of public companies to prepare and maintain audit schedules and other information related to any audit report in sufficient detail to support the auditor’s conclusions, for a period of not less than 7 years.7-20Audit schedules should include the following:Name of the client Enables the auditor to identify the appropriate file to include the audit schedule in if it is removed from the files.Period covered Enables the auditor to identify the appropriate year to which an audit schedule for a client belongs if it is removed from the files.7-20 (continued)Description of the contents A list of the contents enables the reviewer to determine whether all important parts of the audit schedule have been included. The contents description is also used as a means of identifying audit files in the same manner that a table of contents is used.Initials of the preparer Indicates who prepared the audit schedule in case there are questions by the reviewer or someone who wants information from the files at a later date. It also clearly identifies who is responsible for preparing the audit documentation if the audit must be defended.Date of preparation Helps the reviewer to determine the sequence of the preparation of the audit schedules. It is also useful for the subsequent year in planning the sequence of preparing audit schedules.Indexing Helps in organizing and filing audit schedules. Indexing also facilitates in searching between related portions of the audit documentation.7-21The permanent file contains data of an historical and continuing nature pertinent to the current audit. Examples of items included in the file are:1.Articles of incorporation2.Bylaws, bond indentures, and contracts3.Analysis of accounts that have continuing importance to theauditorrmation related to the understanding of internal control:a.flowchartsb.internal control questionnaires5.Results of previous years' analytical procedures, such asvarious ratios and percentages compiled by the auditorsBy separating this information from the current year's audit files, it becomes easily accessible for the following year's auditors to obtain permanent file data.7-22The purpose of an analysis is to show the activity in a general ledger account during the entire period under audit, tying together the beginning and ending balances. The trial balance includes the detailed make-up of an ending balance. It differs from an analysis in that itincludes only those items comprising the end of the period balance. A test of reasonableness schedule contains information that enables the auditor to evaluate whether a certain account balance appears to be misstated. One example of a test of reasonableness schedule is a schedule that compares current year expenses to prior years' amounts. This type of schedule is intended to show which accounts need investigation due to significant variances.7-23Unanswered questions and exceptions may indicate the potential for significant errors or fraud in the financial statements. These should be investigated and resolved to make sure that financial statements are fairly presented.7-23 (continued)The audit files can also be subpoenaed by courts as legal evidence. Unanswered questions and exceptions may indicate lack of due care by the auditor.7-24Tick marks are symbols adjacent to information in audit schedules for the purpose of indicating the work performed by the auditor. An explanation of the tick mark must be included at the bottom of the audit schedule to indicate what was done and who did it.7-25Audit files are owned by the auditor. They can be used by the client if the auditor wants to release them after a careful consideration of whether there might be confidential information in them. The audit files can be subpoenaed by a court and thereby become the property of the court. They can be released to another CPA firm without the client's permission if they are being reviewed as a part of a voluntary peer review program under AICPA, state CPA society, or state Board of Accountancy authorization. The audit files can be sold or released to other users if the auditor obtains permission from the client.7-26It is a violation unless the CPA obtains permission from each client before the audit files for that client are released.7-27 When evidence can be examined only in machine-readable form, auditors use computers to read and examine evidence. There are commercial audit software programs designed specifically for use by auditors, such as ACL Software and Interactive Data Extraction and Analysis (IDEA). Spreadsheet software packages can also be used by auditors to perform audit tests on data that is available only in machine-readable form.7-28 The purposes of audit documentation software are to convert traditional paper-based documentation into electronic files and to organize the audit documentation. The benefits of audit documentation software, such as Automated Client Engagement (ACE), are as follows:The auditor can more efficiently prepare a trial balance, lead schedules, supporting audit documentation, financialstatements, and ratio analysis using the computer ratherthan by hand.The effects of adjusting journal entries are automatically carried through to the trial balance and financialstatements, making last-minute adjustments easier to make.Tick marks and review notes can be entered directly into computerized files.Data can be imported and exported to other applications. For example, a client’s general ledger can be downloaded into ACE and tax information can be downloaded into a commercial tax preparation package after the audit is completed.** Bills of lading are ordinarily signed by the freight company.That signature will be included on the top of the bill oflading, therefore, it is an external document.Multiple Choice Questions From CPA Examinations7-29 a. (2) b. (1) c. (4) d. (1)7-30 a. (3) b. (3) c. (4) d. (4)Discussion Questions And Problems7-31 a.1.External 7. Internal 13. Internal2.Internal 8. Internal 14. External3.External 9. External 15. Internal4.External 10. Internal* 16. External5.Internal* 11. External 17. External6.Internal 12. External** 18. External* Even though these may be signed or initialed by employees, they are still internal documents.b.External evidence is considered more reliable than internalevidence because external evidence has been in the hands ofboth the client and another party, implying agreement aboutthe information and the conditions stated on the document.7-32 1. (5) inquiry of client2.(8) observation3.(1) physical examination4.(2) confirmation5.(6) recalculation6.(2) confirmation7.(3) documentation8.(4) analytical procedures9.(5) inquiry of client10.(7) reperformance11.(8) observation12.(1) physical examination13.(4) analytical procedures14.(3) documentation15.(5) inquiry of client16.(4) analytical procedures17.(3) documentation18.(6) recalculation19.(1) physical examination20.(2) confirmation7-33Examples of audit evidence the auditor can use to support each of the functions are:a.Examine invoice from vendorDirect confirmation with vendorb.Physical examinationDirect confirmation with custodianc.Direct confirmation with customerExamine cash receipts journal and bank deposits forsubsequent cash receiptsd.Examine title for ownership of assetExamine invoice from vendore.Direct confirmation with vendorExamine client's copy of vendor's statementf.Physical examinationExamine sales invoice of subsequent sale of goods showingmarked down sale priceg.Count petty cashDirect confirmation with custodian7-34 a. Confirmations are normally more reliable evidence than inquiries of the client because of the independence of theoutside party confirming the information.b.Confirmation of bank balances is considered highly reliablewhereas confirmation of a department store charge account isoften not considered reliable. Banks are accustomed toconfirmations from auditors and normally maintain excellentaccounting records, whereas most customers of departmentstores have neither characteristic.c.If an auditor is not qualified to distinguish betweenvaluable inventory (e.g., diamonds) and worthless inventory(e.g., glass), the physical examination of inventory wouldnot be considered to be reliable evidence.d.Recalculation tests are highly reliable because the auditoris able to gain 100% assurance of the accuracy, but thetests only verify whether the recorded amounts areaccurately totaled. These tests do not uncover omissions orfictitious amounts.e.Relatively reliable documentation examples include: vendorstatements, bank statements, and signed lease agreements.Relatively unreliable documentation examples may be: copiesof customer invoices, internal memoranda and othercommunications, and a listing of fixed asset additions.The difference between reliable and unreliable documentation examples above is whether they originate fromoutside or inside the client's organization. Externalinformation is considered more reliable than internal documentation.7-34 (continued)f.1.Confirmation of accounts receivable - Corporationaccustomed to confirmations compared to a member ofthe general public.2.Examination of the corporate minutes - Experiencedpartner compared to a new assistant.3.Physical observation of inventory - Auditorknowledgeable in the client's inventory compared toone who is not.4.Attorney's letter - General counsel compared to anattorney involved only with patents.g. Analytical procedures are evidence of the likelihood ofmisstatements in the financial statements, but they arerarely sufficient by themselves to conclude that thestatements are misstated. Other supportive evidence isneeded to determine whether apparent misstatements areactually material.7-357-35 (continued)7-367-37 a. The six factors determining the reliability of evidence are:1.Independence of provider2.Effectiveness of client's internal controls3.Auditor's direct knowledge4.Qualifications of individuals providing theinformation5.Degree of objectivity6.Timelinessb. andc.7-387-38 (continued)7-39 a. The purpose of audit documentation is to aid the auditor in providing reasonable assurance that an adequate audit wasconducted in accordance with auditing standards.Specifically, the audit documentation provides:1. a basis for planning the audit2. a record of the evidence accumulated and results oftests3.data for deciding the proper audit report4. a basis for review by supervisors and partnersb.Audit files are the CPA's records of the procedures followed,tests performed, and conclusions reached during the audit.Audit files may include audit programs, analyses, memoranda,letters of confirmation and representation, abstracts ofcompany documents, and schedules or commentaries prepared orobtained by the auditor.c.The factors that affect the CPA's judgment of the type andcontent of the audit files for an engagement include:1.The nature of the auditor's report2.The nature of the client's business3.The nature of the financial statements, schedules, orother information upon which the CPA is reporting andthe materiality of the items included therein4.The nature and condition of the client's records andinternal controls5.The needs for supervision and review of work performedby assistants7-40In general, the audit schedule is not set up in a logical manner to show what the auditor wants to accomplish. The primary objective of the audit schedule is to verify the ending balance in notes receivable and interest receivable. A secondary objective is to account for allinterest income, cash received and cash disbursed for new notes, collateral as security, and other information about the notes for disclosure purposes.Specific deficiencies of the audit schedule presented in the question are:7-40 (continued)c.Spreadsheet SolutionThe purpose of using an Excel spreadsheet in this problem is to give the student some experience in preparing a simple audit schedule using an Excel spreadsheet. It should be explained to students that this type of audit schedule may or may not be prepared in actual practice, and that often templates are used to prepare more time-consuming audit schedules. Also, whether or not tick marks are computerized is a matter to be decided. The advantage is that the completed audit work can then be stored and reviewed electronically, a direction many firms are going. On the other hand, it may be more efficient to indicate audit work manually as it is performed, and a contrast in the color of the tick marks through use of a colored pencil may be desirable.The following solution was prepared with Excel (Filename P740.xls). The formulas used are self-evident, so no listing is provided, although it is available on the Companion Website and on the Instructor’s Resource CD- ROM, which is available upon request. Two items deserve comment:1.An advantage of using a spreadsheet program for thesetypes of analyses is that footing and crossfooting aredone automatically.2.When auditor tick marks are done by computer, aproblem arises as to how to place them on theworksheet. One could use narrow columns insertedbetween the scheduled client data, or, as done here,the tick marks are placed in blank rows beneath therelated data.7-40 (continued)-可编辑修改-VANDERVOORT COMPANYSchedule N-1 DateA/C #110 - NOTES RECEIVABLE Prepared by JD 01/21/08 12/31/07Approved by PP 02/15/08Account #110 - Notes Receivable InterestDate InterestMade/ Rate/ Face Value ofBalance Balance Receivable Receivable Maker Due Date Paid toAmount Security12/31/06 Additions Payments 12/31/07 12/31/06 Earned Received 12/31/07Apex Co. c *6/15/06 / 5% / 5000 None4000 0 1000 3000104 175 0 279 06/15/08 None pd.tp r tp < Ajax, Inc. c *11/21/06 / 5% / 3591 None3591 0 3591 0 0 102 102 0 Demand 12/31/07tp r tp < r J.J. Co. c *11/1/06 / 5% / 13180 2400012780 0 2400 10380 24 577 601 0 04/01/12 12/31/07 tp r tp < r ($200/Mo.)P.Smith c *7/26/07 / 5% / 25000 500000 250005000 200000 468 200 268 08/01/09 09/30/07 r r < r ($1000/Mo.)Martin-Peterson c *5/12/06 / 5% / 2100 None2100 0 2100 0 0 105 105 0 Demand 12/31/07tp r tp < r Tent Co. c *9/3/07 / 6% / 12000 100000 12000 1600 10400 0 162 108 54 02/01/10 11/30/07 r r < r ($400/Mo.) 2247137000156914378012815891116601f f f f, cf f f f f, cf Tpwtbtb opwtbLegend of Auditor's Tick Marks f Footed cf Crossfooted7-40 (continued)7-19tp Traced to prior year audit fileswtb Traced total to working trial balanceop Traced total to operations audit schedule - OP6* Examined note for payee, made and due dates,interest rate, face amount, and value ofsecurity. No exceptions noted.c Received confirmation, including date interest paid to,interest rate, interest paid during 2007, notebalance, and security. No exceptions noted.r Traced to cash receipts records< Recomputed for the year-可编辑修改-Cases7-41 The following are deficiencies in the sufficiency and appropriateness of the evidence in the audit of accounts payable for Grande Stores:McClure Advertising Credits–An insufficient number of confirmations (four) were sent. The use of alternative procedures is probably acceptable. However, one credit was confirmed by telephone, rather than by written confirmation. Although the differences found were immaterial, the auditors should have determined the reason for the differences, and any errors should have been projected to the population.Twenty additional credits were selected for testing. Whether this is a sufficient number is a matter of judgment, and depends on several factors. With a fairly small sample, it is critical that the items selected for testing adequately represent the population. The testing relied on internal documentation, which is insufficient to support the credits. The placing of the ad is insufficient evidence without supporting evidence from the vendor supporting the reduction in accounts payable.Springbrook Credits –These credits were confirmed by telephone, and were not supported by a written confirmation. The staff auditor was suspicious of the client’s unwillingness to allow written confirmation of the amounts, as well as the client’s changing explanation of the nature of the credits, but did not perform additional testing to resolve any doubts about the validity of the credits.Ridolfi Credits– The auditor obtained an oral confirmation that these credits were not valid. The client indicated that the auditor's information was incorrect, but would not allow the auditor to obtain written confirmation for these credits. In addition, the credit memos had been altered, which should have further indicated to the auditor that the credits were not valid.Accounts Payable Accrual–The auditors sent 50 accounts payable confirmations. Whether this is a sufficient number of confirmations is a matter of auditor judgment. However, the adequacy of the confirmations as evidence is significantly undermined by the knowledge that the client told suppliers how to respond. As a result, the auditor should have verified the confirmed balances using alternative procedures. There is no discussion of the performance of alternative procedures for nonresponses, or the resolution of the six responses that were not reconciled to Grande’s records.The auditors agreed to an adjustment of $260,000 when their cutoff tests indicated a potential liability of $500,000. It would be appropriate for the auditors to agree to a lower amount only if additional testing supported a lower accrued liability.7-42The audit schedule contains the following deficiencies:1.There is no indication of follow-up on the identified errorin the accrued interest payable computation.2.There is no indication whether the confirmation exceptionwas resolved.。
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©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-7
Set Preliminary Judgment About Materiality
Auditors decide early in the audit the combined amount of misstatements of the financial statements that would be considered material.
If there is a material misstatement, the auditor will bring it to the client’s attention so that a correction can be made.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Planning extent of tests
9-5
Steps in Applying Materiality
Step Estimate total 3 misstatement in segment
Step Estimate the 4 combined misstatement
Step 5
Compare combined estimate with judgment about materiality
This preliminary judgment is the maximum amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9 - 10
Learning Objective 3
Allocate preliminary materiality to segments of the audit during planning.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Evaluating results
9-6
Learning Objective 2
Make a preliminary judgment about what amounts to consider material.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-8
Factors Affecting Judgment
Materiality is a relative rather than an absolute concept.
Materiality and Risk
Chapter 9
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-1
Learning Objective 1
Apply the concept of materiality to the audit.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-3
Materiality
The auditor’s responsibility is to determine whether financial statements are materially misstated.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-2
Materiality
It is a major consideration in determining the appropriate audit report to issue.
9ቤተ መጻሕፍቲ ባይዱ4
Steps in Applying Materiality
Step Set preliminary judgment 1 about materiality
Allocate preliminary Step judgment about
2 materiality to segments
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-9
Guidelines
Accounting and auditing standards do not provide specific materiality guidelines to practitioners.
Professional judgment is to be used at all times in setting and applying materiality guidelines.
Bases are needed for evaluating materiality.
Qualitative factors also affect materiality.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder