Summary of Auditing Theory Chap 1 & 2

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Assurance services - deal with audit or review of historical financial information and assurances dealing with subject matters other than historical financial information. * designed to enhance the degree of confindence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria FF. are the broad categories of services under the umbrella of assurance services: 1. Risk assessment

2. Information system reliability
3. Adequacy of security over Electronic commerce transactions, electronic documents, and support systems 4. Effectiveness of Health care performance measurement systems 5. Reliability and relevance of Business performance measurement

* it evolves naturally from Attestation services, which in turn evolve from audit * The root of all three is independent verification

Non-assurance services (Related Services) – pertain to compilation of financial information , agreed-upon-procedures and other related services which do not result in the expression of conclusion that provides a level of assurance. Auditing – is a systematic process of objectively obtaining and evaluating evidence regarding selected assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the result to interested users. * determining whether recorded information properly reflects the economic events that occurred during the accounting period. Elements:

* Systematic process
* Objectivity
* Obtaining and evaluating evidence
* Assertions about economic actions and events
* Degree of correspondence...established criteria
* Communicating results
* Interested users
Attestation - refers to an expert’s written communication of a conclusion about the reliability of someone else’s assertions. * when a practitioner is engaged to issue a written communication that expresses a conclusion about the reliability of a written assertion * a type of assurance service whose subject matter (both FS and non-FS in nature) * offering some level of assurance

Ex. of attest services:
1. Future-oriented financial information
2. Management’s discussion and analysis
3. Effectiveness of internal control
4. Compliance with statutory, regulatory and contractual obligations Consulting services (Management Advisory Services) – professional services that provide advice and assistance concerning an entity’s organization, personnel, finances, operations, systems, or other activities. * an analytical process that typically involves some combination of activities relating to: a) objective-setting

b) fact-finding
c) definition of problems or opportunities
d) evaluation of alternatives
e) development of recommendations including actions
f) communication of results
g) implementation
h) follow-up
- reports are generally written in a narrative style
- nature and scope is determined by agreement between the professional accountant and the client

Areas of consulting services:
1. Consultations
2. Advisory
3. Implementation
4. Transaction
5. Staff and other support
6. Product

AssuranceConsulting
* three party-two party
contractscontracts
* to improve quality-to recommend
of informationuses for infos.
* decision makers & -Outcomes
info.used for optimum
decisions
* intended to improve-designed to
decision maker’s improve client’s
condition indirectly condition’s
thru directly thru
recommendationsfindings,
conclusions and
recommendation

Four conditions that create demand for audits:
1. Potential conflict of interest between those who prepare information & those who use information. 2. Information can have substantial economic consequences for a decision maker. 3. Expertise is often required for preparing and verifying information 4. Users of information frequently are...
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