Audit

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The Demand for Audit and Other Assurance Services O ssu a S s Chapter 1

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley

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SarbanesSarbanes-Oxley Act
Enron WorldCom

The Act established the Public Company Accounting Oversight Board. It also requires auditors to report on the effectiveness of internal control over financial reporting.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley

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Learning Objective 1
Describe auditing.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley

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©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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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. Auditing should be done by a competent, independent person.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley

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Information and Established Criteria
To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information.

FASB

Criteria

IASB
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©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley

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. t bli h d it i Transaction data

Client inquiry

Written and electronic Communications with outsiders

Observations

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley

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©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder

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Competent, Independent Person
Competence Independence Judgment and Experience

Evaluation of Evidence

Proper Conclusion
©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 1-7

Audit Report
To the Board of Directors and Stockholders of ABC Corporation and Subsidiaries Anywhere, USA We have audited the accompanying consolidated balance sheets of ABC Corporation and Subsidiaries (the “Company”) as of December 31, 2010 and December 31, 2009, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ABC Corporation and Subsidiaries as of December 31, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of...
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