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Chapter 1:
Auditing, Assurance, and Internal Control
Auditing
Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and establishing criteria and communicating the results to interested users. Internal Audits

* Internal auditing: independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization * Financial Audits
* Operational Audits
* Compliance Audits
* Fraud Audits
* IT Audits
* CIA
* IIA
External Audits
* External auditing: Objective is that in all material respects, financial statements are a fair representation of organization’s transactions and account balances. * SEC’s role
* Sarbanes-Oxley Act
* FASB - PCAOB
* CPA
* AICPA
Financial Audits
* An independent attestation performed by an expert (i.e., an auditor, a CPA) who expresses an opinion regarding the presentation of financial statements * Key concept: Independence
* {Should be} Similar to a trial by judge
* Culmination of systematic process involving:
* Familiarization with the organization’s business
* Evaluating and testing internal controls
* Assessing the reliability of financial data
* Product is formal written report that expresses an opinion about the reliability of the assertions in financial statements; in conformity with GAAP Attest Services
* Requirements of attestation services
* Written assertions and practitioner’s written report * Formal establishment of measurement criteria
* Limited to examination, review, and application of agreed-upon procedures Advisory Services
* Advisory services
* Professional services offered by public accounting firms to improve their client organizations’ operational efficiency and effectiveness * Services include:
* Actuarial advice
* Business advice
* Fraud investigation services
* Information system design and implementation
* Internal control assessments for compliance with SOX IT Audits
* IT audits: provide audit services where processes or data, or both, are embedded in technologies. * Subject to ethics, guidelines, and standards of the profession (if certified) * CISA

* Most closely associated with ISACA
* Joint with internal, external, and fraud audits
* Scope of IT audit coverage is increasing
* Characterized by CAATTs
* IT governance as part of corporate governance
External vs. Internal
* External auditing:
* Independent auditor (CPA)
* Independence defined by SEC/S-OX/AICPA
* Required by SEC for publicly-traded companies
* Referred to as a “financial audit”
* Represents interests of outsiders, “the public” (e.g., stockholders) * Standards, guidance, certification governed by AICPA, FASB, PCAOB; delegated by SEC who has final authority * Internal auditing:

* Auditor (often a CIA or CISA)
* Is an employee of organization imposing independence on self * Optional per management requirements
* Broader services than financial audit; (e.g., operational audits) * Represent interests of the organization
* Standards, guidance, certification governed by IIA and ISACA Fraud Audits
* Fraud audits: provide investigation services where anomalies are suspected, to develop evidence to support or deny fraudulent activities. * Auditor is more like a detective
* No materiality
* Goal is conviction, if sufficient evidence of fraud exists * CFE
* ACFE
Role of Audit Committee
* Selected from board of directors
* Usually three members
* Outsiders (S-OX now requires it)
* Fiduciary responsibility to...
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