...Types of Audits KWyrick Advanced Accounting 2/23/15 Audits are an important necessity to insure the foundation and integrity of any company in today’s business world. Audits provide credibility and assurance for the company’s management and financials. This is useful information for stakeholders when deciding whether or not to invest in the company. The audit also provides reasonable assurance that the financials are free from material errors. Therefore the information provided is guaranteed to be honest and truthful. It is also important for some companies, such as nonprofits to have an audit performed. This provides regulations by the government to make sure that people are following the rules and not being taken advantage of. Other benefits of audits include uncovering or preventing fraud. If someone has been hiding financial information or trying to improve the financial status of the company wrongfully, it will usually be uncovered by the auditors. The three types of audits from the text include operational, compliance, and financial statement audit. These three audits work to solve different things. An operation audit reviews operations and looks for ways to improve efficiency and effectiveness. Compliance audits review contracts and agreements to make sure that all parties are doing their part or performing the tasks required. This is more common in nonprofits or governmental entities because one party is funding the other for a service. Financial statements audits...
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...* UNMODIFIED REPORT * UNMODIFIED- The financial statement shows a true and fair view about the company’s financial position * There are no “if”, ”but” or additional information provided. * MODIFIED REPORT * The choices for QUALIFIED can be described in a matrix * Example of insufficient appropriate audit evidence … Except as discussed in the following paragraph… We did not observe the counting of inventories at 31/12/200X… unable to determine inventory quantities by other methods… In our opinion, except for the effects of such adjustments to inventory, if any, had we been able to satisfy ourselves as to physical inventory… The financial statements give a true and fair view… * Example of disclaimer of opinion … Except as discussed in the following paragraph… We were not able to observe all physical inventories at 31/12/200X… unable to determine inventory quantities by other methods… Because of the significance of the matters discussed… we do not express an opinion on the financial statements. * Example of Material misstatement / “except for” As discussed in paragraph 17, no depreciation has been provided… not in accordance with International Accounting Standards… The provision for the year should have been $X… profits would be decreased by $Y. In our opinion, except for the matter referred to above, the financial statements give a true and fair view… * Example of Material misstatement / “adverse opinion” As discussed in paragraph 15...
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...Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution: The SEC does not have direct influence over the audit of Smackey Company because, Smackey is not a public held organization, they do not have assets in excess of $10 million, and they do not have over 500 stockholders; which are the requirements for public and privately held companies. The SEC does have indirect influence over the audit because all companies, whether public or private are required to comply with General Accepted Accounting Principles (GAAP) and the SEC plays a significant role in influencing these standards. The auditors, while not bound by SEC rules they are required to obey specific audit rules and guidelines as outlined under the the American Institute of Certified Public Accountants (AICPA). The AICPA is responsible for establishing auditing and attestation standards for private companies in the United States and for enforcing a code of professional conduct for its members. The code is comprised of six principles that the auditors must adhere to. The principles are: responsibilities, the public interest, integrity, independence and objectivity, due care, and the scope and nature of services. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: During the initial planning of the audit of Smackey Dog Food, the auditors should discuss the...
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...services: 鉴证服务 A type of assurance service in which the public accounting firm issues a written communication that expresses a conclusion about the reliability of a written assertion of another party. Audit of historical financial statements: A form of attestation services, the auditor issues a written report expressing an opinion about whether the F/S is in material conformity (一致) with accounting standards. e.g.: listed company must provide shareholders with annual financial statements that are audited by an independent accounting firm. Review of historical cost financial statements: A form of attestation services, a public accounting firm issues a written report that provides less assurance than an audit as to whether the financial statements are in material conformity with accounting standards. Auditing standards: Establish mandatory (强制) requirements and provide explanatory (解释) guidance to auditors in fulfilling their professional responsibilities in the audit of financial reports. 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 performed by a competent, independent person. Compliance audit: 合规性审计 One of three primary types of audits, a review of an organization’s financial records performed to determine whether the organization is following specific procedure, rules or regulations set by some higher authority. An audit performed...
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...over the audit of Smackey Dog Foods, Inc. Solution: The SEC (Securities and Exchange Commission) has substantial influence on the audit of Smackey Dog Food, Inc. This can be seen in the audit standards that have to be followed by the established independence of the auditors involved in the Smackey audit. In the audit of public listed companies which includes Smackey, the auditors need to observe several principles. Independence is one of the six principles exhibited by the AICPA and the others include responsibilities such as the public interest, integrity, objectivity and independence, due care, and scope and nature of services. An audit team is required to be objective and independent with regard to professional responsibilities and by being independent in fact and appearance when providing auditing and other attestation services. Under the Sarbanes – Oxley, auditors have to be objective and independent otherwise legal sanctions can be pursued and incurred. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: The following are several essential activities involved in the initial planning of an audit and how they are specifically related to Smackey Dog Food, Inc. : 1. First understand the client’s business and industry. The audit firm can get the full benefit of its experience in auditing other food manufacturers in planning and doing the audit for Smackey...
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...Case #3.4 – Sunbeam – Incentives and Pressure to Commit Fraud I. Technical Audit Guidance To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge PCAOB Auditing Standard No. 5 Paragraph #9 Paragraph #11 Paragraphs #29-30 Paragraph #32 Paragraph #A8 (in Appendix A) III. Classroom Hints This case provides students with an opportunity to apply their technical knowledge about inherent risk and fraud risk to Sunbeam's business model during the 1990's. By providing details about Sunbeam business during this time, students are able to see the relationship between an audit client's business strategy and inherent risk assessment at the financial statement assertion level. In addition, this case provides students with an opportunity to think about fraud risk assessment during times of significant change at an audit client. To meet these objectives, this case illuminates a number of relevant issues about the development of Sunbeam. In particular, the case focuses on the changes that occurred at Sunbeam after hiring Albert J. Dunlap as...
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...Apollo, a publicly-traded company, should have an audit committee overseeing its internal financial reporting integrity. This audit committee would oversees the audits, both internal and external. Once found evidence of fraudulent accounting, external auditors must communicate the findings within Apollo with the committee or other governing body. External auditors also report the effect that the fraud may result with Apollo. We would plan and conduct our audit with professional skepticism. We are required to recognize the condition or events that suggest if fraud may exist. Based on the audit risk assessment we conduct, we develop audit procedures to obtain reasonable assurance that substantial frauds have been found. It is expected that the auditor to implement procedures that will lead to the discovery of errors or fraud without significant impact on the financial statements can not be held responsible for undetected such irregularities. The auditor should communicate with the management of his client. He should ask the management information concerning any significant fraud or error has been detected in order to detect key problems that could lead to certain activities, the implementation of audit procedures more than usual However the auditor faces the risk inevitable that some significant errors to be detected, even if the audit is planned and done properly. Type accounting fraud The most common type of fraud, the audit found that revenue recognition errors. Revenue...
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...An HR audit is like an annual health check, says EJ Sarma. It plays a vital role in instilling a sense of confidence in the management and the HR functions of an organisation A healthy HR function in an organisation is as important as the physical and mental well being of a human body. Typically the basic reason why organisations prefer to conduct an HR audit is to get a clear judgement about the overall status of the organisation and also to find out whether certain systems put in place are yielding any results. HR audit also helps companies to figure out any gaps or lapses and the reason for the same. Since every company plans certain systems and targets, an HR audit compares the plans to actual implementation. The concept of HR audit has emerged from the practice of yearly finance and accounting audit, which is mandatory for every company, to be done by external statutory auditors. This audit serves as an examination on a sample basis of practices and systems for identifying problems and ensuring that sound accounting principles are followed. Similarly, an HR audit serves as a means through which an organisation can measure the health of its human resource function. Organisations undertake HR audits for many reasons: 1 To ensure effective utilisation of human resources. 2 To review compliance with tons of laws and regulations. 3 To instill a sense of confidence in the human resource department that it is well-managed and prepared to meet potential challenges and opportunities...
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...“Audit” is defined as an independent evaluation implementation by an independent expert of a particular activity or event. There are many types of audits such as financial, operational, technological etc. The most popular reference to audits, however; are the ones that examine financial statements. Auditing is the examination and systematic structural evaluation of an organized business. The evaluation is made up of operations within the business organization and the products and developments of production occurring within the business system. An investigation into past history of a business is involved in auditing. Records and data about a company are also involved, in order to measure and discover the legality of the business's transactions operations, tax reporting, and thorough handling of finances. To be blunt, audits test the financial legitimacy claimed by a business entity. According to R. Gene Brown’s “Changing Audit Objectives and Techniques”, (The Accounting Review, Vol. 37, No. 4), reviewing the history of auditing helps to provide a basis for analyzing and interpreting the changes which have occured in audit objectives and procedures over the years. Fundamentally, this review shows a recent significant correlation between expanded reliance on internal controls and a decrease in detailed testing. The future of auditing will probably consist primarily of a procedural or systematic review, with the analysis of effectiveness of internal controls providing the major...
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...Case #2.4 – Enron: Quality Assurance I. Technical Audit Guidance To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge The Sarbanes-Oxley Act of 2002 Section 103 Section 203 III. Classroom Hints This case provides students with an opportunity to understand what is meant by quality control in the financial statement audit process and to understand why a quality control mechanism is an important internal control procedure for an audit firm. Further, the case provides a terrific example for students to see what can actually happen when quality control breaks down at an audit firm. In the case of Arthur Andersen, the breakdown in quality control ultimately led to the demise of the firm. To meet these objectives, this case illuminates the role of the professional standards group (PSG) at Arthur Andersen and the dialogue that occurred for several technical issues between Andersen’s PSG and the lead partner on the Enron engagement, David Duncan. We believe it is essential for students to carefully read over the recommended technical knowledge, along...
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...Chapter 7 Audit Evidence Key objectives: 2. Identify the four evidence decisions made by auditors in creating an audit program. 3. Specify the characteristics that determine the persuasiveness of evidence. 4. Know the eight types of evidence used by the auditor, including the quality of each type of evidence. 5. Understand the purposes of audit documentation. The focus in chapter 7 is on the evidence accumulation process, which falls under the third standard of field work. We will be especially interested in the types of evidence, and the characteristics that make that evidence competent or reliable. The auditor must gather sufficient appropriate audit evidence to support the audit opinion. 1. Four Evidence Decisions 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 procedures. These are planning decisions. The most important decision is reaching an audit conclusion for each procedure based on the evidence. 1. Audit procedures are designed to meet the general audit objectives discussed in Chapter 6, and are laid out in the audit program. 2. Sample Size - Sampling is discussed in 49 detail in chapters 15 and 17. The sample size should be sufficient to reach a conclusion about the population. Sample size may be set by statistical formula, firm policy, or auditor judgment. 3. Sample Selection - Sample selection is a function of the objective of the test, and is also discussed...
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...CHAPTER 4 AUDIT EVIDENCE AND AUDIT DOCUMENTATION Answers to Review Questions 4-1 Auditors typically divide the financial statements into components or segments in order to make the audit more manageable. A component can be a financial statement account or a business (transaction) process. This approach allows the auditor to gather evidence by examining the processing of related transactions through the accounting system from their origin to their ultimate disposition in the accounting journals and ledgers. Thus, the auditor can examine an accounting transaction from the time it is initiated by the entity until its final recording in the financial statement accounts. 4-2 The financial statements contain management's assertions about the various financial statement components. The auditor tests management’s assertions by conducting audit procedures that provide evidence on whether each relevant assertion is supported. The results from applying audit procedures provide the evidence that supports the fair presentation of management’s assertions and the auditor's report (see Figure 4-1). 4-3 Assertions about classes of transactions and events for the period under audit: Assertion Definition Occurrence Transactions and events that have been recorded have occurred and pertain to the entity (sometime referred to as validity). Completeness All transactions and events that should have been recorded have been recorded. Authorization All transactions and events have...
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...& Rama, D.V. (2006). Audit Firm Size and Going-Concern Reporting Accuracy. Accounting Horizons, 20(1), 1-17. Additional articles: Carcello, J.V. & Neal, T.L. (2000). Audit Committee Composition and Auditor Reporting. The Accounting Review, 75(4), 453-467. Geiger, M.A. & Raghunandan, K. (2002). Auditor Tenure and Audit Reporting Failures. Auditing: A Journal of Practice & Theory, 21(1), 67-78. Name: Karlijn Dirks Student number: 10674837 Tutorial Group: 2 fulltime Lecturer: drs. Francesco Campisi RA Date: 10 February 2016 Paper: 8 * Summary The papers that will be discussed in this essay all revolve around auditor reporting. Especially about issuing going-concern modified reports in relationship with different variables. The variable discussed in the first paper is audit firm size. For the second paper auditor tenure is the variable and for the final paper audit committee composition is the variable that will be looked at. The rest of this section will provide summaries of the three articles. Paper 1. Geiger & Rama (2006) investigate whether audit firm size affects the accuracy of going-concern reporting. They look at two different type of errors, type I errors occur when a going-concern modified report is issued but the client does not go bankrupt. A type II error occurs when a client does go bankrupt but prior audit reports are without going-concern modifications. The authors identify three different audit firm sizes: big 4, national...
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...discouraged employees from investigating ethical lapses and encouraged their employees to use aggressive and also illegal accounting procedures. b. Andersen also holds a lot of the responsibility. Andersen reviewed, analyzed and approved several of the accounting practices performed by Enron that they should not have. They should have questioned several things going on with Enron, such as their lack of internal control. They failed to do so. 2. List three types of consulting services that audit firms have provided to their audit clients in recent years. For each item, indicate the specific threats, if any, that the provision of the given service can pose for an audit firm’s independence. c. Bookkeeping – This has potential conflict because as an auditor you may not audit your own work as in depth as you would someone else’s. d. Tax Advice/ Tax Return Prep. – This has the same type of threat as the bookkeeping. It seems a little silly for the person who prepared the return to turn around and audit the return. It seems that they would not be coming into the situation with an open mind. e. Tax Compliance – Most of the information for tax compliance comes straight from audited financial statements. Thus presenting the same scenario as the other two above. 3. For purposes of this question, assume that the excerpts from the Powers Report shown in Exhibit 3 provide accurate...
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...auditing
Example waste audit specification
Introduction
In 2010-11 it is estimated that the Victorian healthcare system generated 41,674 tonnes of waste. About 70 per
cent was general waste, 20 per cent was recycled and 10 per cent was clinical waste. Clinical waste is the most
expensive waste stream comprising on average two-thirds of total waste costs.
Waste audits are an essential waste management tool to enable healthcare providers to understand how their
waste management system is performing, waste management practices across their sites and to verify waste
data and costs provided by the waste contractor. The Department of Health has prepared this example waste
audit specification to assist Victorian public healthcare services in undertaking waste audits.
The example specification is provided solely on the basis that healthcare services will be responsible for making
their own assessment of the applicability of the information provided to their circumstances. Those relying on it
are advised to verify all relevant statements and information and obtain independent advice where appropriate.
The department does not accept any liability to any person for the information or advice (or the use of such
information or advice) that is provided in this example tender clause or incorporated into it by reference.
Example Specification
Overview
The objective of the waste audit is to provide
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