Question

wk 5-2 please explain and provide examples

Describe which organizations have authority over government and not-for-profit auditing standards. There are four categories of professional engagements: financial audits, attestation engagements, performance audits, and non-audit services. What each of these audit types involves, and give an example of each

Answer 1

Part 1:

The organisations that have authority over Government and Not for Profit auditing standards are those organisations that set standards of Auditing which include :

American Institute of Certified Public Accountants (AICPA)

The American Institute of Certified Public Accountants (AICPA) is the non-profit professional organization of certified public accountants in the United States.From its earliest iteration in 1887 to as late as the 1970s, the AICPA was the only body setting generally accepted technical and professional standards for CPAs in a number of areas.. AICPA retains its standards-setting responsibilities in such areas as professional ethics, business valuation, financial statement auditing, attest services, and CPA firm quality control.

U.S. Government Accountability Office (GAO) :

The Government Accountability Office is a legislative branch government agency that provides auditing, evaluation, and investigative services for the United States Congress. It is the supreme audit institution of the federal government of the United States.The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that works for Congress. Often called the "congressional watchdog," GAO examines how taxpayer dollars are spent and provides Congress and federal agencies with objective, reliable information to help the government save money and work more efficiently.

Part 2 :

Financial audit:

A financial audit is an independent, objective evaluation of an organization's financial reports and financial reporting processes. The primary purpose for financial audits is to give regulators, investors, directors, and managers reasonable assurance that financial statements are accurate and complete.

Primary stages or phases of Financial audit are :

1) Planning - The process of financial audit begins with a plan that involves the method of collecting data to form an opinion about the organization or company’s financial status.

2) Internal controls - The next step involves giving a look at the internal controls. The auditor demands info, looks closely at the records, and watches financial procedures in action.

3) Testing - Testing implies checking whether the internal controls are working or not. An auditor requests more info, returns to the company for more inspections, and watches how financial procedures are being performed.

4) Reporting - The final step in financial audit involves giving a conclusion on how the company adheres to accounting standards. The audit from a CPA gives the organization an unqualified approval, a qualified approval, a disclaimer, or an adverse finding. The unqualified approval is considered as the best result and the adverse finding is considered to be the worst result.

Example of Financial audit - Internal audit , Statutory audit, CAG audit

2) Attestation engagements:

Attestation service or engagement is the process of engaging a CPA to provide assurance or attestation audits over services such as: examinations, reviews, or agreed-upon procedure reports.Attestation engagements include the following services or forms:

agreed-upon procedures

historical or future performance or financial data

physical characteristics such as the size of a facility that is important in the sale of business

an analysis of sorts

functioning of internal controls

Examples of attestation engagements are:

• Reporting on financial projections made by a client.
• Reporting on pro forma financial information formulated by a client.
• Reporting on how well the internal controls in a client process function.

3) Performance audits -

Performance auditing is a technique used by internal auditors to evaluate the economy, efficiency and effectiveness of the organisations’ operations so as to assure management that its strategic objectives are being carried out and whether or not they can be improved on..

The scope of the audit is expanded beyond the verification of financial controls or compliance with policies as it looks for the existence of management measures such as leadership, employee empowerment, teamwork, risk, assessment, management information, communication, resource allocation, productivity measurement, etc.

Performance audit includes Financial audits,  Economy and efficiency audits,  Compliance audits, Program audits.

Examples of Performance audits - Financial management of EU project '' Support to the development of Land market '' (Bulgaria 2004)

4) Non audit services -

Professional services provided by a qualified public accountant during the period of an engagement which are not connected to audit or review of an institution's financial statements.

Non-audit services provided by auditors to their clients fall into three categories:

1. Services required by legislation or contract to be undertaken by the auditors of the business. These include:

• regulatory returns e.g. to the Prudential Regulation Authority
• legal requirements to report on matters such as share issues for non-cash consideration, expenditure for grant application purposes, etc
• contractual requirements, for example to report to lenders or vendors on net assets, covenant requirements, etc.

2. Services that it is most efficient for the auditors to provide because of their existing knowledge of the business, or because the information required is a by-product of the audit process. These include:

• services such as those listed in category (1) above that the auditors are not required by law to undertake, but where the information largely derives from the audited financial records
• tax compliance, where much of the information derives from the audited financial records.

3. Services that could be provided by a number of firms such as

• management consultancy
• tax advice
• human resources consultancy.

Examples include tax planning and preparation, business consulting or systems integration.