Question

Write a brief response, 30-90-words, for each question below. 1. In your own words, define “Auditing.” 2. Discuss the importance of “Evidence” in auditing. 3. Define “Independence” and “Objectivity” as they relate to auditing. 4. Audits typically consist of three phases: Planning; Fieldwork; Reporting. Describe activities that accompany each phase. 5. Distinguish between Assurance and Attestation Services. 6. Describe the following types of Audits: a. Operational Audits b. Compliance Audits c. Financial Statement Audits d. Informational Technology Audits (may need to go outside the text to address this) 7. Discuss the following types of Auditors: a. Auditors Working for CPA Firms b. Governmental Auditors (e.g. GAO, IRS, health inspectors) c. Internal Auditors 8. Identify the roles CPA firms play in society. 9. Briefly explain Sarbanes-Oxley (SOX) and the role the Securities and Exchange Commission (SEC) plays in regulating audits. 10. What is the role of the AICPA? The PCAOB? The Institute of Internal Auditors (IIA)? 11. Summarize the 10 components of Generally Accepted Auditing Standards (GAAS) 12. What are SAS, and for what are they used? 13. True or False – CPA firms are required to engage in quality control efforts of its audits? Why or Why not? 14. What is a Peer Review and how and when are they performed? 15. Why does government often have different auditing and accounting standards?

Answer 1

Answer is as under :

1. In your own words, define “Auditing.”

Auditing comes after accounting is done by organization. Auditing can be done by internal personnel of the company also and organization can appoint other independent professional for auditing. Auditing generally means examining an organization's financial records to determine if they are accurate and in accordance with any applicable rules and laws.it is the examination of Accounts & everything related to Accounts. Auditing is independent. The auditor provides independent assurance to management that controls are working or not by opining on the controls based on testing, observation, inspection, review, or interview.

2. Discuss the importance of “Evidence” in auditing.

Audit Evidence is evidence based on certain assumptions, documents, law , principles and standard. Importance of audit evidence are :

1) To align the audit plan with work done

2) Helps in future event or reference

3) Helpful to a person who handles the audit next year

4) Can be shown as a proof of work perform

The various types of audit evidences are as under :

Physical examination : It means auditor will physically examine the inventory , fixed assets as per the books record and as per its actual availability

Observation : It means the auditor will look at the process followed by the company or entity

Inquiry : It means auditor will obtain knowledge and information from the people involved in the company

Recalculations : Recalculation consists of checking the mathematical accuracy of documents or records. Recalculation may be performed manually or electronically.

Performance : It means independent execution of procedures or controls that were originally performed by company personnel.

3. Define “Independence” and “Objectivity” as they relate to auditing.

Independence in relation to auditing means , that the person performing audit should be independent from the company and his or her opinion should not be effected by the conduct of the company, or personnel from the company. Is opinion should not be based on some other person thoughts. Auditor should be independent enough to carry out the responsibilities of giving an opinion on companies financial position. Threat to independence should be check well before accepting an audit proposal . Objectivity means a balanced assessment should be done by auditor well in advance in an independent manner

4. Audits typically consist of three phases: Planning; Fieldwork; Reporting. Describe activities that accompany each phase.

Planning is the base of an audit. A audit plan should be prepared well in advance in which it should have agenda of what to do , who will do what, when to do, number of days required to audit, audit team details, audit deadline etc. should be set in well advance.

Field work means actual audit done by audit team. It should be perform as per the audit plan. It includes performing audit, gathering audit evidence, preparing data as required.

Reporting means communicating the result of work done by audit team to reporting authorities like management of the companies, audit partner, discussing the loop holes, area needed to improve etc.

5. Distinguish between Assurance and Attestation Services.

Assurance service means an project / audit/ work undertaken by the practitioner (e.g. auditor, reviewer etc.) and at the conclusion of engagement practitioner expresses an opinion about the evaluation of subject matter. This opinion ultimately enhances the confidence of intended users (other than responsible party) over the evaluation of subject matter. There are two types of assurance : Reasonable assurance : It simply means that the financial statement of the company are free from the material misstatement. It is considered as the highest level of assurance for the reliability of financial statement. It is the auditor responsibility to do the audit in such a manner that he can get proper audit evidence on the true and fair view of financial statements and the same is free from misstatement. It involves both financial statement audit and internal control audit. Absolute Assurance : It means there are no absolute misstatement in financial statement and it show all true and correct fair view. An auditor can never get absolute assurance due to inherent limitation of audit in financial statement.

Attestation service means a person issuing a report or certificate on a specific subject matter. It is certificate issue by a professional person with regard to one specific matter and it show that only a attestation function is perform for the part or whole data which is already audited.

6. Describe the following types of Audits: a. Operational Audits b. Compliance Audits c. Financial Statement Audits d. Informational Technology Audits (may need to go outside the text to address this)

Five types of services with a brief description of attestation services is as under :

Internal Audit /Operational audit : It means identifying the risk in each and every process of the company, verifying the controls against the risk identified and evaluating the system of the company to understand how efficiently and effectively the organizational process are perform and how to improve it future. It is related to operational effectiveness of the companies function. Operational audit is done by internal auditor who is generally in-house or it can be outsourced also. Operational audit is not compulsory but it depends on companies turnover and other financial figures and it is management decision

Compliance Audit : It is means the audit of companies legal and statutory laws and rules and regulation. There are various authority for which compliances are required such as Income tax, Companies Act, Security exchange etc. Compliance audit is done because if there is any loop hole in compliances of the company then it will result in legal and financial liability of the company.

Financial statement audit means a audit done by auditor. Auditor is appointed by share holder in meeting. Financial statement audit is a statutory requiredement of all corporates in which auditor issue the audit report on how accurate and true and fair view financial statement shows. Auditor carry out audit as per the professional standards and rules and regulation and issue audit opinion independent from management of the company. For all registered companies, financial statement audit is compulsory. It is carried out with a view to obtain true and fair view from an independent professional body .

Information technology audit :

Information Technology audit is there in many large organization to check the security , reliability and access right in the company. IT Audit plan will differ from a business to business . It depends on nature of business and objective of business. Auditor needs to understand the existing IT system and how does it operates and secure the companies data. The auditor should evaluated how help full is current technology and at what percentage does it match to the latest IT technology available in market. Auditor should prepare audit plan as per client requiredement. I.e. . Whether the client required risk assessment of IT technology or upgradation to the existing IT technology. Companies risk, control, backup strategies , check should be included in audit plan . Inherent risk to the audit should also be included in audit plan