Auditing: Theory and Practice

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ISBN: 9780873939331 | 0873939336
Cover: Paperback
Copyright: 5/22/2001

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Auditing, 8e captures the most relevant professional pronouncements and incorporates them into concepts students must know. In this edition students gain an understanding of the important issues currently facing the auditing profession.

The Auditing Environment
The CPA and the Auditing Environment
The Purpose of Auditing: The Definition of Auditing
Why do Audits Occur? Parties Involved in the Audit
The Public Accounting/Auditing Environment
CPA Firms
Hierarchy within the Firm
Types of Audits
Types of Auditors
Functions Other Than Auditing
Professional Organizations of Accountants
American Institute of Certified Public Accountants (AICPA)
State Societies
Boards of Accountancy
Securities and Exchange Commission
Auditing Standards
General Standards
Standards of Field Work
Standards of Reporting
Statements on Auditing Standards (SASs)
Auditing in the Business Press
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
The Code of Professional Conduct
Why is a Code of Conduct Important? The Structure of the Code of Professional Conduct
Principles
Rules of Conduct
Interpretations and Ethics Rulings
Rules of Conduct
Independence: Rule 101
Integrity and Objectivity: Rule 102
General Standards: Rule 201
Compliance with Standards: Rule 202
Accounting Principles: Rule 203
Confidential Client Information: Rule 301
Contingent Fees: Rule 302
Acts Discreditable: Rule 501
Advertising: Rule 502
Commissions: Rule 503
Form of Organization and Name: Rule 505
Enforcement of the Code of Conduct
Quality Control
Monitoring Quality Control Standards: Peer Reviews
Appendix
Current Interpretations Under the Code of Professional Conduct
Interpretations of Rule 101: Independence
Interpretations of Rule 102: Integrity and Objectivity
Interpretation of Rule 201: General Standards
Interpretations of Rule 203: Accounting Principles
Interpretations of Rule 301: Confidential Client Information
Interpretation of Rule 302: Contingent Fees
Interpretations of Rule 501: Acts Discreditable
Interpretations of Rule 502: Advertising and Solicitation
Interpretations of Rule 505: Form of Practice and Name.
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Auditors' Legal Liability
Litigation, Liability and the Accounting Profession
Overview of Legal Liability
Terminology
Common Law Liability
Liability to Clients and Subrogees
Liability to Third Parties
Significant Court Cases under Common Law
Statutory Liability
Securities and Exchange Commission (SEC)
Securities Act of 1933
Securities Exchange Act of 1934
Auditors' Liabilities under the 1933 Act
Auditors' Liability under the 1934 Act
Other Statutory Liability
Legal Liability: What does the Future Hold?
Summary
Summary of Other Court Cases Under Common Law
Liability to Clients and Subrogees
Liability to Third Parties Other than Primary Beneficiaries
Summary of Other Court Cases Under Statutory Law
McKesson and Robbins
National Student Marketing Case
Yale Express Case
Continental Vending Case
Equity Funding Case
Other Cases
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
The Audit Process
Audit Planning
Overview of the Audit Examination
Preengagement and Audit Planning
Studying and Evaluating Internal Control
Substantive Testing Procedures
Issuing the Audit Report
Preengagement Procedures
Client Contact
Accepting the Engagement
Engagement Letters
Audit Planning
Obtaining Knowledge about the Client
Responsibility for Financial Statement Misstatements
Responsibility for Detecting Misstatements
Responsibilities if Misstatements are Detected
Responsibilities for Illegal Acts
Summary: Errors, Fraud, and Illegal Acts
Determining an Audit Strategy: Materiality, Management Assertions, and Audit Risk
Materiality
Management Assertions
Audit Risk Model
Other Planning Issues
Related Parties and Related-Party Transactions
Using the Work of a Specialist
Internal Audit Function
Performing Preliminary Analytical Procedures
Preparing the Audit Program
Supervision and Staffing
Role of Planning in the Audit
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Financial Statement Fraud
Internal Control and the Assessment of Control Risk
The Audit Process and Audit Risk
Overview of Internal Control
Definition of Internal Control
Components of Internal Control
Other Internal Control Considerations
Studying Internal Control
Identifying a Preliminary Audit Strategy
Understanding the Components of Internal Control
Documenting the Understanding of Internal Control
Making an Initial Assessment of Control Risk
Obtaining an Additional Reduction in Control Risk
Making a Final Assessment of Control Risk
Documenting Control Risk Assessments
Using the Audit Risk Model to Determine the Maximum Allowable Level of Detection Risk
Summary: the Auditor's Study of Internal Control
Other Issues Related to Internal Control
Communicating Internal Control Deficiencies
Reporting on Internal Control
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Substantive Testing and Control of Detection Risk
The Audit Process and Audit Risk
Over View of Substantive Tests
Third Standard of Field Work
Types of Evidence
Qualities of Evidence
Qualities of Evidence: A Summary
General Approaches to Substantive Testing
Determining Detection Risk
Factors Affecting Levels of Detection Risk
Detection Risk and Management Assertions
Substantive Testing Procedures
Physical Observation
Inspecting Documents
Confirmation
Analytical Procedures
Recalculations
Comparisons
Oral Inquiry
Summary: Substantive Testing Procedures
Working Papers
Types of Workpapers
Interrelationship Among Workpapers
Filing of Workpapers
Ownership and Custody of Workpapers
Workpaper Review
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Introduction to Sampling and Attribute Sampling
Audit Sampling
Sampling Risk versus Nonsampling Risk
Statistical versus Nonstatistical Sampling
Precision and Reliability
Incorporating Statistical Concepts into the Sampling Plan
Attribute Sampling
Overview of Attribute Sampling
Risks Associated with Attribute Sampling
Steps in Performing Attribute Sampling
Defining the Deviation Conditions
Defining the Population
Determining the Sample Selection Method
Determining Sampling Size
Performing the Sampling Plan
Evaluating the Sample Results
Other Attribute Sampling Applications
Nonstatistical Sampling
Discovery Sampling
Sequential (Stop-or-Go) Sampling
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Variables Estimation Sampling
Overview of Variables Sampling
Sampling Risks
Overview: Classical Variables Sampling
Normal Distribution
Standard Deviation
Basic Decision Process in Classical Variables Sampling
Classical Variables Sampling: Mean-Perunit Estimation
Determining the Audit Objective of the Test
Defining the Population
Choosing an Audit Sampling Technique
Determining Sample Size
Determining the Method of Selecting the Sample
Performing the Sampling Plan
Evaluating the Sample Results
Example: Mean-per-Unit Estimation
Other Classical Variables Methods: Difference and Ratio Estimation
Difference Estimation
Ratio Estimation
Alternative Approaches to Classical Variables Sampling
Summary: Classical Variables Sampling Methods
Probability-Proportional-to-Size (PPS) Sampling
Determining Sample Size
Selecting the Sample
Evaluating Sample Results
PPS Sampling versus Classical Variables Sampling
Controlling Exposure to Sampling Risks
Risk of Incorrect Rejection
Risk of Incorrect Acceptance
Nonstatistical Sampling
Example: Nonstatistical Sampling
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Computer Controls and Audit Techniques
Computerized Accounting Systems
Batch Processing
Interactive Processing
Batch Processing versus Interactive Processing
Computerized versus Manual Processing
Computer Controls
General Controls
Application Controls
Evaluating Computer Controls and Assessing Control Risk
General Controls
Application Controls
Service Organizations
Assessing Data Maintained on Client Computer Files
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Auditing Procedures
The Revenue Cycle
What is an Operating Cycle?
Evaluating Internal Control: The Revenue Cycle
Control Environment
Risk Assessment and Control Activities: The Credit Sales Subcycle
Risk Assessment and Control Activities: The Sales Adjustments Subcycle
Risk Assessment and Control Activities: The Cash Receipts Subcycle
Information and Communication
Monitoring
Computerized Processing in the Revenue Cycle
Credit Sales
Cash Receipts and Sales Adjustment
Summary of Key Points
Glossary
Questions and Problems
The Revenue Cycle: Substantive Tests
Overall Audit Approach
Accounts Receivable
Inherent and Control Risk
Detection Risk
Cash
Inherent and Control Risk
Detection Risk
Auditing Sales
Tests of the Sales Register (or Sales Journal)
Analytical Procedures
Sales Cutoff Tests
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
The Purchases and Disbursements Cycle
Evaluating Internal Control: The Purchases and Disbursements Cycle
Control Environment
Risk Assessment and Control Activities: The Purchases Subcycle
Risk Assessment and Control Activities: The Cash Disbursements Subcycle
Information and Communication
Monitoring
Computerized Processing in the Purchases and Disbursements Cycle
Purchases Subcycle
Cash Disbursements Subcycle
Summary of Key Points
Glossary
Questions and Problems
The Purchases and Disbursements Cycle: Substantive Tests
Overall Audit Approach. Inventory
Inherent and Control Risk
Detection Risk
Accounts Payable
Inherent and Control Risk
Detection Risk
Accrued Payables and Deferred Assets
Cost of Goods Sold/Purchases
Tests of the Voucher Register (Purchases Journal)
Analytical Procedures
Purchase Cutoff Tests
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
The Conversion Cycle
Evaluating Internal Control: The Conversion Cycle
Control Environment
Risk Assessment and Control Activities: The Payroll Subcycle
Risk Assessment and Control Activities: The Production Subcycle
Information and Communication
Monitoring
Substantive Tests of Inventory Balances
Substantive Tests of Payroll Transactions
Inherent and Control Risk for Payroll Transactions
Detection Risk (Substantive Tests) for Payroll Transactions
Computerized Processing in the Conversion Cycle
Payroll Subcycle
Production Subcycle
Summary of Key Points
Glossary
Questions and Problems
The Investing and Financing Cycle
Auditing the Investing and Financing Cycle
Evaluating Internal Control: The Investing and Financing Cycle
Control Environment
Risk Assessment and Control Activities
Information and Communication
Monitoring
Substantive Tests: Investments
Obtaining or Preparing a Listing of Securities
Verifying Investment Transactions
Inspecting or Confirming Securities
Verifying Market Values
Examining Investment Revenue Accounts
Performing Analytical Procedures
Evaluating Financial Statement Presentation
Substantive Tests
Property, Plant and Equipment
Obtaining or Preparing a Listing of PPE
Verifying PPE Transactions
Inspecting PPE and Title to PPE
Examining Subsequent Expenditures
Evaluating the Provision for Depreciation
Performing Analytical Procedures
Evaluating Financial Statement Presentation
Substantive Tests: Notes Payable and Long-Term Debt
Obtaining or Preparing a Listing of IBLS
Verifying IBL Transactions
Inspecting or Confirming IBLS
Recalculating Interest Expense
Searching for Unrecorded Liabilities
Performing Analytical Procedures
Evaluating Financial Statement Presentation
Substantive Tests: Stockholders' Equity Accounts
Obtaining or Preparing a Schedule of Changes in Stockholders' Equity
Verifying Stockholders' Equity Transactions
Inspecting or Confirming Shares Issued and Outstanding
Verifying Retained Earnings
Performing Analytical Procedures
Evaluating Financial Statement Presentation
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Completing the Audit Examination
Completing the Audit
Subsequent Events
Letters of Inquiry
Management Representations
Analytical Procedures
Workpaper Review
Evaluating the Results
The Postaudit Period
Subsequent Discovery of Facts
Consideration of Omitted Procedures After the Report Date
Communications with the Client
Communications Related to Internal Control
Other Communications with Audit Committees
Management Letters
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Auditor's Communications
The Auditor's Report
The Auditor's Report
The Body of the Report
Other Information in the Report
Reporting Standards
Types of Opinions
Reasons for Departure from the Wording of the Standard Report
Scope Limitations
Division of Responsibility
Lack of Conformity with GAAP
Departure from a Promulgated Principle
Consistency
Uncertainties
Emphasizing a Matter in the Report
Independence
Summary: Departures from the Auditor's Standard Report
Comparative Financial Statements
Comparative Statements not Audited
Comparative Statements Examined by the Same Auditor
Comparative Statements Examined by Another Auditor
Summary: Comparative Reporting
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Reporting: Other Information and Special Reports
Reporting on Information Presented with the Financial Statements
Other Information Prepared by the Client
Segment Information
Reporting on Required Supplementary Information
Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents
Summary: Other Reporting Responsibilities
Special Reports
Basis Other than GAAP
Reports on Specific Elements, Accounts, or Items
Compliance with Contractual Agreements
Financial Presentations Intended to Comply with Contractual or Regulatory Requirements
Prescribed Forms
Summary: Special Reports
Other Types of Reports Issued in Conjunction with Audited Financial Statements
Financial Statements Prepared for use in Other Countries
Review of Interim Financial Information
Letters for Underwriters and Other Third Parties
Condensed Financial Statements and Selected Financial Data
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Other Accountant Engagements and Reports
Attestation Services
Reporting On Internal Control
Effectiveness of the Organization's Internal Control
Effectiveness of a Segment of the Organization's Internal Control
Suitability of the Design of the Organization's Internal Control
Evaluating Internal Control Based on Criteria Specified by a Regulatory Agency
Reporting on Management's Assertion about Compliance with Specified Requirements
Prospective Financial Information
Types of Prospective Financial Information
Information Provided as Prospective Financial Information
Use of Prospective Financial Information
Engagements Related to Prospective Financial Information
Pro Forma Financial Information
Management's Discussion and Analysis
Accounting and Review Services
Compilation Engagements
Review Engagements
Comparative Reporting Involving Accounting and Review Services
Other Issues Involving Accounting and Review Services
Summary: Accounting and Review Services for Nonpublic Companies
Attestation Standards
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
Other Types of Auditing
Compliance, Internal, and Operational Auditing
Compliance Auditing
Compliance Auditing in a GAAS Audit
Government Auditing Standards (The Yellow Book)
The Single Audit Act
Summary: Compliance Auditing
Internal Auditing
The Role of Internal Auditing in the Organization
Differences Between Internal Auditing and External Auditing
Code of Ethics
Standards of Internal Auditing
Operational Auditing
Who Performs Operational Audits
Steps in Performing an Operational Audit
Summary: Classifications of Auditing
Internal Auditing Standards
Summary of Key Points
Glossary
Summary of Professional Pronouncements
Questions and Problems
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Auditing: Theory and Practice

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