Chapter1–AuditingandAssuranceServices.pptVIP

Chapter 1 – Auditing and Assurance Services Presentation Outline The Demand for Reliable Information Understanding Assurance Services Management Assertions Sarbanes-Oxley Act of 2002 Becoming a CPA I. The Demand for Reliable Information Understanding a Client’s Business Environmental Conditions Information Risk A. Understanding a Client’s Business Business risk is the risk that an entity will fail to meet its objectives. Failing to reach objectives can eventually result in temptation to misstate financial statements to avoid business failure. B. Environmental Conditions Complexity – Decisions makers are not trained to collect, compile, and summarize the key operating information themselves. Remoteness – Investors are not able to personally visit locations to check on investments. Time sensitivity – Decisions must often be made on a moment’s notice. Consequences – A drop in investment value can wipe out one’s life savings. C. Information Risk Information risk is the probability that the information circulated by a company will be false or misleading. Client management has an incentive to make the business appear better than it actually may be. This can create a conflict of interest between client management and investors. II. Understanding Assurance Services Definition of Assurance Services Definition of Attestation Services Definition of Auditing Overview of Financial Statement Auditing Graphical Representation of Assurance Services A. Assurance Service Elements Assurance services are (1) independent (2) professional services that (3) improve the quality of information, or its context, (4) for decision makers. Assurance services include many areas of information, including nonfinancial areas. (See examples on page 7 of text) B. Definition of Attestation Services Attestation involves an engagement resulting in the issuance of a report on subject matter or an assertion about the subject matter that is the responsibility of another party. Auditing is a specific