- Explain the relationship between audit, attest and assurance services
Three vital key services encompassing the accounting field are audit, attestation, and assurance. They are key amenities provided by auditing and accounting professionals for all trades. These services run hand in hand and are essential factors that ensure businesses run smoothly since they provide the authentication of goods and services. The relationship between assurance, auditing, and attestation is that all involve the same process, which is evaluating financial information to gauge whether it has been documented and depicted according to prearranged established principles coupled up with issuing a report that depicts the level of correlation. Auditing involves systematically obtaining and evaluating proof about economic events in a certain business and ascertaining the level of similarity between these assertions and the already predisposed principles. On the other hand, attestation is when a practitioner issues a conclusion about the reliability of a written financial assertion responsible for another company. This service is broader since it is not limited to economic events. Assurance refers to reporting the consistency and credibility of data in addition to its timeliness and relevance. They are additional services rendered by a practitioner to help improve the quality of information rendered.
- Discuss an overview of the financial statement audit process using the terms “assertion,” “evidence,” and “report
The auditor obtains evidence on the undertaken economic events and transactions in a company and the management who prepared the financial statements. The evidence collected is used to evaluate the financial statements‘ assertions to the terms used by the company. The report of the auditor to the company depicts the level of similarity between the criteria and assertions.
- The principles underlying an audit conducted in accordance with generally accepted auditing standards are grouped into four categories. The second category is that of “personal responsibility of the auditor.” Generally, explain what is intended by this principle.
The second principle, “personal responsibility of the auditor,” generally states that the auditors are supposed to abide and comply with all the ethical requirements; exercise appropriate professional judgment; maintain professional skepticism; possess desirable competence and capabilities.
- You are the owner of a small grocery store, Corner Marketplace. Explain the five process categories and how they apply to your business
The process of financing entails capital financing from loans and shareholders for resources such as buildings and land. Corner Marketplace may have implored on financial means like taking a bank loan, leasing, or additional funds from the owner. The purchasing process involves businesses acquiring other products so that they can enhance the sale of their own. Corner Marketplace, through this process, would buy food inventories and freezers to sell to customers. The process of Human Resource Management entails businesses hiring employees to partake in various activities following the businesses’ mission. Corner Marketplace ought to formulate rules for hiring, training, assessing, compensating, and terminating employees. The process of Inventory Management requires that a premise has the relevant inventory to oversee, which it achieves as part of the process. Corner Marketplace needs to assign accurate costs to the inventory and account for the produce. The revenue process entails generating funds through selling products and then collecting the proceeds from those sales. Corner Marketplace is a minor grocery premise hence it would lack receivables from consumers since they pay promptly. The revenue process thereby, however, includes credit card transactions and cash receipts, a form of transaction Corner Marketplace would use.
- Define corporate governance, the board of directors, and the audit committee and explain how they relate to each other.
Corporate governance refers to rules, policies, and practices that govern a firm’s board of directors on operating and managing its operations. It entails the codes of transparency, security, and accountability within an incorporation. A board of directors entails a group of people elected to represent shareholders within a company. It is responsible for formulating rules and policies for management, overseeing the incorporation, making a company’s crucial decisions, and protecting shareholders’ interests. An audit committee comprises one of the main operating committees of the organization’s board of directors accountable for managing financial reports and disclosures. They relate to each other in that they are all under the board of directors. That is, the board of directors formulates the corporate governance, and also, the audit committee reports back to the board of directors on the relevant financial matters they discover.
- Describe the organizations involved in standard-setting for auditors in the United States and what their respective roles are in setting current auditing standards for companies in the United States
The American Institute of Certified Public Accountant establishes auditing standards for private companies, federal, states, non-profit corporations, and local governments.
Public Company Accounting Oversight Board is non-profit incorporation founded to run public firms’ auditing independently to safeguard the investors’ interests.
Auditing Standards Board is the body that endorses auditing standards in the United States.
Governmental Accounting Standards Board is an independent establishment accountable for formulating and enhancing financial reporting and accounting principles for the United States and local governments.
- You are a new employee at the accounting firm Murray & Murray, CPAs. Before you are assigned to your first audit, your supervisor tests your knowledge and asks you to explain the term “scope” in the context of a financial statement audit. Please provide a definition of scope. And describe what influences an auditor’s determination of scope.
- a) An audit scope refers to the quantity and type of audit work to be executed.
- b) An audit scope is largely affected by how the auditor evaluates risk and materiality. For example, if an audit risk is reduced or the materiality amount is lowered, the audit scope is automatically increased. The auditor is supposed to form decisions about the type, timing, and amount of evidence to be collected when determining an audit scope to assess the management’s assertions.
- On a high level, a business’s accounting processes consist of internal controls, individual transactions, and account balances. Describe the relationship between internal controls, individual transactions, and account balances and discuss how evidence regarding each of these three areas can help an auditor determine if the financial statements are fairly stated. Why must an auditor assess materiality?
- An incorporation applies internal controls as a measure to ensure that individual transactions are captured and recorded accordingly. These transactions are then gathered to form account balances that are ending. These accounting balances are used to draft financial statements. These statements comprising of account balances and disclosures are what the auditor examines.
- An auditor can gather evidence from either of these three accounting procedures. For instance, directly assessing an account balance through bank statements. Direct evaluation renders quality evidence, but it tends to be expensive. Then again, an auditor can gather data by assessing individual transactions that constitute the accounting balances. If the transactions are properly processed, it depicts evidence that the ending balances are fairly defined. Also, evidence can be gathered by evaluating the firm’s internal controls. They are then applied to guarantee proper handling of transactions. An organization’s internal control efficiency renders better handling of transactions, which makes the ending accounting balances that constitute the financial statements to be conclusive. Auditors usually gather evidence from all three areas: individual transactions, internal control, and account balances.
- Why must an auditor assess materiality?
Assessing materiality is a must because The International Standards on Auditing requires auditors to gather relevant assertion on whether financial statements are credible and free from misstatement. It is essential in assessing the outcomes of identified and uncorrected misstatements on the financial statements. Materiality is implemented at the planning stage and during the audit process itself.
- You are a new staff auditor, and you are auditing a client’s inventory account. Briefly describe one way you might obtain direct evidence, and one way you might obtain indirect evidence that the inventory account balance is fairly stated.
The physical examination and summing up items constituted in the ending balance of an inventory is what an auditor uses to gather direct evidence. Whereas, assessing and evaluating invoices relating to inventory procurements from suppliers is what an auditor does to attain indirect evidence. Moreover, the inventory’s internal controls could be assessed to ascertain if they are properly working.
- What are the three PCAOB general auditing standards found within the 10 GAAS (NOT the three main categories of GAAS), and why is each important?
An auditor having sufficient training and aptitude is what is stipulated in the first standard. For an auditor to be competent in his/her field, he oughts to have formal education and experience. Ongoing auditing programs could also be partaken so that the auditor remains conversant with trends in his/her field. To preserve the public and endorse objectivity, an auditor ought to exude independence in fact and outlook. The second standard demands a mindset of independence. An auditor must practice professional care in his/her line of work. The third standard demands that an auditor observe professional care as others in his/her profession.