THE AUDITING PROFESSION

1
THE AUDITING PROFESSION

• CHAPTER 1

2
WHAT IS AUDITING?

• THE ACCUMULATION AND EVALUATION OF EVIDENCE ABOUT
  INFORMATION TO DETERMINE AND REPORT ON THE DEGREE
  OF CORRESPONDENCE BETWEEN THE INFORMATION AND
  ESTABLISHED CRITERIA.

3

• GATHERING EVIDENCE ABOUT THE CORRESPONDENCE
  BETWEEN REPRESENTATIONS OF ANOTHER AND
  ESTABLISHED CRITERIA FOR MAKING SUCH
  REPRESENTATIONS AND ISSUING A REPORT

4
AUDITING AND ACCOUNTING

• ACCOUNTING IS CONSTRUCTIVE
• CREATING REPORTS
• AUDITING IS ANALYTICAL
• DETERMINE FAIRNESS OF REPORTS

5
TYPES OF AUDITS

• AUDITS OF FINANCIAL INFORMATION
• PRESENTATION COMPARED TO CRITERIA
• OPERATIONAL AUDITS
• EFFICIENCY AND EFFECTIVENESS
• IMPROVE OPERATIONS
• COMPLIANCE AUDITS
• FOLLOWING RULES
• TAX AUDITS
• LAWS, REGULATIONS

6
TYPES OF AUDITORS

• EXTERNAL
• CPAS
• GAO
• IRS
• BUREAU OF STATE AUDITS
• INTERNAL
• EMPLOYEES OF ENTITIES BEING AUDITED

7
WHY HAVE AUDITS?

• CONTROL MECHANISM
• COMPLIANCE WITH RULES
• REDUCE LOSSES
• FRAUD
• INEFFICIENCIES
• ENHANCE CONFIDENCE
• ADD CREDIBILITY TO NUMBERS
• REDUCE INFORMATION RISK

8
INFORMATION RISK

• RISK THAT INFORMATION IS UNRELIABLE
• REMOTENESS OF INFORMATION
• BIASES OF PROVIDER
• VOLUMINOUS DATA
• COMPLEXITY
• REDUCTION IN RISK
• USER VERIFIES INFO
• AUDITED INFORMATION

9
CERTIFIED PUBLIC ACCOUNTANT

• EDUCATIONAL REQUIREMENT
• IN CALIFORNIA
• BS IN SOMETHING
• 30 SEMESTER UNITS OF ACCT, LAW, BUS
• EXAM
• UNIFORM IN ALL STATES
• EXPERIENCE
• IN CALIFORNIA
• 2 YEARS WORKING FOR CPA
• 500 HOURS OF ATTESTATION WORK

10
PROFESSION OF PUBLIC ACCOUNTING

• WHAT IS A PROFESSION?
• OCCUPATIONAL GROUPING
• GENERAL CHARACTERISTICS
• SPECIALIZED KNOWLEDGE BASED ON THEORY
• LICENSE
• RESPONSIBILITY TO PUBLIC
• CODE OF ETHICS
• CULTURE OF PROFESSIONAL

11
STRUCTURE OF PROFESSION

• INTERNATIONAL CPA FIRMS
• BIG-5
• ARTHUR ANDERSEN
• KPMG PEAT MARWICK
• PRICEWATERHOUSECOOPERS
• DELOITTE AND TOUCHE
• ERNST AND YOUNG
• AUDIT 95 OF PUBLIC COMPANIES

12

• NATIONAL FIRMS
• GRANT THORNTON
• BDO SIEDMAN
• REGIONAL FIRMS
• MOSS ADAMS
• LOCAL FIRMS
• PERRY-SMITH
• TATE, PROPP, BEGGS SUGIMOTO

13
WHAT DO CPAS DO?

• ATTESTATION ENGAGEMENTS
• AUDITS
• REVIEWS
• OPINIONS ON OTHER INFO
• ACCOUNTING AND BOOKKEEPING
• TAX
• CONSULTING

14
AMERICAN INSTITUTE OF CPAS

• ESTABLISH STANDARDS
• AUDITING STANDARDS
• ETHICS STANDARDS
• ACCOUNTING AND REVIEW SERVICES STANDARDS
• TAX PRACTICE STANDARDS
• CONSULTING PRACTICE STANDARDS

15
GENERALLY ACCEPTED AUDITING STANDARDS

• GENERAL STANDARDS
• ADEQUATE TECHNICAL TRAINING
• INDEPENDENCE IN MENTAL ATTITUDE
• DUE PROFESSIONAL CARE
• FIELD WORK STANDARDS
• PLANNING AND SUPERVISION
• INTERNAL CONTROL
• SUFFICIENT, COMPETENT EVIDENCE

16

• REPORTING STANDARDS
• REPORT SHALL STATE WHETHER STATEMENTS ARE IN
  ACCORD WITH GAAP
• REPORT SHALL IDENTIFY INCONSISTENCIES
• REPORT SHALL INDENTIFY INADEQUATE DISCLOSURES
• REPORT SHALL EXPRESS OPINION OR TELL WHY NO
  OPINION WAS FORMED

17
STATEMENTS ON AUDITING STANDARDS

• INTERPRETATIONS OF GAAS
• GUIDANCE ON APPLICATION
• 87 SASs
• SOPs
• AUDITING PROCEDURES

18
INSURING QUALITY

• ELEMENTS OF QUALITY CONTROL
• DIVISION OF FIRMS
• SEC PRACTICE SECTION
• ADHERE TO QUALITY CONTROL
• MANDATORY PEER REVIEW
• CONTINUING EDUCATION
• PARTNER ROTATION
• CONCURRING PARTNER REVIEW
• PROSCRIPTION OF SERVICES
• REPORT ON DISAGREEMENTS
• REPORT ON CONSULTING
• PRIVATE COMPANIES PRACTICE SECTION
• PEER REVIEW

19
SECURITIES AND EXCHANGE COMMISSION

• REGULATE SECURITIES MARKETS
• ESTABLISH REPORTING STANDARDS FOR REGISTERED
  COMPANIES
• REQUIRES AUDITS BY CPAS
• ESTABLISHED BY SEC ACTS OF 1933 AND 1934