COB 241

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COB 241

• September 18, 2001

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Many Kinds of Auditors

• Internal Auditor
• IRS Auditor
• Operational Auditor
• EDP Auditor
• Compliance Auditor
• Independent Auditor

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Independent Auditor
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Four Basic Financial Statements

• Income Statement
• Balance Sheet
• Changes in Owners Equity
• Cash Flows

The company is making an assertion by publishing
these financial statements
The independent auditor gives an opinion on those
assertions
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Independent Auditors Role

• Reviews Financial Statements and companys
  documents and systems.

called a Financial Audit.
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Independent Auditors Role

• Reviews Financial Statements and companys
  documents and systems.
• Assumes Legal and Professional Liability to
  Public.

NOT to company being audited and paying the
audit fee!
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Independent Auditors Role

• Reviews Financial Statements and companys
  documents and systems.
• Assumes Legal and Professional Liability to
  Public.
• Guarantees Financial Statements are Materially
  Correct

not absolutely correct!
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Independent Auditors Role

• Reviews Financial Statements and companys
  documents and systems.
• Assumes Legal and Professional Liability to
  Public.
• Guarantees Financial Statements are Materially
  Correct
• Issues Audit Report and Opinion

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Auditors also maintain confidentiality of
detailed records, but they may be required to
disclose what they know (or discovered) in a
court of law. They always USE what they find in
coming up with their report and opinion.
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Types of Audit Opinions

• Unqualified Opinion
• Qualified Opinion
• Adverse Opinion
• Disclaimer

with respect to fairly presenting in all
material respects the financial position and
results of operations, in accordance with GAAP.
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Materiality

• An error (exception, misstatement, etc.) is
  material if knowing about it would affect the
  decision of the average prudent investor

NOTE that auditors are NOT looking for fraud.
But an audit is designed to catch material
misstatements often resulting from fraud.
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The Importance of

• Ethics

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REVIEW

• some important concepts

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Asset Source Event
ASSETS
CLAIMS


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Asset Use Event
ASSETS
CLAIMS
-
-
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Asset Exchange Event
ASSETS
CLAIMS

-
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Claims Exchange Event
ASSETS
CLAIMS

-
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Revenue

• Economic Benefit associated with normal operation
  of the business
• Recognition is usually triggered by a special
  kind of asset source transaction
• an increase of assets resulting from normal
  operation of the business.

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Expense

• Economic Sacrifice incurred in the process of
  generating revenue.
• Recognition is usually triggered by a special
  kind of asset use transaction
• a decrease of assets resulting from normal
  operation of the business.

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Accrual Accounting
Means that revenue and expenses are NOT tied to
cash receipts and disbursements.
Accruals the revenue or expense is recorded
(recognized) BEFORE the cash is received or paid.
Deferrals the revenue or expense is recorded
(recognized) AFTER the cash is received or paid.
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New Topics for Today

• Deferrals
• Unearned Revenue
• Depreciation
• Prepaids
• Modified Recording Format

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Revenue

• Economic Benefit associated with normal operation
  of the business
• Recognition is often triggered by a special kind
  of asset source transaction
• an increase of assets resulting from normal
  operation of the business
• or a decrease of liabilities where an asset was
  previously received

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Expense

• Economic Sacrifice incurred in the process of
  generating revenue.
• Recognition is often triggered by a special kind
  of asset use transaction
• a decrease of assets resulting from normal
  operation of the business
• or an increase in liabilities resulting from
  normal operation of the business.