New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Chapter 1 Notes

by: Victoria Andreski

Chapter 1 Notes ACCT 4150

Victoria Andreski
View Full Document for 0 Karma

View Full Document


Unlock These Notes for FREE

Enter your email below and we will instantly email you these Notes for Auditing

(Limited time offer)

Unlock Notes

Already have a StudySoup account? Login here

Unlock FREE Class Notes

Enter your email below to receive Auditing notes

Everyone needs better class notes. Enter your email and we will send you notes for this class for free.

Unlock FREE notes

About this Document

Chapter 1 Notes: Introduction to Assurance & Financial Statement Auditing
Nancy Harp
Class Notes




Popular in Auditing

Popular in Accounting

This 4 page Class Notes was uploaded by Victoria Andreski on Wednesday January 13, 2016. The Class Notes belongs to ACCT 4150 at Clemson University taught by Nancy Harp in Spring 2016. Since its upload, it has received 116 views. For similar materials see Auditing in Accounting at Clemson University.

Similar to ACCT 4150 at Clemson


Reviews for Chapter 1 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 01/13/16
Chapter 1 An Introduction to Assurance & Financial Statement  Auditing  What is Auditing? o “A systematic process of objectively obtaining & evaluating  evidence regarding assertions about economic actions & events to  ascertain the degree of correspondence between those assertions  & established criteria & communicating the results to interested  users.” (AAA,1973)  Step­by­step process  Needs to be done objectivelyindependent from company  Evaluate evidencesome evidence better than other  Gather evidence over managers’ assertions—claims  Compared w/ GAAP  Communicate results  Tells you whether or not the financial statements can be  relied upon o Requires analytical & logical skills o More conceptual in nature compared to accounting  Why have an audit? o Required by law o Desirable for reliable economic information for investing, credit, and management decisions o Lowers info risk o Demand for assurance provided by auditors has increased  significantly over the years  Principals & Agents o Public company—company that sells its stock/bonds to the public o Principals—owners (stockholders) of the company o Agents—professional managers hired by the owner  Creates a conflict of interestsome may have own self­ interests  Agent wants principal to know that what he is doing is  reliable  Example: house inspection seller mist disclose to  the own different claims (roof is good, floors, etc.)  Seller knows a lot and therefore has an incentive to lie o Information asymmetry—manager has more information about the  actual financial position & results of the entity’s operations   Auditing, Attest, & Assurance Services o Terms heard interchangeably  o Audit—most specific; over economic events/transaction  Systematic process well­planned  Obtained & evaluated evidence objectively  Relates to claims about economic actions/events  Auditor compares evidence to management’s financial  statements  Communicates results to intended users  o Attestation  More general than auditing  Doesn’t have to be over economic events could be over a  company’s systems  Open up to more types of things o Prospective information o Analyses o Systems & processes o Assurance  Anything that will help improve the quality of information  Most generic very broad  Make good decisions, improve quality of information, be  independent, apply professional judgment & due care  Fundamental Concepts in Conducting a Financial Statement Audit o Audit Risk  The risk that auditor may have issued a clean opinion when  he/she shouldn’t have  Must accept that risk as auditors  Auditors will provide reasonable assurance  Absolute assurance is too expensive auditors would have  to be there with managers all year long looking over their  shoulder o Materiality   How big of an error can we let slip by before it messes w/  someone’s decision?  Audit must decide what is material for each company  Usually 3­5% of a company’s taxable income  Reasonable person—in general, would a reasonable person  make a different decision?  Example: if you move into a household and one of the light  bulbs is broken, that isn’t material. However, it is material if  the roof is messed up. o Evidence  Helps auditor evaluate management’s financial statement  claims  Relevance—is the information related to the specific claim  being tested?  Reliability—can the information be relied upon to represent  the true state of the claim being tested?  Not all evidence collected is created equal  Sampling—inferences based on limited observations  Auditors use: o Their knowledge about the transactions o A sampling approach to examine the  transactions  It would be too expensive for auditors to examine  every single transaction  Phases of an Audit 1. Client acceptance/continuance a. Client acceptance—tons of paperwork to fill out when you  take on a new client i. Reasons to say no to a new client maybe they  actually won’t be in business long enough to pay,  shady company, may be a huge risk, may be lying,  may hurt reputation 1. Don’t want to take super risky clients 2. Want safe companies that have good  management  b. Client continuance—less paperwork; reevaluate them c. Engagement letter—when you decide to take clients i. Contract w/ rules of engagement ii. Talks about fees & services 2. Preliminary engagement activities a. Before you do anything, a lot of planning must take place— must read about clients & understand them i. Determine audit engagement team requirements ii. Assess compliance w/ ethical requirements  (independence) iii. Understanding the entity & environment  3. Plan the audit a. Guided by results of the risk assessment procedures  performed to gain an understanding of entity i. Business risk—usually in revenue ii. Specialists—complicated pension accounts,  derivatives, etc. iii. Related parties iv. Materiality v. Analytical procedures 4. Consider & audit internal control a. Internal Control System should: i. Ensure that assets/records are safeguarded ii. Create environment that encourages and monitors  efficiency & effectiveness iii. Generate reliable information b. Auditor is responsible for: i. Obtaining an understanding of internal control ii. Assessing control risk 1. Control risk—risk that we can’t rely on their  controls iii. Identify specific controls to be relied upon iv. Perform tests of controls v. Concludes on achieved level of control risk 5. Audit business processes & related accounts a. Substantive analytical procedures i. Look at relationships b. Substantive tests of transactions c. Tests of details of account balances & disclosures i. If controls are good, it’ll be less money for the  company 6. Complete the audit a. Contingent liabilities b. Sufficiency of evidence c. Subsequent events i. Things that you think about at the end of an audit 7. Evaluate results & issue audit report a. Unqualified—clean b. Qualified—only 1 mistake c. Adverse—several accounts are messed up i. Tells people not to rely on statements


Buy Material

Are you sure you want to buy this material for

0 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Janice Dongeun University of Washington

"I used the money I made selling my notes & study guides to pay for spring break in Olympia, Washington...which was Sweet!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.