The Demand for Audit
and Assurance
Learning Objective 1
Describe assurance services
and distinguish audit services
from other assurance and
nonassurance services
Assurance Services
Assurance services are professional services that improve the quality of
information for decision makers. Assurance services can be
performed by CPAs or by
Attestation Services
An attestation service is a type of assurance service in which the CPA firm issues a
Other Assurance Services
Most other assurance services do not meet the formal definition of attestation services.
The CPA must be independent.
Other Assurance Services
The Elliott Committee was charged with researching and developing new assurance
services opportunities for CPAs to provide to business and individual clients who need
Assurance Services on
Information Technology
There is an increased demand for assurance about computer controls surrounding
information transacted electronically and the security of the information
related to the transactions.
Assurance Services on
Information Technology
WebTrust is an attestation service, and the WebTrust seal is a symbolic representation
of the CPA’s report on management’s assertions about its disclosure of
Assurance Services on
Information Technology
SysTrust is an attest-type engagement to evaluate and test system reliability in
Other Assurance
Services Examples
Controls over and risks related to investments, including policies related to derivatives…
Other Assurance
Services Examples
Mystery shopping…
Other Assurance
Services Examples
Assess risks of accumulation, distribution, and storage of digital information…
assessing security risks and related
Other Assurance
Services Examples
Fraud and illegal acts risk assessment…
Assurance, Attestation, and
Nonassurance Services
ASSURANCE SERVICES
Other Attestation Services (e.g., WebTrust, SysTrust)
Other Assurance Services (e.g., CPA Performance View)
Certain Management
Consulting
ATTESTATION SERVICES
Assurance, Attestation, and
Nonassurance Services
NONASSURANCE SERVICES
Other Management Consulting
Tax Certain
Management Consulting
Learning Objective 2
Explain the importance
of auditing in reducing
Economic Demand
for Auditing
Information risk reflects the possibility that the information upon which the business
risk decision was made was inaccurate. Auditing can have a significant effect
Learning Objective 3
List the causes of information
risk, and explain how this
risk may be reduced.
List the causes of information
risk, and explain how this
Causes of Information Risk
1. Remoteness of information
2. Biases and motives of the provider
Reducing Information Risk
1. User verifies information
2. User shares information risk with management
Capital Costs to Shrink Elliott’s
Example
Assuming a cost of capital of 13%, Elliott
estimates this rate is composed of the following: 5.5% risk-free interest rate
Capital Costs to Shrink Elliott’s
Example
Elliott believes the following factors will drastically reduce information risk:
Advanced technology
New accounting and auditing standards
Learning Objective 4
Nature of Auditing
Auditing is the accumulation and evaluation of evidence about information to determine and
report on the degree of
correspondence between the
information and established criteria. Auditing should be done by a
Accumulating and
Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being
Competent, Independent
Person
The auditor must be qualified to understand the criteria used and must be competent to know the types and amount of evidence to accumulate
to reach the proper conclusion after the evidence has been examined.
The competence of the individual performing the audit is of little value if he or she is biased in the
Reporting
The final stage in the auditing process is preparing the Audit Report, which
Audit of a Tax Return
Example
Internal revenue
agent
Examines cancelled checks and other
Federal tax returns filed
by taxpayer
Internal Revenue Code and all
Report on tax deficiencies Competent,
independent person
Information
Established criteria Determines
correspondence Accumulates and
evaluates evidence
Learning Objective 5
Distinguish between
auditing and accounting.
Distinguish between
Distinction Between
Auditing and Accounting
Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making.
Auditing is determining whether recorded information properly reflects the economic events that
Learning Objective 6
Differentiate the three
main types of audits.
Differentiate the three
Types of Audits
Financial Statement Audit
Operational Audit
Efficiency Effectiveness
Financial Statement Audit
Annual audit of Boeing’s financial statements
Boeing's financial statements
Generally accepted accounting principles
Operational Audit
Evaluate computerized payroll system for efficiency and effectiveness
Number of records processed, cost of the department, and number of errors Company standards for efficiency and
Compliance Audit
Determine whether bank requirements for loan continuation have been met
Company records
Loan agreement provisions
Learning Objective 7
Explain the strategic systems
approach to auditing.
Strategic Systems Audit
The auditor must have a thorough understanding of the entity and its environment.
Client’s industry
Regulations
Operations
Learning Objective 8
Identify the primary
types of auditors.
Types of Auditors
Internal Auditors
Certified Public Accounting Firms
Internal Revenue Agents
Learning Objective 9
Describe the requirements
for becoming a CPA.
Three Requirements for
Becoming a CPA
Educational Requirement
Uniform CPA Examination Requirement
CPA Examination Sections
Audit and Attestation
Accounting and Reporting
Regulations
Learning Objective 10
Describe the impact of
e-commerce on CPAs.
Impact of E-commerce
CPAs need to understand how key technologies are transforming all
aspects of business.
Information Technology
Hardware
