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The document discusses auditing topics such as the types of auditors, attestation services, and the economic demand for auditing. It defines operational, compliance, and financial statement audits. It describes four categories of attestation services including the audit of financial statements and review of financial statements. It also explains the causes of information risk and how audited financial statements help address this risk.

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amir rabie
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17 views

Sheet Answer

The document discusses auditing topics such as the types of auditors, attestation services, and the economic demand for auditing. It defines operational, compliance, and financial statement audits. It describes four categories of attestation services including the audit of financial statements and review of financial statements. It also explains the causes of information risk and how audited financial statements help address this risk.

Uploaded by

amir rabie
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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1- Fill the Blank

i. Independent auditor-Fair-Objective-F.S

ii. Independent auditing-Assists

iii. a- Quantitative information

b- Subjective information

iv. a-Employed to audit for management

b- Only one or two employee

c- Do routine compliance auditing and involved in operation landing

v. Lack independence

vi. External users-Unlikely

vii. A- Confirm the correctness of record financial statement transaction

b- Provide reasonable assurance about the FRs that free of martial

misstatement

c- Comes after accounting process

viii. A-Attestation

b- Other Assurance

ix. Moderate

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2-Distinguish Between Auditing and Accounting

Accounting is the recording, Auditing is determining


Classifying, and summarizing of whether recorded information
economic events for the purpose properly reflects the economic
of providing financial information events that occurred during
used in decision making. the accounting period.

 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.

*Note that: Auditing should be done by a competent independent person.


 In other words:
Auditing: is the accumulation and evaluation of sufficient evidence about
information shown in the FRs that auditor audits and exams to determine and
report on whether or not these financial reports were prepared in
corresponding with established criteria (GAAPs).

 To do an audit:
1- There must be information to be audited.
2- Some standards (criteria) by which the auditor can evaluate the
information.

3- List and describe the assestation servisces

Is a type of assurance service in which the CPA firm issues a report about the
reliability of an assertion that is responsibility of another party.

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 There 4 categories of attestation services:

1. Audit of financial statements

2. Review of financial statements

3. Audit of internal control over financial reporting

4. Attestation service on information technology

(1) Audit of historical financial statement:

Involves that auditor issues a written report expressing an opinion about


whether the financial statements are fairly stated in accordance with GAAP,

- These audits are the most common assurance service provided by CPA firms.

 Kinds of companies need this kind of service:

a. Publicly traded companies: are required to have audits under federal


securities acts.

b. Many privately held companies also having their annual financial statements
audited to obtain financing from banks.

c. Government and non-profit entities often have audits to meet the


requirements of lenders or funding sources.

(2) Review of historical financial statements:

Involves a moderate level of assurance compared to high level for audits,


therefore less evidence is needed and lower fee than audit for review of
financial statements,

- Management asserts that the statements are fairly stated in accordance with
accounting standards, GAAPs.

(3) Attestation if Internal control over financial reporting:

Auditors attest to the effectiveness of internal control over financial reporting,

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This attestation is very important because effective internal control reduces
the likelihood of future misstatement in F.S.

*Note that:
Management asserts that internal controls have been developed by following
well established criteria.

Evaluating the effectiveness of internal control over financial reporting increases


user confidence about the future of financial reporting because:

- Effective internal controls reduce the likelihood of future misstatements in the


financial statements.

(4) Attestation of information technology:

Involve various assertions about the reliability and security of electronic


information.

 What is the electronic information?

Many business functions such as: ordering and making payments, are conducted
over the Internet.

As transactions are shared online business people demand greater assurance


about information transactions and the security protection them.

 It includes for Example:

WebTrust and SysTrust are an example of attestation services developed to


address this assurance needs.

 WebTrust service:

 American Institute of Certified Public Accountants (AICPA) created the


WebTrust attestation service,

 Auditor gets their license from AICPA to perform this service and provide
assurance to users of Web sites through the CPA’s electronic WebTrust,
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 Web trust is an attestation service, and the web trust seal is a symbolic
representation of the CPA’s report on management’s assertions about its
disclosure of electronic commerce practices.

4- List and describe other assuurance servisces

5- Describe main Type of auditors

 Types of Audits:-

1. Operational audit

2. Compliance audit

3. Financial statement audit

1. Operational audit:

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An operational audit evaluates the efficiency and effectiveness of any part of
an organization’s operating procedures and methods.

2. Compliance audit:

A compliance audit is conducted to determine whether the auditee is following


specific procedures, rules, or regulations set by some higher authority.

3. Financial statement audit:

A financial statement audit is conducted to determine whether the financial


statements (the information being verified) are stated in accordance with
specified criteria.

6- Explain the following


a) Economic Demand for Auditing:-
- There are three factors to understand the importance of auditing in reducing
information risk:
(1) Risk free interest rate:
This is approximately the rate the bank could earn by investing in governmental
treasury notes for the same length of time as the business loan.
(2) Business risk for the customer:
This risk reflects the possibility that the business will not be able to repay its loan
because of economic or business conditions, such as a recession, poor
management decisions, or unexpected competition in the industry.
(3) Information risk:
Reflects the possibility that the information upon which the business risk decision
was made was inaccurate A likely cause of the information risk is the possibility
of inaccurate financial statements.

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B) Causes of Information risk :
As society becomes more complex, decision makers are more likely to receive
unreliable information. There are several reasons for this:
(1)Remoteness of Information:
In a global economy, it is nearly impossible for a decision maker to have much
firsthand knowledge about the organization with which they do business.
(2)Voluminous Data :
As organizations become larger, so does the volume of their exchange
transactions.
(3)Biases and Motives of the provider :
If information is provided by someone whose goals are inconsistent with those
of the decision maker, the information may be biased in favor of the provider.
(4)Complex exchange transactions:
In the past few decades, exchange transactions between organizations have
become increasingly complex and therefore more difficult to record properly.

C ) Causes of Information risk


For larger businesses, it is usually practical to incur costs to reduce information
risk. There are three main ways to do so.
(A)User Verifies Information:
The user may go to the business premises to examine records and obtain
information about the reliability of the statements. Normally, this is impractical
because of cost.
(B)Audited Financial Statements are provided :
Most common way for users to obtain reliable information is to have an
independent audit.
(C)User Shares Information risk with Management :
There is considerable legal precedent indicating that management is responsible
for providing reliable
information to users.

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d) The requirements:
1- educational requirements
2-experince requirements
3-passes the uniform cpa exam

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