Acc 301 Auditing
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Chapter 1- Demand for Audit and Assurance Services
You
are required to suggest:
Assurance Services- Are the
independent professional services that improve the quality of information for
decision makers. Individuals who are responsible for making business decisions
seek assurance services to help improve the reliability and relevance of the
information used as the basis for their decisions. Assurance services are
valued because the assurance provider is independent and perceived as being
unbiased with respect to the information examined. The demand for assurance
services is expected to grow as the demand for forward looking information
increases as more real time information becomes available through the internet.
Attestation Services- A type of assurance service in which the public
accounting firm issues written communication that expresses a conclusion about
the reliability of a written assertion of another person. There are three
categories of attestation services; audit of historical financial statements,
review of historical financial statements and other attestation services. Audit
of historical financial statements- A form of attestation service in which the
auditor issues a written report expressing an opinion about whether the
financial statements are in material conformity with accounting standards.
Publicly traded companies in Australia are required to have audits under the
Corporations Act. Review of historical financial statements- Another type of
attestation service performed by public accountants. A review service provides
a moderate amount of assurance on the financial statements, and less evidence
is necessary to support this level of assurance. A review is provided at a much
lower cost and Public Companies are required by the Corporations Act to have
their half year financial statements either audited or reviewed by the entity’s
auditor. Other attestation services- Public accountants provide numerous other
attestation services, many of these services are a natural extension of the
audit of historical financial statements, as users seek independent assurance
services about other types of information. To qualify as an attestation
service, the engagement must involve written assertion on some accountability
matters. Common feature of all assurance services is the focus on improving the
quality of information used by decision makers. The demand for assurance on
other types of information is expected to grow substantially with new types of
risk faced by businesses and increases in the number of available information
services. Other assurance services
Assurance services on information technology- One of the main factors affecting the demand for other assurance services is the growth of the internet and electronic commerce. As transactions and information are shared online and in real time, there is even greater demand for assurance about computer controls surrounding information transacted electronically and the security of the information related to the transactions. Web Trust Services- In response to the growing need for assurance resulting from the explosion of business transacted over the Internet, the American Institute of Certified Public Accountants (AICPA) created the public accountant WebTrust service. Public accounting firms that are licenses to perform this service provide assurance to users of websites through the electronic WebTrust seal affixed to the website. SysTrust services- Purpose is to provide assurance services on information systems reliability. It is an attest type engagement to evaluate and test system reliability in areas such as security and data integrity. * WebTrust assurance is primarily designed to provide assurance to third party users of a website. SysTrus might be performed by CPAs to provide assurance to management, the board of directors or third parties about the reliability of information. Assurance services on other types of information- The Special Committee of Assurance Members has identified a number of other services designed to enhance the relevance of information. 1) Business Performance measurement services- Stakeholders of a company often need more comprehensive information to evaluate an entity’s performance. The comprehensive performance measures are often called a balanced scorecard. 2) ElderCare Plus- As the population ages, more and more elderly require either assistance to live in their own home or institutional care. Family members are concerned about the quality of care these elderly people are receiving and thus public accountants provide assurance to these elderly individuals and their families that care is being provided at an acceptable level. Non- assurance services provided by public accountants
These services include book-keeping services, tax services and management consulting services. Also mystery shopping, fraud and illegal acts risk assessment, compliance with trading policies and annual environment audit. Economic demand for auditing
The following three factors are based on a bank making a loan 1) Risk free interest rate- Approximately the rate the bank could earn by investing in government bonds for the same length of time as the business loan 2) Business risk for customer- The possibility that the business won’t be able to pay its loan because of economic or business conditions such as recession etc. 3) Information risk- The possibility that the information on which the business risk decision was made was inaccurate. Causes of information risk
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Assurance services on information technology- One of the main factors affecting the demand for other assurance services is the growth of the internet and electronic commerce. As transactions and information are shared online and in real time, there is even greater demand for assurance about computer controls surrounding information transacted electronically and the security of the information related to the transactions. Web Trust Services- In response to the growing need for assurance resulting from the explosion of business transacted over the Internet, the American Institute of Certified Public Accountants (AICPA) created the public accountant WebTrust service. Public accounting firms that are licenses to perform this service provide assurance to users of websites through the electronic WebTrust seal affixed to the website. SysTrust services- Purpose is to provide assurance services on information systems reliability. It is an attest type engagement to evaluate and test system reliability in areas such as security and data integrity. * WebTrust assurance is primarily designed to provide assurance to third party users of a website. SysTrus might be performed by CPAs to provide assurance to management, the board of directors or third parties about the reliability of information. Assurance services on other types of information- The Special Committee of Assurance Members has identified a number of other services designed to enhance the relevance of information. 1) Business Performance measurement services- Stakeholders of a company often need more comprehensive information to evaluate an entity’s performance. The comprehensive performance measures are often called a balanced scorecard. 2) ElderCare Plus- As the population ages, more and more elderly require either assistance to live in their own home or institutional care. Family members are concerned about the quality of care these elderly people are receiving and thus public accountants provide assurance to these elderly individuals and their families that care is being provided at an acceptable level. Non- assurance services provided by public accountants
These services include book-keeping services, tax services and management consulting services. Also mystery shopping, fraud and illegal acts risk assessment, compliance with trading policies and annual environment audit. Economic demand for auditing
The following three factors are based on a bank making a loan 1) Risk free interest rate- Approximately the rate the bank could earn by investing in government bonds for the same length of time as the business loan 2) Business risk for customer- The possibility that the business won’t be able to pay its loan because of economic or business conditions such as recession etc. 3) Information risk- The possibility that the information on which the business risk decision was made was inaccurate. Causes of information risk
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As society becomes more complex, decision makers are more likely to receive
unreliable information. Factors of information risk are: * Remoteness of
information
* Biases and motives of the provider
* Voluminous data
* Complex exchange transactions
Reducing information risk
The best way to deal with information risk is to have it remain reasonably high as it is costly to reduce information risk. User verifies information- User goes to the business premises to examine and record information about the reliability of the statements. This is impractical as it is expensive and it would be economically inefficient for all users to verify information individually. User shares information risk with management- Management is responsible for providing reliable information to users. If users rely on inaccurate financial statements and as a result incur a financial loss, there is a basis for legal action against management Audited financial statements are provided- The most common way for users to obtain reliable information is to have an independent audit performed.
* Biases and motives of the provider
* Voluminous data
* Complex exchange transactions
Reducing information risk
The best way to deal with information risk is to have it remain reasonably high as it is costly to reduce information risk. User verifies information- User goes to the business premises to examine and record information about the reliability of the statements. This is impractical as it is expensive and it would be economically inefficient for all users to verify information individually. User shares information risk with management- Management is responsible for providing reliable information to users. If users rely on inaccurate financial statements and as a result incur a financial loss, there is a basis for legal action against management Audited financial statements are provided- The most common way for users to obtain reliable information is to have an independent audit performed.
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