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Principles of Auditing: An Introduction to International Standards on Auditing - Ch 4
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[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Illustration 4.1
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Besides the International Framework for Assurance Engagements, ISAs, ISREs and ISAEs, practitioners who perform assurance engagements are governed by (not in text)
The IFAC Code of Ethics for Professional Accountants International Standards on Quality Control (ISQCs)
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Assurance Engagements on Subject Matters Other than Historical Financial Information (ISAEs)
The ISAE standards are divided into two parts: (1) ISAEs 3000 3399 which are topics that apply to all assurance engagements (2) ISAEs 3400 3699 which are subject specific standards, for example standards relating to examination of prospective financial information,
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Frequently performed engagements that are not covered by the Assurance Framework are: Engagements covered by International Standards for Related Services (ISRS), such as agreed-upon procedures and compilations. The preparation of tax returns where no conclusion conveying assurance is expressed. Consulting (or advisory) engagements, such as management and tax consulting.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Standards under this framework, International Standards on Related Services (ISRSs), are applied currently to two audit services: Agreed-upon procedures (ISRS 4400) Agreed-upon procedures are assurance based on audit procedures in a very limited agreed upon area with a proscribed set of users. Compilations (ISRS 4410 ). Compilations offer no assurance whatsoever.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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(1) a three party relationship involving a practitioner; a responsible party; and the intended users, (2) a subject matter, (3) suitable criteria, (4) evidence (5) an assurance report.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Illustration 4.2
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Illustration 4.3
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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The assurance engagement evaluates whether the subject matter conforms to suitable criteria that will meet the needs of an intended user. A subject matter of an assurance is the topic about which the assurance is conducted.
Subject matter could be information such as financial statements, statistical information, non-financial performance indicators, capacity of a facility, etc. The subject matter could also be systems and processes (e.g., internal controls, IT systems) or behavior (e.g., corporate governance, compliance with regulation, human resource practices).
Subject Matter
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Suitable Criteria
Suitable criteria are the benchmarks (standards, objectives or set of rules) used to evaluate the subject matter.
International Financial Reporting Standards U.S. Generally Accepted Accounting Principles national standards Global Reporting Initiative PCAOB internal control report criteria Applicable law, regulation or contract An agreed level of performance Internal control framework
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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(a) Relevance (b) Completeness (c) Reliability (d) Neutrality (e) Understandability
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Assurance Report The practitioner provides a written report containing a conclusion that conveys the assurance obtained about the subject matter information.
ISAs, ISREs and ISAEs establish basic elements for assurance reports.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Where reviews of financial statements differ most from a financial statement audit is in the limited procedures performed (limited in inquiry of management and analytical procedures) and the review report. Reviews are limited assurance engagements.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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The objective of a review of financial statements is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditors attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework (negative assurance).
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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For the purpose of expressing negative assurance in the review report, the practitioner should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw conclusions. ISRE 2400 Ordinarily, the auditor will also do limited inspection (of minutes of Board of Directors meetings, for instance)
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Review: Limited Audit Procedures Inquiry consists of seeking information of knowledgeable persons inside or outside the entity. Analytical procedures consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predictable amounts. Inspection consists of examining records, documents, whether internal or external, in
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1. Special purpose financial statements Complete (not partial) financial statements prepared in accordance with a special purpose framework.
A Special purpose framework is a financial reporting framework designed to meet the financial information needs of specific users. {(1) Other comprehensive basis of accounting, (2) Reports on compliance with contractual agreements}
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Special ConsiderationsAudits Of Single Financial Statements And Specific Elements, Accounts Or Items Of A Financial Statement ISA 805 {Old equivalent}
Not in text
ISA 805 deals with special considerations in the application of ISAs to an audit of a single financial statement or of a specific element, account or item of a financial statement.
(1) {component financial statements} (2) {summarized financial statements}
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Examples of existing standards that may be considered in systems and processes, non-financial information or behavior assurance engagements are: Sarbanes Oxley Section 404 (PCAOB AS #5) internal control audit standard Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. SA8000 standards for social accountability towards employees, International Labour Organization (ILO) conventions for social accountability towards employees, World Business Council for Sustainable Development (WBCSD) social and eco-efficiency indicators, European Union Eco-management and Audit scheme (EMAS) standard for environmental management systems, and ISO14001 standard for environmental management systems.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Prospective financial information means financial information based on assumptions about events that may occur in the future and possible actions by an entity. Prospective financial information can be in the form of a forecast, a projection or a combination of both.
A forecast is prospective financial information prepared on the basis of managements assumptions as to future events (best-estimate assumptions). A projection means prospective financial information prepared on the basis of hypothetical assumptions about future events and management actions which may or may not take place, such as a possible merger of two companies (what if scenario).
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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In an engagement to examine prospective financial information, the auditor should obtain sufficient appropriate evidence as to whether: Managements best-estimate assumptions on which the prospective financial information is based are not unreasonable; The prospective financial information is properly prepared on the basis of the assumptions; The prospective financial information is properly presented and all material assumptions are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions; and The prospective financial information is prepared on a consistent basis with historical financial statements, using appropriate accounting principles.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Section 103 of the Sarbanes-Oxley require that public accounting firms describe in the audit report the scope of its testing of the company's internal control structure and procedures performed in its internal control evaluation under SOx Section 404(b). In the audit report, the registered public accounting firm also must describe, at a minimum, material weaknesses in company internal controls and any material noncompliance found.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Economic Sustainability An organizations impacts on the economic circumstances of its stakeholders and on economic systems at the local, national and global levels. Environmental Sustainability An organizations impacts on living and non-living natural systems, including ecosystems, land, air and water. Social Sustainability An organizations impacts on the social systems within which it operates.
Impacts on stakeholders at the local, national, and global levels. The organizations intangible assets, such as its human capital and reputation.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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2.
3.
4. 5.
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Engagements covered by International Standards for Related Services, including: Agreed-upon procedures.(ISRS 4400) Compilation of financial or other information. (ISRS 4410)
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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The objective of an agreed-upon procedures engagement is for the auditor to carry out procedures of an audit nature to which the auditor and the entity and third parties have agreed and to report on factual findings. As the auditor simply provides a report of the factual findings of agreed-upon procedures, no assurance is expressed. Instead, users of the report assess for themselves the procedures and findings reported by the auditor and draw their own conclusions from the auditors work.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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The auditor performs certain procedures concerning individual items of financial data (for example, accounts payable, accounts receivable, purchases from related parties and sales and profits of a segment of an entity), a financial statement (for example, a balance sheet) or even a complete set of financial statements.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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The objective of a compilation engagement is for the accountant to use accounting expertise, as opposed to auditing expertise, to collect, classify and summarize financial information. This ordinarily entails reducing detailed data to a manageable and understandable form without a requirement to test the assertions underlying that information.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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Any Questions?
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007
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A title An addressee: A description of the subject matter. A statement restricting the use of the assurance report identification the responsible party Statement - performed in accordance with ISAEs. A summary of the work undertaken Identification of the criteria The practitioners conclusion The assurance report date. The name and location of the firm or the practitioner
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] Pearson Education Limited 2007