Lecture - Class 1:the Demand For Audit and Other Assurance Services - ISA. Types of Audits and Auditors

Lecture – Class 1:The
Demand for Audit and

Other Assurance
Services.ISA. Types of
audits and auditors
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-1

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 competent,

independent person.

Information and Established
Criteria
To do an audit, there must be information in a
verifiable form and some standards (criteria)
by which the auditor can evaluate the information.

Accumulating Evidence and
Evaluating Evidence
Evidence is any information used by the auditor
to determine whether the information being
audited is stated in accordance with the
established criteria.

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 accumulation and evaluation of evidence.
Audit Report
The final stage in the auditing process is

preparing the Audit Report, which is the
communication of the auditor’s findings to users.

Distinguish 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
occurred during the accounting period.

Assurance Services
An assurance service is an independent

professional service that improves the
quality of information for decision makers.
Assurance services can be performed by

auditors or by a variety of other professionals.
Key characteristic is independence.

Attestation Services
An attestation service is a type of assurance

service in which the auditing firm issues a
report about the reliability of an assertion
that is the responsibility of another party.

Attestation Services
1. Audit of historical financial statements

2. Attestation of internal control over financial
reporting
3. Review of historical financial statements
4. Attestation services on information technology
5. Other attestation services
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 10

Relationships Among Auditors,
Client, and External Users
Client or audit Auditor Auditor issues

committee hires report relied
auditor upon by users
External
Client
Users

Nonassurance Services
Provided by auditors
1. Accounting and bookkeeping services
2. Tax services
3. Management consulting services

Types of Audits
 Operational
 Compliance
 Financial Statement

International Standards
on Auditing
International Standards on Auditing (ISAs) are issued

by the International Federation of Accountants (IFAC)
through the International Auditing and Assurance
Standards Board (IAASB). (E.g. ISA 230 “Audit
documentation”).
There are also other standards, dedicated to quality
control, assurance engagements, reviews, etc.

International Standards
on Auditing
IFAC is the worldwide organization
for the accountancy profession.
The IFAC works to improve the

uniformity of auditing practices and
related services throughout the world.

.
The Big Four

Revenue
Fiscal
Firm Revenues Employees per Headquarters
Year
Employee
Deloitte $46.2 bn 312,028 $148,077 2019 United States
PwC $42.45 bn 276,005 $159,794 2019 United Kingdo

m
EY $36.4 bn 284,000 $129,169 2019 United Kingdo

m
KPMG $29.75 bn 219,281 $135,671 2019 Netherlands

Three Requirements for
Becoming a CPA
 Educational requirement
 Uniform CPA examination requirement

(1. Audit and Attestation; 2. Business Environ-
ment and Concepts; 3. Financial Accounting
and Reporting; 4. Regulation) – 16 hours
 Experience requirement
Certified Public Accounting
Firms
The legal right to perform audits is granted
to CPA firms by regulation of each state.
CPA firms also provide many other services to

their clients, such as tax and consulting services.

Activities of CPA Firms
 Accounting and bookkeeping services
 Tax services
 Management consulting services

ACCA – Association of
Charted Certified Accountants
Fundamental Professional
F1 – Accountant in Business P1 – Governance, Risk and Ethics
F2 – Management Accounting P2 – Corporate Reporting
F3 – Financial Accounting P3 – Business Analysis
F4 – Corporate and Business Law P4 – Adv. Financial Management
F5 – Performance Management P5 – Adv. Performance
Management
F6 – Taxation P6 – Advanced Taxation
F7 – Financial Reporting P7- Advanced Audit and Assurance
F8 – Audit and Assurance
F9 – Financial Management

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Lecture – Class 1:The

Demand for Audit and

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-1

Auditing is the accumulation and evaluation

Auditing should be done by a competent,

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-2

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-3

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-4

The competence of the individual performing

The final stage in the auditing process is

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-6

Auditing is determining whether

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-7

An assurance service is an independent

Assurance services can be performed by

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-8

An attestation service is a type of assurance

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1-9

1. Audit of historical financial statements

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 10

Client or audit Auditor Auditor issues

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 11

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 12

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 13

International Standards on Auditing (ISAs) are issued

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 14

The IFAC works to improve the

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 15

The Big Four

Deloitte $46.2 bn 312,028 $148,077 2019 United States

PwC $42.45 bn 276,005 $159,794 2019 United Kingdo

EY $36.4 bn 284,000 $129,169 2019 United Kingdo

KPMG $29.75 bn 219,281 $135,671 2019 Netherlands

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 16

 Uniform CPA examination requirement

CPA firms also provide many other services to

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 18

 Accounting and bookkeeping services

 Management consulting services

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 1 - 19

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