MODERN AUDITING 7th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Walter G. Kell University of Michigan Developed by: Gregory K. Lowry, MBA, CPA Saint Paul’s College John Wiley & Sons, Inc.

CHAPTER 1 AUDITING AND THE PUBLIC ACCOUNTING PROFESSION Introduction to Contemporary Auditing The Public Accounting Profession: A Historical Perspective CPA Vision Project Services Performed by CPA Firms Organizations Associated with the Public Accounting Profession Regulatory Framework for Ensuring Quality Services

Auditing Defined Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

Comparative Summary of Types of Audits Figure 1-1

Types of Auditors 1. Independent Auditors 2. Internal Auditors 3. Government Auditors

The Roots of Auditing The beginning of the company audit can be linked to British legislation during the industrial revolution in the mid-1800s. The British influence migrated to the United States in the late 1800s as English and Scottish investors sent their own auditors to check on the condition of American companies in which they had heavily invested.

Rise of the U.S. Profession 1896 New York became the first state to pass legislation providing for the licensing of CPAs. 1917 The AICPA was established. 1921 All 48 states had passed CPA- licensing legislation. 1932 The NYSE began requiring all listed corporations to obtain an audit certificate from an independent CPA.

Rise of the U.S. Profession 1934 The passage of the Securities Act of 1933 and the Securities Exchange Act of 1934 added to the demand for audit services for publicly owned companies. 1940s 3 important important changes in audit practice had evolved. 1980s The required knowledge in all professional fields was growing rapidly.

Rise of the U.S. Profession 1980s The accounting profession developed new attestation standards. 1990s A time of transition began for both the accounting and auditing professions.

CPA Vision Project Figure 1-2 Vision Statement CPAs are trusted professionals who enable people and organizations to shape their future. Combining insight with integrity, CPAs deliver value by: 1. Communicating the total picture with clarity and objectivity, 2. Translating complex information into critical knowledge, 3. Anticipating and creating opportunities, and 4. Designing pathways that transform vision into realities. Core Purpose CPAs... Making sense out of a changing and complex world.

CPA Vision Project Figure 1-2 Vision Elements

The Accountant’s Value Chain Figure 1-3 Business Events Data Information Knowledge Decisions Communicating the Total Picture Transforming Complex Information into Knowledge Anticipating and Creating Opportunities Transforming Vision into Reality

Universe of CPA Services Figure 1-4 International Technology Audit/Attestation Compilation Financial Planning Consulting Assurance

Services Performed by CPA Firms Assurance Services are independent professional services that improve the quality of information, or its context, for decision makers. 1. Auditing 2. Risk assessment services 3. Performance measurement services 4. Elder care assurance 5. Accounting and compilation services

Services Performed by CPA Firms Attest Services are ones in which the CPA firm issues a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. 1. Audit service 2. Examination 3. Review 4. Agreed-upon procedures

Organizations Associated with the Public Accounting Profession Figure 1-5

Regulatory Framework for Ensuring Quality Services 1. Standard Setting — Quality Control Standards 2. Firm Regulation 3. Self-Regulation a. Division for CPA Firms b. Quality Review Division 4. Government Regulation

Quality Control Elements 1. Independence, Integrity, and Objectivity 2. Personnel Management 3. Acceptance and Continuance of Clients and Engagements 4. Engagement Performance 5. Monitoring

CHAPTER 1 AUDITING AND THE PUBLIC ACCOUNTING PROFESSION

Copyright Copyright 2001 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make backup copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.