By: Stephanie Wallace, Yoichi Miyahira, Rui Matsuura

The word audit comes from the Latin word audire meaning “to hear.” Modern meanings for audit are:  Review  Check  Inspection  Examination  Assessment  Appraisal

 Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions.  Financial Audits In a financial audit, the assertions about which the auditor seeks objective evidence relate to the reliability and integrity of financial and, occasionally, operating information.

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 the assertions and established criteria and communicating the results to interested users. Financial Statements (including footnotes) GAAP Auditor's Report/ Other Reports Persons who rely on the financial reports Creditors Investors Source: American Accounting Association Committee on Basic Auditing Concepts A Statement of Basic Auditing Concepts, American Accounting Association (Sarasota, FL).

 Today’s information  More complex  Demanded by remote users  Demanded in a more timely manner  Has far reaching consequences  Information risk  the risk (probability) that the information (mainly financial) disseminated by a company will be materially false or misleading.  users demand an independent third party assessment of the information

OBTAIN (OR RETAIN) CLIENT RISK ASSESSMENT EVIDENCE GATHERING REPORTING ENGAGEMENT PLANNING

 In response to several accounting related corporate scandals Congress passed the Sarbanes-Oxley Act  The Act’s major provisions include:  Requirement of CEO/CFO certification of financial statements  Requirement of auditor examination of company internal controls  Creation of the Public Company Accounting Oversight Board (PCAOB) to serve as an auditing profession “watchdog.”  Prohibition of certain client services by firms conducting a client’s audit.

 Professional skepticism - auditor’s questioning, evaluative, attitude toward evidence  Management’s assertions without sufficient corroboration.  Financial trends need investigation  Documents are checked for authenticity or alteration  Ask questions, get answers, then verify the answers.  A potential conflict of interest always exists between the auditor and the client.

 Sarbanes-Oxley and the PCAOB prohibit professional service firms from providing any of the following services to an audit client: 1) bookkeeping and related services 2) design or implementation of financial information systems 3) appraisal or valuation services 4) actuarial services 5) internal audit outsourcing 6) management or human resources services 7) investment or broker/dealer services 8) legal and expert services (unrelated to the audit)

 Internal Auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

 NYSE and SOX requires publicly traded companies to have internal audit.  Many of private companies also have established internal audit, although they are not required.

 The internal auditors' are part of the organization.  Objectives are determined by professional standards, the board, and management.  Primary clients are management and the board.

 External auditors are not part of the organization, but are engaged by it.  Objectives are set primarily by statute and their primary client - the board of directors.

CONCLUSIONS Nobody likes to be audited…… It is a means to have continuous improvement