1. 1-1 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. 1-2  Assurance Services  Attestation Services  Example: Audits of Financial Statements, Examinations of Internal Control  Other Assurance Services  Example: CPA ElderCare Prime Plus Services  NonAssurance Services  Tax Services  Management Consulting Services  Other Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

3. 1-3  To attest to information means to provide assurance as to its reliability  Attest engagement: A practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about subject matter that is the responsibility of another party (e.g. management) Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

4. 1-4  Auditors gather evidence and provide a high level of assurance that the financial statements follow GAAP, or some other appropriate basis of accounting  Audit involves searching and verifying accounting records and examining other documents  Evidence necessary to issue an audit report that states auditors’ opinion Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

5. 1-5  Audits lend credibility to information by reducing information risk, the risk that information is materially misstated  Financial statement misstatements arise due to--  Accidental errors  Lack of knowledge of accounting principles  Unintentional bias  Deliberate falsification  Audits do not directly address business risk, the risk that a company will not be able to meet its financial obligations due to economic conditions or poor management decisions Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

6. 1-6  Audit of the financial statements of an entity  Covers the balance sheet and related statements of income, retained earnings and cash flows  Goal is to determine if prepared in conformity with GAAP  Performed by CPAs  Users include management, investors, bankers, creditors, financial analysts, government agencies Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

7. 1-7  Compliance Audits  Example: IRS audit of income tax return  Operational Audits  Example: Effectiveness of operations of receiving department of a manufacturing company  Integrated Audits  Example: Assurance on both the financial statements and effectiveness of internal control over financial reporting Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

8. 1-8  Employed by a company as an employee  They often  perform operational and compliance audits  address internal control  report to the audit committee of the board of directors and to the president  The Institute of Internal Auditors is the international organization of internal auditors. Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

9. 1-9  Headed by the comptroller general  Responsibility of supporting Congress  Perform  Compliance, operational and financial audits of government agencies  Examinations of corporations holding government contracts to verify contract payments have been proper Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

10. 1-10  Responsible for enforcement of tax laws of various sorts (e.g., state and federal income taxes, property taxes, sales taxes)  Internal revenue agents generally perform compliance audits of income tax returns Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

11. 1-11  Establish Standards  Research and Publication  Continuing Professional Education  Self-Regulation Note: Much of the standards setting and regulation roles relating to public companies (referred to as “issuers”) has been taken over by the SEC and the PCAOB. Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

12. 1-12  Uniform national examination prepared and graded by the AICPA  Computerized exam includes multiple choice and simulations in four parts  Auditing and Attestation  Financial Accounting & Reporting  Regulation  Business Environment & Concepts Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

13. 1-13  FASB  Sets GAAP for entities other than federal, state and local governments  GASB  Standards of financial accounting for state and local government entities  FASAB  Accounting standards for the US government Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

14. 1-14  Adopt auditing, attestation, quality control, ethics and independence standards relating to the preparation of audit reports for SEC registrants  Oversee and discipline CPAs and CPA firms that audit public companies, including  Register firms  Perform inspections of firms  Conduct investigations and disciplinary proceedings of firms  Sanction registered firms Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

15. 1-15  Agency of the US government  Oversight responsibility for the PCAOB  Objectives  Protect investors and public by requiring full disclosure of financial information by companies offering securities for sale to the public  Prevent misrepresentation, deceit, or other fraud in the sale of securities Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

16. 1-16  Registration statements  Qualify securities for sales  Contains audited financial statements  Makes SEC major user of financial statements  Protects investors  Regulation S-X  Basic accounting regulation Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

17. 1-17  Attestation and Assurance  Tax  Consulting  Accounting  Personal Financial Planning  Litigation support  Fraud Investigation  Personal Financial Planning Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

18. 1-18  Sole proprietorship  Partnerships  Professional Corporation  Limited Liability Partnership (LLP)  Limited Liability Company (LLC) Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

19. 1-19  Partner —Overall responsibility is to assure that that audit is performed in accordance with professional standards.  Manager —Supervise overall engagement.  Seniors —”In charge” auditor on a daily basis.  Staff —Work under the immediate supervision of the senior. Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.