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Learning outcomes. Can explain what is audit and assurance Evaluate the significance of principal-agent relationship Describe the role of standards Distinguish types of audits. Introduction to auditing and assurance services. Development of audit Purpose of audit Auditing versus accounting

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learning outcomes
Learning outcomes
  • Can explain what is audit and assurance
  • Evaluate the significance of principal-agent relationship
  • Describe the role of standards
  • Distinguish types of audits
introduction to auditing and assurance services
Introduction to auditing and assurance services
  • Development of audit
  • Purpose of audit
  • Auditing versus accounting
  • Stewardship, agency theory and accountability
  • Auditing standards
  • Legal framework
  • Auditing framework
  • IFAC
  • MIA
shuo and yam 1987
Shuo and Yam (1987)
  • Written records show China was the first country in the world to establish an auditing system
  • Emphasised completeness of records (financial) of the imperial kingdom, honesty of government officers in handling public money and property
early audits
Early audits
  • Looked for errors and fraud
  • Reported to emperor
  • Offenders were sentenced to death
  • Auditors selected by emperor, commanded a prestigious, privileged and powerful position
auditing today
Auditing today
  • Is not what it started out as
  • Latin “AUDIRE”
  • Examine accounts, read out the report heard by authorities - china
  • Confidence of investors
  • Attests to quality of information
  • Asymmetry of information
  • Auditing versus accounting
types of audit
Types of audit
  • Audit
  • Review
  • , non-attest service
  • Other professional service requiring accounting and auditing expertise
  • Financial statements audit, compliance audit, internal audit, quality, governments, tax
  • Who
  • Nature of today’s business
  • Agent and principals
  • Need for monitoring
  • Independent expert
audit today
Audit today
  • Who, what and how
  • Professional
  • Opinion
  • Licensed
  • Assurance about what?
agency principal and agent
AgencyPrincipal and agent
  • Information asymmetry
  • Agency theory
  • Independent agent
  • Regulation
  • Corporate governance
  • Independent professional services that improve the quality of information for decision makers
  • Many types
  • Service provider knowledgeable, independent, expert in gathering and evaluating evidence
  • Criteria for evaluation e.g. GAAP
auditing standards
Auditing standards
  • Who sets?
  • Who follows?
  • A process of obtaining and evaluating evidence to support information presented to a third party
  • Attestation: get evidence about assertions
  • Evaluate evidence (using criteria)
  • Communicate conclusion
  • A positive statement about an action, event, condition or performance over a period of time
  • Financial statements?
why do we need assurance
Why do we need assurance?
  • People not wanting to tell the truth
  • Not telling the whole truth
  • Transactions are so complex, experts are required
  • Potential bias
greater demand for accountability
Greater demand for accountability
  • Why did the world’s biggest public accounting firm fail?
  • Why did investors lose so much money?
  • Loss of confidence in management, auditing profession
  • Information misleading despite being audited
  • Reports
  • Audit regulation
  • Corporate governance
  • Public expectation
  • Assurance that quality of information is reliable
issue 1
Issue 1
  • Identify 4 users of audited financial information
  • Primary use
  • Indicate how accounting treatment can benefit one user at expense of another
issue 2
Issue 2
  • Auditing does not create any new product. Hence it has no added value to a business
issue 3
Issue 3
  • We hire an auditor so that he can detect any wrong doings in my company