TABLE OF CONTENTS
AUDITING AND ATTESTATION
Topic Page
OVERVIEW OF AN ATTEST FUNCTION ...................................................................... 1
AUDIT OPINIONS........................................................................................................... 6
USE OF REPORT OF ANOTHER AUDITOR ............................................................... 12
COMPARATIVE FINANCIAL STATEMENTS .............................................................. 15
COMPILATIONS AND REVIEWS................................................................................. 18
AUDIT RISK.................................................................................................................. 23
INTERNAL CONTROL ................................................................................................. 29
EVIDENCE GATHERING ............................................................................................. 35
ACCOUNTS RECEIVABLE AND REVENUES ............................................................ 43
STATISTICAL SAMPLING ........................................................................................... 48
INVENTORY AND ACCOUNTS PAYABLE ................................................................. 54
AUDITING WITH TECHNOLOGY................................................................................. 59
FLOWCHARTING......................................................................................................... 61
CASH RECEIPTS AND CASH BALANCES ................................................................ 64
SPECIAL REPORTS AND OTHER REPORTS ............................................................ 68
LONG-TERM LIABILITIES AND CONTINGENCIES.................................................... 74
PAYROLL ..................................................................................................................... 77
LAND, BUILDINGS, AND EQUIPMENT....................................................................... 80
INVESTMENTS............................................................................................................. 82
, AUDITING AND ATTESTATION
For additional information
TOPIC see Wiley CPA Examination
Review
Overview of Attest Function Module 1
Audit Opinions Module 4
Use of Report of Another Auditor Module 4
Comparative Financial Statements Module 4
Compilations and Reviews Module 3
Audit Risk Module 1
Internal Control Module 2
Evidence Gathering Module 3
Accounts Receivable and Revenues Module 3
Statistical Sampling Module 5
Inventory and Accounts Payable Module 3
Auditing with Technology Module 6
Flowcharting Module 6
Cash Receipts and Cash Balances Module 3
Special Reports and Other Reports Module 4
Long-Term Liabilities and Contingencies Module 3
Payroll Module 3
Land, Buildings, and Equipment Module 3
Investments Module 3
, Auditing and Attestation
OVERVIEW OF AN ATTEST FUNCTION
The Attest Function
(1) In an attest engagement a CPA is engaged to issue or does issue an examination, a
review, or agreed-upon procedures report on subject matter, or an assertion about subject
matter, that is the responsibility of another party.
(2) To perform an attest engagement there must be suitable criteria to judge the fairness of
the information being reported on.
(3) The attestation standards establish three forms of CPA attestation engagements—
examinations, reviews, and the performance of agreed-upon procedures.
(A) An examination referred to as an audit when it involves financial statements,
normally results in a positive opinion, the highest form of assurance about
whether the information follows the criteria.
(B) A review is substantially less in scope than an audit and provides negative
assurance (“nothing came to our attention”) rather than positive assurance.
(C) For the third form of attestation engagement, a CPA and a specified party that
wishes to use the information may mutually decide on specific agreed-upon
procedures that the CPA will perform. Agreed-upon procedures engagements
result in a report that describes the procedures performed and related findings
(4) Statements on Standards for Attestation Engagements provide guidance on how to
perform attestation engagements.
(5) Statements on Standards for Accounting and Review Services provide guidance for
work done for a nonpublic company that is less than an audit.
(6) An independent audit is made up of two separate steps.
(A) First step is the examination of a set of financial statements that have been
produced by the management of the reporting entity.
(1) Purpose of examination is to gather sufficient, competent evidence on
which to form an opinion as to the fair presentation of the statements in
accordance with generally accepted accounting principles.
(2) For each group of accounts and for the statements taken as a whole,
management makes five assertions.
(a) Valuation - all accounts are shown at proper amounts based on
generally accepted accounting principles.
(b) Existence or occurrence - all reported assets and liabilities
actually exist; all other balances did occur. The account is not
overstated.
(c) Presentation and disclosure - all accounts are properly classified
and all relevant information is disclosed.
(d) Completeness - all transactions and accounts have been included
within the financial statements. The account is not understated.
(e) Obligations and rights - all assets and liabilities are those of the
reporting entity.
(3) Auditor attempts to corroborate these assertions in order to provide
reasonable assurance that no material misstatements exist in any of the
assertions.
Overview of An Attest Function - 1
, Auditing and Attestation
(a) The term “material” means anything of a size or type that would
influence the judgment of a reasonable person relying on the
information. A preliminary judgment of the size component of
materiality is set at the beginning of an audit but is continuously
reassessed as new information is gathered.
(b) A misstatement is an error (an unintentional mistake), fraud (an
intentional manipulation of the assets or the records).
(B) Second step is the report of the findings to outside parties, primarily to
stockholders and other parties outside of the reporting entity. The report is
intended to add credibility to the financial information being distributed.
(7) All of the auditor’s work must follow generally accepted auditing standards (GAAS)
which are currently established by means of Statements of Auditing Standards that are
produced by the Auditing Standards Board. If the audit is of a public company, the audit
must be performed in accordance with auditing standards adopted or issued by the Public
Company Accounting Oversight Board (PCAOB).
(8) There are ten basic generally accepted auditing standards that provide the basis for an
auditing engagement.
(A) General Standards
(1) The audit is to be performed by a person or persons having adequate
technical training and proficiency as an auditor. The auditor should have
sufficient education and experience in (1) auditing, (2) accounting, and (3)
the industry in which the client operates in order to make the decisions
necessary to evaluate whether any material misstatements exist in any of
the management’s five assertions.
(2) In all matters relating to the assignment, independence in mental attitude
is to be maintained by the auditor.
(a) Independence in mental attitude cannot be regulated. However, to
encourage independence in fact and to maintain the appearance of
independence, the auditor can have no direct financial interest in
the client. “Direct” includes the auditor and members of immediate
family. “Financial interest” is ownership of equity shares, other
client financial instruments, or any other potential financial benefit.
(b) In addition, there can be no material indirect financial interest
such as ownership through a mutual fund.
(c) To ensure independence, auditor cannot render an opinion on
statements of one year until all fees from the prior year audit have
been paid.
(d) To emphasize independence from management, auditor is usually
appointed by audit committee of the board of directors.
(3) Due professional care is to be exercised in the performance of the audit
and preparation of the report.
(a) Auditor must do at least what any average auditor would do and
never less.
(B) Standards of Fieldwork
(1) The work is to be adequately planned and assistants, if any, are to be
properly supervised.
2 - Overview of An Attest Function
AUDITING AND ATTESTATION
Topic Page
OVERVIEW OF AN ATTEST FUNCTION ...................................................................... 1
AUDIT OPINIONS........................................................................................................... 6
USE OF REPORT OF ANOTHER AUDITOR ............................................................... 12
COMPARATIVE FINANCIAL STATEMENTS .............................................................. 15
COMPILATIONS AND REVIEWS................................................................................. 18
AUDIT RISK.................................................................................................................. 23
INTERNAL CONTROL ................................................................................................. 29
EVIDENCE GATHERING ............................................................................................. 35
ACCOUNTS RECEIVABLE AND REVENUES ............................................................ 43
STATISTICAL SAMPLING ........................................................................................... 48
INVENTORY AND ACCOUNTS PAYABLE ................................................................. 54
AUDITING WITH TECHNOLOGY................................................................................. 59
FLOWCHARTING......................................................................................................... 61
CASH RECEIPTS AND CASH BALANCES ................................................................ 64
SPECIAL REPORTS AND OTHER REPORTS ............................................................ 68
LONG-TERM LIABILITIES AND CONTINGENCIES.................................................... 74
PAYROLL ..................................................................................................................... 77
LAND, BUILDINGS, AND EQUIPMENT....................................................................... 80
INVESTMENTS............................................................................................................. 82
, AUDITING AND ATTESTATION
For additional information
TOPIC see Wiley CPA Examination
Review
Overview of Attest Function Module 1
Audit Opinions Module 4
Use of Report of Another Auditor Module 4
Comparative Financial Statements Module 4
Compilations and Reviews Module 3
Audit Risk Module 1
Internal Control Module 2
Evidence Gathering Module 3
Accounts Receivable and Revenues Module 3
Statistical Sampling Module 5
Inventory and Accounts Payable Module 3
Auditing with Technology Module 6
Flowcharting Module 6
Cash Receipts and Cash Balances Module 3
Special Reports and Other Reports Module 4
Long-Term Liabilities and Contingencies Module 3
Payroll Module 3
Land, Buildings, and Equipment Module 3
Investments Module 3
, Auditing and Attestation
OVERVIEW OF AN ATTEST FUNCTION
The Attest Function
(1) In an attest engagement a CPA is engaged to issue or does issue an examination, a
review, or agreed-upon procedures report on subject matter, or an assertion about subject
matter, that is the responsibility of another party.
(2) To perform an attest engagement there must be suitable criteria to judge the fairness of
the information being reported on.
(3) The attestation standards establish three forms of CPA attestation engagements—
examinations, reviews, and the performance of agreed-upon procedures.
(A) An examination referred to as an audit when it involves financial statements,
normally results in a positive opinion, the highest form of assurance about
whether the information follows the criteria.
(B) A review is substantially less in scope than an audit and provides negative
assurance (“nothing came to our attention”) rather than positive assurance.
(C) For the third form of attestation engagement, a CPA and a specified party that
wishes to use the information may mutually decide on specific agreed-upon
procedures that the CPA will perform. Agreed-upon procedures engagements
result in a report that describes the procedures performed and related findings
(4) Statements on Standards for Attestation Engagements provide guidance on how to
perform attestation engagements.
(5) Statements on Standards for Accounting and Review Services provide guidance for
work done for a nonpublic company that is less than an audit.
(6) An independent audit is made up of two separate steps.
(A) First step is the examination of a set of financial statements that have been
produced by the management of the reporting entity.
(1) Purpose of examination is to gather sufficient, competent evidence on
which to form an opinion as to the fair presentation of the statements in
accordance with generally accepted accounting principles.
(2) For each group of accounts and for the statements taken as a whole,
management makes five assertions.
(a) Valuation - all accounts are shown at proper amounts based on
generally accepted accounting principles.
(b) Existence or occurrence - all reported assets and liabilities
actually exist; all other balances did occur. The account is not
overstated.
(c) Presentation and disclosure - all accounts are properly classified
and all relevant information is disclosed.
(d) Completeness - all transactions and accounts have been included
within the financial statements. The account is not understated.
(e) Obligations and rights - all assets and liabilities are those of the
reporting entity.
(3) Auditor attempts to corroborate these assertions in order to provide
reasonable assurance that no material misstatements exist in any of the
assertions.
Overview of An Attest Function - 1
, Auditing and Attestation
(a) The term “material” means anything of a size or type that would
influence the judgment of a reasonable person relying on the
information. A preliminary judgment of the size component of
materiality is set at the beginning of an audit but is continuously
reassessed as new information is gathered.
(b) A misstatement is an error (an unintentional mistake), fraud (an
intentional manipulation of the assets or the records).
(B) Second step is the report of the findings to outside parties, primarily to
stockholders and other parties outside of the reporting entity. The report is
intended to add credibility to the financial information being distributed.
(7) All of the auditor’s work must follow generally accepted auditing standards (GAAS)
which are currently established by means of Statements of Auditing Standards that are
produced by the Auditing Standards Board. If the audit is of a public company, the audit
must be performed in accordance with auditing standards adopted or issued by the Public
Company Accounting Oversight Board (PCAOB).
(8) There are ten basic generally accepted auditing standards that provide the basis for an
auditing engagement.
(A) General Standards
(1) The audit is to be performed by a person or persons having adequate
technical training and proficiency as an auditor. The auditor should have
sufficient education and experience in (1) auditing, (2) accounting, and (3)
the industry in which the client operates in order to make the decisions
necessary to evaluate whether any material misstatements exist in any of
the management’s five assertions.
(2) In all matters relating to the assignment, independence in mental attitude
is to be maintained by the auditor.
(a) Independence in mental attitude cannot be regulated. However, to
encourage independence in fact and to maintain the appearance of
independence, the auditor can have no direct financial interest in
the client. “Direct” includes the auditor and members of immediate
family. “Financial interest” is ownership of equity shares, other
client financial instruments, or any other potential financial benefit.
(b) In addition, there can be no material indirect financial interest
such as ownership through a mutual fund.
(c) To ensure independence, auditor cannot render an opinion on
statements of one year until all fees from the prior year audit have
been paid.
(d) To emphasize independence from management, auditor is usually
appointed by audit committee of the board of directors.
(3) Due professional care is to be exercised in the performance of the audit
and preparation of the report.
(a) Auditor must do at least what any average auditor would do and
never less.
(B) Standards of Fieldwork
(1) The work is to be adequately planned and assistants, if any, are to be
properly supervised.
2 - Overview of An Attest Function
