Essay about ACC Chpt 1 Guide

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Auditing and Assurance Services LEARNING OBJECTIVES Review Checkpoints Exercises and Problems Define information risk and explain how auditing and assurance services play a role in reducing this business risk. 1, 2, 3 48, 50 Define and contrast accounting, auditing, and assurance services. 4, 5, 6, 7, 8 47 Describe and define the management assertions embodied in financial statements, and why auditors use them as a focal point of the audit. 9, 10, 11 52, 54 Explain some characteristics of professional skepticism. 12 Describe the organization of public accounting firms and identify the various services they offer. 13, 14 Describe the audits and auditors in governmental, internal, and operational auditing. 15, 16, 17, 18 49, 51 List and explain the requirements for becoming a certified information professional. 19, 20, 21, 22 53 SOLUTIONS FOR REVIEW CHECKPOINTS 1.1 Business risk is the name for the collective risk faced by a company that engages in business. It includes the chance that customers will buy from competitors, that product lines will become obsolete, that taxes will increase, that government contracts will be lost, or that employees will go on strike. 1.2 The conditions of complexity, remoteness, time-sensitivity, and consequences increase demands by outside users for relevant, reliable (useful) information. They cannot produce the information for themselves because of these conditions. Company managers and accountants produce the information. 1.3 Information risk, in contrast to business risk, is the risk (probability) that the information (mainly financial) disseminated by a company will be materially false or misleading. This condition creates the demand for objective outsiders to provide assurance to decision makers. 1.4 Students can refer to the AAA and AICPA definitions in Chapter 1. Some instructors may want to extend the consideration of definitions to include the internal and governmental definitions. In response to what do auditors do, students can refer to Exhibit 1.1 and respond in terms of (1) obtain and evaluate evidence about assertions management makes about economic actions and events, (2) ascertain the degree of correspondence between the assertions and GAAP, and (3) give an audit report (opinion). Students can also respond more generally in terms of lending credibility to financial statements presented by management (attestation). 1.5 An attest engagement is An engagement in which a practitioner is engaged to issue or does issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. To attest means to lend credibility or to vouch for the truth or accuracy of the statements that one party makes to another. The attest function is a term often applied to the activities of independent CPAs when acting as auditors of financial statements. 1.6 Assurance engagements are independent professional services that improve the quality of information, or its context, for decision makers. Since information (financial statements) are prepared by managers of an entity who have authority and responsibility for financial success or failure, an outsider may be skeptical that the information is objective, free from bias, fully informative, and free from material error, intentional or inadvertent. The services of an independentCPA auditor helps resolve those doubts because the auditors success depends upon his independent, objective, and competent assessment of the information (e.g., the conformity of the financial statements with GAAP). The CPAs role is to lend credibility to the information hence the outsider will likely seek his independent opinion. 1.7 CPAs serve as intermediaries who lend credibility to information. Hence, assurance services are natural extensions of the well-regarded audit and attest services. CPAs can use their expertise in internal control and measurement methods. Assurance services