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Principles of Auditing

• Success is simple: Know what you're doing, love what you're doing, and believe in what you're doing. - Will Rogers

Course Aims

• Equip students with basic knowledge of auditing, including financial statement auditing and performance auditing.
• Focus on basic concepts, major issues, and techniques for gathering evidence and sampling in auditing.
• Include an overview of auditing standards, the code of ethics for auditors, and specialized fields/current trends in auditing.

Prerequisites

• Financial accounting I

Learning Outcomes

• Explain basic concepts and techniques of auditing.
• Explain the impact of corporate governance, internal controls, and information technology.
• Apply professional code of ethics and auditing standards.
• Demonstrate professional behaviors in working environments.
• Address specific audit issues.

Text Books

• Principles of Auditing (2017), Vietnam Education Publishing House (Vietnamese)
• Auditing and Assurance Services (2017), 14th edition, Prentice Hall (Arens, Elder, Hogan, Beasley)
• Principles of Auditing & Other Assurance Services (2014), McGraw-Hill/Irwin (Whittington, Kurt)
• Auditing & Assurance Services (2015), McGraw-Hill/Irwin (Timothy J., Ramsay, Robert J., Sinason, David H)
• Auditing Fundamentals (2011), Pearson Education Limited (Marlene Davies, John Aston)
• A History of Auditing (2013), Derek Matthews
• Vietnamese Standards on Auditing (Circular No. 214/2012/TT-BTC and Circular 70/2015/TT-BTC)

Course Assessment

• 20% in-class participation + volunteer work + homework
• 20% mid-term exam
• 60% final exam

Course Structure

• Chapter 1: Introduction to Auditing
• Chapter 2: Professional Ethics and Legal Liability of Auditors
• Chapter 3: Basic Concepts in Auditing
• Chapter 4: Major Subjects Relating to Auditing
• Chapter 5: Audit Process
• Chapter 6: Specialized Fields and Emerging Issues in Auditing

Introduction to Auditing

• Formation and Development
• Nature of Auditing
• Introduction to professional auditing organizations
• Auditing standards

Historical Background of Auditing

• Questions regarding the first appearance, primitive forms, and methods of early auditing.

Why Do We Need Auditing?

• Demand for Reliable Information:
• Understanding a Client's Business
• Environmental Conditions
• Information Risk
• Audit process considers business risk, information risk, and environmental factors leading to the need for audits.

Understanding a Client's Business

• Business risk: the risk that an entity will not meet its objectives.
• Failure to meet objectives may lead to misstating financial statements.

Environmental Conditions

• Complexity: Decisions-makers may not be trained to gather and summarize information.
• Remoteness: Investors cannot personally visit locations, leading to a need for timely and reliable information.
• Time Sensitivity & Consequences

Information Risk

• Probability that information circulated by a company will be false or misleading.
• Possible conflict of interest between management and investors.

Auditing

• Independent inspection of accounting information due to separation between owners and management, conflict of interest, complexity and quality.

Is Auditing a Necessity or Luxury?

• Viewpoint of small firms
• Applicability to companies
• Benefits of auditing

Role of Auditing

• Relationship among auditor, client, and external users
• Auditor issues reports relied upon by users to reduce information risk

Increase the Reliability of Financial Reporting

• Save social costs
• Improve the quality of financial information
• Increase the trust in financial information

Financial Statements & Audit Report

• Distributed to shareholders.
• Delivered by the auditor.
• Reviews the accounting records.
• Records events and transactions in the books.

Assurance Services

• Independent professional services
• Improve the quality of information or context for decision-makers.
• Include many areas of information, including nonfinancial areas.

Attestation Services

• Engagement results in report issuance by a responsible party.
• Includes auditing (a specific form of attestation).

Nature of Auditing

• Accumulation and evaluation of evidence about information.
• To determine the degree of correspondence between the information and established criteria.
• Performed by a competent, independent person.

Information Needs to be Audited

• Auditors must consider assertions.

Obtaining and Evaluating Evidence

• Evidence forms: electronic and documentary data, written and electronic communications, observations, and testimonies.
• Quantity and quality of evidence is crucial for proper audit completion.

Competent and Independent Auditors

• Qualified to understand criteria and competent to accumulate evidence to form appropriate conclusions.
• Maintain an unbiased attitude (independence)
• Maintain integrity.

Audit Reports

• Communicate the auditor's findings based on the degree of correspondence between audited information and established criteria, and reporting approach.
• Might vary in formality (highly technical for financial statements versus simple reports for operational audits).

Audit Function

• Verification of financial statement truth and fairness/legitimacy of recording and reporting.
• Expressing opinions on financial statements (public vs. non-public).
• Advisory services (presented in management letter)

Examples of Audits

• XYZ bank financial reports
• Province A budget usage
• VCB branch activities
• Budget usage of Province A in 2011

Types of Audits

• Financial Statements Audits
• Operational Audits
• Compliance Audits

Types of Auditors

• Certified Public Accounting (CPA) firms
• Government audit offices
• Internal audit departments
• Individuals

Overview of Auditing Standards

• Legal standards and measures.

Generally Accepted Auditing Standards (GAAS)

• Provide guidelines and measures of auditor quality.

International Auditing Standards (ISAs)

• Set by the International Auditing and Assurance Standards Board.

Auditee Types

• Government clients
• CPA firm clients