Untitled

Chapter 1

• Financial statements and future prospects entice potential investors
• Demand for financial statement audits arises because management might misrepresent financial data
• Financial reports can be relied upon by investors if an independent auditor issues a statement that they have been fairly presented in accordance with GAAP

Theranos Example

• Investors in Theranos never requested an independent audit report
• March 2018: The SEC and Theranos, CEO Elizabeth Holmes, and President Sunny Balwani settled fraud accusations
• Investors valued Theranos at $9 billion in 2015, yet by 2020, the company barely had enough money to pay its obligations.
• January 2022: Elizabeth Holmes found guilty of conspiracy and wire fraud; could spend up to 20 years in jail.

Importance of Audit Quality

• Investors and creditors make lending decisions about a company using reliable financial statement data
• Confidence of investors and creditors is diminished whenever audit quality is lessened
• 2002: Sarbanes-Oxley Act established PCAOB to oversee audit profession for public companies
• PCAOB defines audit standards for audits of public firms, inspects audit work, and monitors quality control procedures used by audit firms

Ernst & Young Audit Example

• November 2021: Ernst & Young Published an Audit Report
• Committed to audit quality via process improvement and focus on quality control
• Embraced responsibility and public interest to instill confidence in capital markets

Decision Making In A World Overrun With Data

• Financial statement auditors play an important role
• Supply key decision-makers with timely, understandable and truthful information so you must first explain the vital role that their expertise is essential to ensure world liquidity

Information Risk in the Big Data World

• Businesses make countless decisions every day regarding selling and purchasing goods, lending money, or entering employment agreements
• These decisions depend largely on business risk
• Business risk is the risk an entity will fail to meet its objectives

Minimizing Business Risks

• Decision-makers like CEOs require relevant, reliable, timely information to minimize risks
• Investors and creditors require high-quality information
• Accountants and auditors have the skill to satisfy this demand

Availability of Data

• Decision-making environment rapidly transforming as computing power increases
• Amount of data organizations manage is more than imagined just 10 years ago
• Upper management is placing more emphasis than ever on making sense of data
• Auditors must help prepare for the big data challenges

Environmental Conditions Increasing Demand for Reliable Information

• Complexity: Events and transactions growing more numerous and difficult within today's global business environment
• Often investors don't posses expertise to deal/understand transaction like derivative securities or hedging activities
• Information pros help make information more understandable for decision-making
• Remoteness: Decision-makers separated from business partners by distance and time
• Investors hire professionals to check on investments since they cannot do it themselves
• Time Sensitivity: Businesses, investors, and financial information users must make decisions as quickly as possible in today's economic climate
• Obtain high-quality information is needed for businesses to stay competitive in a global economy
• Consequences: Decisions frequently involve significant investments of limited resources so it is vital that reliable sources verify/analyze obtained data

Theranos' Aftermath

• How financial security and well-being of both individuals and companies is affected by decisions
• Theranos: In 2015 valued at $9 billion and employed over 700 by 2018 was out of business

Bernard Madoff Scheme

• Ran a Ponzi Scheme to bilk billions from investors - including actors, sports stars, and politicians
• Fund yielded 13-16% per year no matter how the markets performed
• Claimed to utilize options to hedge downside risk, which couldn't be done because necessary options did not exist
• Although firm claimed to manage billons, accounting was completed by three staff and only one 78-year-old accountant

Auditing Insight - Information Risk

• Probability that information produced by a company is misleading/false
• Incentive exists for management to represent their business/service better than in reality
• Causes preparers and issuers to benefit from optimistic data
• Can be resolved with information pros serving as intermediaries to lend credibility
• Lending credibility is known as providing assurance

Assurance, Attestation, and Auditing

• Assurance is when assurance is provided for specific assertions
• Attestation is when assertions are embodied in financial systems
• Auditing entails auditors giving an opinion on whether the statements fairly present information

Assurance Services

• Defined as any service that improves quality of data for decision-makers
• Intentionally broad to encompass wide array of services CPAs can perform to add value towards an economy
• AICPA attempting to expand focus to include all types of information, both financial and non-financial

AICPA's Definition Major Elements

• Independence
• Objective judgement
• Professional Services; accounting auditing, taxation and data management must include some education and experience
• Improving the Quality of information and its context
• Decision Maker - personalizing a customer focus related to the services offered

NBA Example

• Sports memorabilia can utilize the same assurance techniques as audits
• Third party appraisal services help ensure buyers that products are as advertised

CPA Services

• Attestation services provided by accounting pros
• CPA expresses an opinion about anothers party's responsibility of data
• Financial statement audit common type of services done

Customized Assurance Services

• Assess risks enterprises face can be more customized based on the client
• Used to show stakeholders risks understood and properly dealt with
• Cyber security risk assessment and assurance.
• XBRL, which provides specifically business report.
• Evaluation of investment management policies.
• Internal audit outsourcing
• Fraud and illegal acts prevention and deterrence.

Accounting insight/Accounting Complexity Measured

• XBRL creates easier tracking through specific data items related to business
• Researchers find more dislclosures difficult because more standard knowledge required

Accounting insight/ NFT oppurtunity for CPA's

• NFT's becoming popular
• NFT : Digital Identifier non copied Recorded in Blockchain used to certify authenticy and ownership
• Can become artwork
• So how much money is being spent on NFTs? Total of $94.9 million was spent while In 2021 number jumped to $24.9 billion

Attestation Engagements

• Financial statement audits are specific types of assurance engagements
• Auditors assure accurate financial statements
• CPAs can attest a variety of information
• Practitioners to examine the statement and request wether managements assertions

Auditing Insight (Emerging Grwoth Oppurtunity for CPAs)

• the International Financial Reporting Standards (IFRS) Foundation has announced a new board to oversee disclosures related to measures of sustainability
• assurance services that identify the relevant measures. The key is in identify the set of measures that will meet investors' information needs and maximize the value of the entitiy of course standards would also provide a set of criteria that can be used to reliability
• Activist shareholders increasingly pressurizing boards
• More companies integrating Environmental social goals (ESG) directly into business

Auditing Insight (Climate Change Does Matter)

• The clear message being sent by Blackrock who have made it clear they intend to take much tougher stance again corporations un willing to account for Environmental risks involved.

Examples of Attestation Engagement

• Review engagement At-C Section 210 such as providing limited assurance about material subject
• Agreed Upon procedures Engagement At-c verifying inventory's
• Prospective Financial Information at-C prospective or (what If) statements
• Reporting on Pro forma retroactive affect on proposed actions on Statements.
• Compiliance attestation At-C ascertaining a client's compliance with debt convenents

Accounting insights

• systematic process of gathering, evaluating and objectively
• Evidence consists of all types of data that makes descions management etc
• GAAP united standards or IFRS Internatiotional report standards
• an auditor will create an audit report as well as other communications

Account practice reflecting the statement following the statement

• Purpose of an audit is to financial statements
• Enhances Degree of confidence in place
• Relevant Ethical requirements Enables auditor to form opinion

Auditing insight

• Is there Really an App for that?
• The need for a digital mind set that extends level of profssionals including to upskill all proficency.
• 60 different subject areas
• Including blockchain, artificial intelligence robotics
• The digital fitness App free for anybody to use

Data insight

• auditors need more inside data like the best use make Internal data
• system generated report ( used in the client's Internal control) this way you have to verify Underlying data

Responsibility for financial reports are management team the follow statements include

• Sttements of financial position Sheets balance
• • Statements of income ( comprehensive)
• Statements of cash flow accompanying disclosurss to outer decision maker with management interest from function Auditing
• Financial statements that management transqaction assertion audit review
• Suggest the new audit profesional a detailed understanding this relationship you that with opportunity it's hoped book provide Foundation knowledge simplifies

Auditing insight Management responsiblity

• congress passed the Sarbanes Oxley to attempt to address the weaknesses in reporting
• have Key financial statement as certain that all financial statememts accurately

Auditor must use

• auditors use clients management in assessment of financial reports which is to prevent misstatements
• The financial statement be of material always remind auditors in Public's best

Accounting Insight

• Throughout book well uesd case studies
• Apollo Shoes are athletic
• products are shipped to L
• operaters in a large office with warehouse

Management Assertions

• each assertion rise a question to be answered with audit evidence
• table provides listing
• team address key questions w evidence
• ASB provide auditor w discretion provided protect the risks in each important sector

AS AB

• assertions of mgt and balance
• related and disclosures assertion

ASB assertions are divided

• (1) ASB asserrions
• (2) table three collums Contains key question
• (3) are divided three actions balances in footnotes
• (4) all are all questions
• (4) did account balances occur

APOLLO SHOES EXAMPLE

• Assertion manage Assets and balance exist as of report
• manage accounts occur.

Completeness (Completeness, Cutoff)

• Financial statements, management asserts what should have been recorded. In addition management asserts all footnote disclosure that should have been reported. Objectives include evidence for inventory inclusion, AP included NP, expenses recorded

More details completeness

• A verbal or written representation transaction included isn't sufficient enough to be a true representation of accounting completion
• Cut offer expression is a detail of accounting expense proper with calendar simple records cannot occur late

APOLL SHOES EXAMPLES

• Assertions complete as of December 31st
• Management asserts AP balance reports
• also income asserts should be all includances

Valuation an Allocation (Accuracy, Valuation)

• In Financial statement management asserts trasanction and Events have been recorded accurately and as well as under statements with GAAP OR IFRS for objective. Audit all related issues

A

• Accuracy valuations, of math equations, auditors look to make in order and verify their process

APPOLO SHOES EXAMPLES

• As management asserts or values were
• Accords with Dec.31
• Accords with what they have made what it stands for.
• Additions depreciation to account -Incomce period beenifiting properly Right obligations

Rights and OBLigations (Rights Obligations)

• In Financial statement management has obligations on amounts reports liability

• Management obligation

• Auditor needs to obatin evidence that the are not always owed. or has capitaly Also there obligation detals are foot notes detailed

APOLLO SHOES EXAMPLE

• Management asserts that are and have rights -Also has list and balance
• The owe amount for Accrued.

Presentation (Classifcation/Presentation)

• Statement management asseerts a transactions present
• Disclosured and statements usually usually. In other words all statements can be proven Auditor looks like in order and follows

APOLLO SHOES EXAMPLES

• Managments presents of accurate footnotes
• Complete as footnote disclosure and that it's broken down properly
• Auditor most identity each significant account and disclose on report
• disclosure can is material

Important Accts

• The accountant disclosu

• auditor most then relevance with what is

• for with reasonable or if the error is very depemding to it

• Example valuation or is for current or however

• the existence of accounts is all over is relevant or with

Financial Staement Assertions

• The Key is most be is always in heart.

• other which all means are in in words it's hard to be able with the

Exhibt 1.5 Management

On Staten Conditions

• Cash figure;s; existence
• Inventory figures Rights and Obligations Investments figures

On Statenment if Incomes

_ Net Sales figures: Completeness All expenses correct period

Note consildation in statements

• Disclosure persentation

While standards

• world is as order for for example there are only some
• premature to inflae account. Similarly test some

Liability

Can lead to under valued

• thus all errors can effects all statements The

profession Skpticism

• The an atitude that includes questioning 1 mind a critical assessment of evidence. is essenitial it is
• Auditors must ask menat to

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