Post-Graduate Certificate in Advanced Professional Accounting PDF

POST-GRADUATE CERTIFICATE IN ADVANCED PROFESSIONAL ACCOUNTING Auditing Fundamentals – CSAC 4551  Course Course: Auditing Fundamentals Instructor: Rashed Chowdhury Class Schedule: 13 three-hour sessions between 6:45pm to 9:45pm Oct 30 Nov 1, 6, 8, 13, 15, 20, 22, 27, 29 De...

POST-GRADUATE CERTIFICATE IN ADVANCED PROFESSIONAL ACCOUNTING Auditing Fundamentals – CSAC 4551  Course Course: Auditing Fundamentals Instructor: Rashed Chowdhury Class Schedule: 13 three-hour sessions between 6:45pm to 9:45pm Oct 30 Nov 1, 6, 8, 13, 15, 20, 22, 27, 29 Dec 4, 6, 11 Course Class 1 and 2 Introduction to Auditing, Audit objectives and responsibilities Class 3 and 4 Client Acceptance/Planning/Materiality and Audit evidence Class 5 Internal Controls Class 6 Audit Strategy/Plan Class 7 Audit sampling Class 8 and 9 Audit procedures - Practical Class 10-12 Review results, conclude and report, other services Course Class Learning Readings, Topics and Outcomes Assigned Readings # 1 The Demand for Audit and Other Assurance Services The Public Chapter 1 Accounting Profession and Audit Quality Chapter 2 2 Professional Ethics and Legal Liability Audit Chapter 3 responsibilities and objectives Chapter 4 3 Audit Evidence Chapter 5 4 Client Acceptance, Planning and Materiality Assess the Chapter 6 Risk of Material Misstatement Chapter 7 5 Internal Control and COSO Framework Chapter 8 Assessing Control Risk and Designing Tests of Controls Chapter 9 6 Audit Strategy and Audit Program Chapter 10 7 Audit Sampling Concepts Chapter 11 8 Audit of the Inventory and Distribution Cycle Chapter 14 Class Assignment Number 1 9 Audit of Cash Balances Chapter 17 10 Audit of Revenue Cycle Chapter 12 Class Assignment Number 2 11 Completing the Audit Chapter 18 Audit Reports on Financial Statements Chapter 19 12 Other Assurance and Non/Assurance Services Chapter 20 Group Assignment 13 Final Take Home Exam Course Deliverable #1, Case Assignment 1 – Individual #2, Case Assignment 2 – Group of two #3, Participation #4, Group Assignment #5, Final Exam For specific due dates and marking breakdown, please refer to the course outline. Auditing Fundamentals The Demand for Audit and Other Assurance Services Chapter 1 Purpose of Auditing Auditing is the verification of information by someone other than the one providing that information. Distinction between Auditing and Accounting Accounting creates documents where business transactions or events are recorded Auditing is process of “checking” that business transactions or events have been recorded (accounting) correctly. Accountant vs. Auditor Accountants follow GAAP (ASPE, IFRS) Auditors follow GAAS (CAS) GAAP – instructions on how to measure and record business transactions and events. GAAS –step-by-step instructions on how to check if business transactions and events have been measured and recorded correctly. Auditors must know both GAAP and GAAS Information risk The risk that information upon which a business decision is made is inaccurate. Wrong Information = Wrong Decision Causes of Information Risk Remoteness of information Bias and motives of provider Voluminous data Complex exchange transactions Reducing Information Risk User verifies information User shares information risk with management. Provider submits audited financial statements. – most common way for users to obtain more reliable information. Typically, management of a private company or the audit committee for a public company engages the external auditor to provide assurances to users that the financial statements are reliable. Accountability - Auditor, Client and External Users of Financial Statements The Public Interest Under three-party accountability the auditor is expected to act in the interest of the user of the information. – To meet the public interest, it is important that the auditor is trustworthy. Types of Audits Financial statement audit: Conducted to determine whether the financial statements (the information verified) are stated in accordance with specified criteria (the applicable accounting framework) in all material respects. Compliance audit: an audit performed to determine whether an entity complied with specific laws, regulations, rules, or provisions of contracts or grant agreements. Operational audit: A review of any part of an organization’s operating procedures and methods for the purpose of evaluating efficiency and effectiveness. Types of Auditors Internal auditor Government auditor Canada Revenue Agency (CRA) auditor Forensic Accountants and Fraud Auditors Public accountant (PA) Assurance Engagement An engagement in which the assurance professional obtains sufficient evidence to express a conclusion to users about the outcome of the measurement or evaluation of an underlying subject matter against criteria. – Existence of a three-party relationship – Subject matter – Criteria – Gathering of sufficient appropriate evidence – Expression of opinion or conclusion Example: Audit of Historical Financial Statements – high level of assurance Review of Historical Financial Statements – moderate level of assurance Levels of Assurance High Level of Assurance (Positive Opinion Assurance) Moderate (Negative Assurance) Non-assurance  Types of Assurance Services Assurance Service Criteria Type Audit of Financial IFRS GAAP Positive Statements Review of financial IFRS GAAP Negative statements Compilation of financial IFRS No Assurance – Completed for tax statements purposes Assurance Engagements for Nonfinancial Information Audit of Internal Control Over Financial Reporting Audit of Controls of Service Organizations Compliance With an Agreement or Regulations Attestation Services on Information Technology Assurance Engagements on Greenhouse Gas Statements Assurance Over Other Nonfinancial Information There are almost no limits on what nonfinancial information a public accountant can provide assurance services for. Anything can be checked! Nonassurance Services Compilations Tax Services Management Advisory Services Accounting and Bookkeeping Services Class Discussion Page 22, 1-21 Get in groups of 2 and discuss the following parts only: (a), (d), (e) and (f) Class Discussion - Solution (a) The interest rate for the loan that requires a review report is lower than the loan that did not require a review because of lower information risk. A review report provides moderate assurance to financial statement users, which lowers information risk. An audit report provides further assurance and lower information risk. As a result of reduced information risk, the interest rate is lowest for the loan with the audit report. (d) Vial-tek may desire to have an audit because of the many other positive benefits that an audit provides. The audit will provide Vial-tek’s management with assurance about annual financial information used for decision-making purposes. The audit may detect errors or fraud, and provide management with information about the effectiveness of controls. In addition, the audit may result in recommendations to management that will improve efficiency or effectiveness. Class Discussion - Solution (e) Since an audit engagement requires persuasive evidence, which requires a greater effort on the part of the auditor in terms of the nature and extent of evidence to be gathered as well as the type of procedures performed, it would be much more costly than a review. An audit also requires that the auditor develop a thorough understanding of controls, which is not required for a review engagement. (f) The auditor must have a thorough understanding of the client and its environment, including the client’s e-commerce technologies, industry, regulatory and operating environment, suppliers, customers, creditors, and business strategies and processes. This thorough analysis helps the auditor identify risks associated with the client’s strategies that may affect whether the financial statements are fairly stated. This strategic knowledge of the client’s business often helps the auditor identify ways to help the client improve business operations, thereby providing added value to the audit function. Auditing Fundamentals The Public Accounting Profession and Audit Quality Chapter 2 Public Accounting Firms There are currently more than 5 000 public accounting firms in Canada. Firms range in size from a sole practitioner to the more than 5 600 professional staff employed by Canada’s largest public accounting firm, Four size categories are used to describe public accounting firms: 1. “Big Four” international firms, 2. national network firms, 3. large local and 4. regional firms, and small local firms. Structure of Public Accounting Firms Sole proprietorship or a partnership, most provinces also allow special-purpose limited liability partnerships or professional corporations. Typical public accounting firm structure includes: 1. Partners (10+ years), 2. Senior managers (7-10 years), 3. Manager (5-7 years), 4. seniors or in-charge auditors (2-5 years), and 5. staff accountants (0-2 years). The hierarchical nature of public accounting firms helps promote competence and high-quality audits Requirements to be a Public Accountant Chartered Professional Accountant (CPA) designation Public accountant license Organizations Affecting the Canadian Public Accounting Profession CPA Canada represents the CPA profession nationally and internationally CPA Canada is the umbrella organization for the CPA designation and provincial accounting bodies CPA Canada standardizes uniform qualifications for admission of CPAs, develops CPA Professional Education Program (CPA PEP) and the Common Final Examination (CFE) Provincial CPA Organizations maintain individual CPA memberships of CPAs Organizations Affecting the Canadian Public Accounting Profession cont. Auditing and Assurance Standards Board (AASB) - set generally accepted auditing standards (GAAS) for financial statement audits. International Auditing and Assurance Standards Board - sets international standards for auditing and assurance, and other related standards. Canadian Public Accountability Board (CPAB) - promotes effective regulation and high-quality, independent auditing in Canada. An Overview of Canadian Auditing Standards Sections Topic 200–299 General Principles and Responsibilities 300–499 Risk Assessment and Response 500–599 Audit Evidence 600–699 Using Work of Others 700–799 Audit Conclusions and Reporting 800–899 Specialized Areas Purpose of the Financial Statement Audit The purpose of an audit is to provide financial statement users with an opinion issued by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. That opinion enhances the users’ confidence in the information presented in the financial statements. Purpose of the Financial Statement Audit cont. An audit is conducted based on the premise that management is responsible for the preparation of the financial statements An auditor also presumes that management will provide the auditor with access to all information relevant to the preparation and presentation of financial statements Responsibilities Management is responsible for preparing the financial statements Auditor only audits (checks) if financial statements have been prepared correctly and provides users of financial statements with an opinion. Key Concept – Management prepares financial statements. Auditors only check financial statements, they are not involved in the preparation of financial statements. Auditors’ Personal Responsibilities Professional Competence and Due Care – Formal education – Adequate practical experience for work being performed – Continuing professional education Compliance with Ethical and Independence Requirements: – integrity, objectivity, confidentiality, professional behaviour – Independence is key-accounting firms required to follow practices to increase independence likelihood on audit engagements Professional Skepticism and Professional Judgement – Questioning mind, alert for possibility of misstatements Comprehensive Performance Responsibilities Adequate Planning and Supervision Determining and Applying Materiality Levels Identifying and Assessing Risks of Material Misstatement Obtaining Sufficient and Appropriate Evidence Reporting (see next slide) Independent Auditor’s Report Explained  The Drivers of Audit Quality Build the Right Teams - audit teams need to have the right technical competence and industry experience. Provide the Right Support – open consultation environment and use of technical experts. Conduct In-Process Reviews – supervise staff performing the audit. Assign Accountability for Audit Quality External Inspection Practice inspections done by provincial CPA organizations to ensure adherence to professional standards in the CPA Canada Handbook. Normally completed every three years. Beneficial both to profession (higher quality audits) and practitioner (improved firm practices).