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Auditing

by: Ricchiute, David N.

Auditing

by: Ricchiute, David N.

ISBN 13:
9780324226294
ISBN 10:
0324226292
Edition: 8th
Format: Hardcover
Copyright: 01/06/2005
Publisher: Cengage Learning

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Summary

Be successful in this course and in your career with AUDITING! With a focus on fraud, restatement, and earnings management, this auditing textbook exposes you to databases, annual reports, and the professional literature in a way that will prepare you for success in your future career. Real world applications and working paper review cases are just a few of the many tools integrated throughout the text that will help you apply what you're learning to the real world. A concise step-by-step overview of the audit and assurance services processes ensures that you master the concepts presented in the text.

PART 1: Responsibilities and Reporting

Chapter 1: An introduction to Audit and Other Assurance Services

(30)

Attestation and Audit Services

(6)

The Demand for Financial Statement Audits;

Financial Statements on the Internet;

Financial Statement Audits and the Scientific Method of Inquiry

Audit Standard-Setting

(3)

The American Institute of Certified Public Accountants;

The Securities and Exchange Commission;

Prior Authoritative Bodies;

The Auditing Standards Board and the Accounting and Review Services Committee;

The Public Company Accounting Oversight Board and the Chief Auditor and Director of Professional Standards

Accounting, Auditing, and the Influence of Prominent Professional Organizations

(2)

The Financial Accounting Standards Board and the Governmental Accounting Standards Board;

Professional Organizations

Other Audit Services

(1)

Operational Audits;

Compliance Audits

Other Attestation Services

(1)

Consulting and Other Assurance Services

(3)

Consulting;

Other Assurance Services

Values, Competencies, and Services

(2)

Summary

(11)

Chapter 2: Standards, Materiality, and Risk

(44)

Audit and Attestation Standards

(14)

The AICPA Adopts and Revises Standards;

Independence;

Due Care;

Evidence;

Reporting

Risk

(6)

Attestation Risk and Audit Risk;

Inherent Risk, Control Risk, and Detection Risk;

Measuring Audit Risk and Detection Risk;

Business Risk;

Audit Risk and Auditor Failure

Materiality

(9)

Materiality Decisions in Practice;

Preliminary Estimates of Materiality;

The Relationship Among Audit Risk, Materiality, and Audit Effort;

Quantitative Materiality Criteria;

Qualitative Factors: The SEC's Staff Accounting Bulletin No. 99;

Allocating Preliminary Estimates of Materiality

Materiality in Auditing and in Accounting

(1)

Summary

(14)

Chapter 3: Audit Reports

(42)

Reports on Financial Statement Audits

(9)

Unqualified Opinion;

Title and Management's Responsibility;

Addressee;

Introductory Paragraph;

Scope Paragraph;

Opinion Paragraph;

Signature;

Report Date;

Unqualified Opinions in Other Countries;

Other Types of Opinions

Explanatory Paragraphs and Modifications to Standard Reports

(10)

Opinion Based Partly on the Report of Another Auditor;

Emphasis on a Matter;

Departure from GAAP;

Inconsistency;

Scope Limitation;

Going Concern;

Lack of Independence

Reporting on Comparative Financial Statements

(2)

Report with Differing Opinions;

Report with an Updated Opinion Different from a Previous Opinion

Reporting on Financial Statements Prepared for Use in Foreign Countries

(1)

General and Field Work Standards;

Statements Used Outside the United States Only;

Statements Used in the United States

Reports on Attestation Services

(2)

Unqualified Opinion;

Other Types of Opinion

Reports on Other Assurance Services

100

(1)

Summary

101

(17)

Chapter 4: Professional Ethics

118

(43)

General Ethics, Professional Ethics, and the Collapse of Enron and Andersen

119

(4)

Enron and Andersen;

Changes in Professional Ethics

AICPA Code of Professional Conduct

123

(3)

Principles;

Rules of Conduct;

Interpretations and Ethics Rulings

Rules of Conduct

126

(15)

Independence, Integrity, Objectivity and the SEC's Auditor Independence Rules;

Honorary Directorships;

Nonattest Independence Rules;

General and Technical Standards;

Responsibilities to Clients;

Responsibilities to Colleagues;

Other Responsibilities and Practices

Monitoring Public Accounting Firms

141

(4)

The PCAOB's Rules for Inspecting Registered Firms;

The AICPA's Practice-Monitoring Program (Peer Review);

Joint Ethics Enforcement

Summary

145

(16)

Chapter 5: Legal Liability

161

(39)

An Overview of Civil Liability Under Common and Statutory Law

162

(3)

Source of Law;

Identity of Plaintiff;

Potential Liability;

Burden of Proof

Common Law Liability

165

(7)

Liability to Clients;

Liability to Primary Beneficiaries;

Liability to Foreseen Third Parties;

Liability to Foreseeable Third Parties

The Securities Acts

172

(3)

The Securities Act of 1933;

The Securities Exchange Act of 1934

Liability Under the Securities Acts

175

(4)

Liability: 1933 Act, Section 11;

Liability: 1934 Act, Section 10(b), Rule 10b-5;

Liability: 1934 Act, Section 18;

Securities Litigation Reform

Criminal Liability

179

(2)

Continental Vending;

Racketeer Influenced and Corrupt Organizations Act

Illegal Acts by Clients

181

(3)

Responsibility;

Auditing Procedures;

Responding to Detected Illegal Acts

The Foreign Corrupt Practices Act

184

(1)

Unlawful Influence;

Record Keeping and Internal Control

Coping with Potential Liability

185

(2)

Arbitration or Mediation;

Practice Development;

Engagement Letters;

Auditing Standards and Quality Control;

Professional Liability Insurance;

Countersuits;

Limited Liability Partnerships (LLPs)

Summary

187

(13)

PART 2: The Audit Process and Internal Control

200

(154)

Chapter 6: Evidence

201

(41)

Audit Evidence

201

(6)

Misspecifying the Competence and Sufficiency of Audit Evidence;

Relating Assertions and Objectives;

Relating Objectives and Procedures

Tests of Controls, Substantive Tests, and Audit Risk

207

(12)

Tests of Controls and Control Risk;

Substantive Tests and Detection Risk;

Analytical Procedures;

Nonfinancial Measures

Cognitive Biases in Evaluating Evidence

219

(1)

Audit Documentation

220

(10)

ASB Standard;

PCAOB Standard;

Audit Documentation Files;

Content and Arrangement of Audit Documentation;

Automated Documentation;

Access to Audit Documentation

Summary

230

(12)

Chapter 7: The Audit Process and Detecting Fraud

242

(57)

The Audit Process

242

(34)

Communicate with the Audit Committee;

Decide Whether to Accept or Continue the Engagement;

Establish an Understanding with the Client;

Establish an Understanding of the Client's Strategies and Business;

Planning;

Interim Audit Work;

Year-End Audit Work

Summary

276

(1)

Appendix: The Assurance Service Process

276

(23)

Benchmarking;

Planning;

Analysis;

Deliverable

Chapter 8: Internal Control

299

(55)

The COSO Framework

299

(9)

The SEC and the PCAOB: Control Over Financial Reporting;

Components of Internal Control

Restatement, Fraud, and Internal Control

308

(1)

Assessing Control Risk & Auditing Internal Control Over Financial Reporting

309

(30)

Responsibility;

Overview;

Obtain an Understanding of Internal Control;

Assess Control Risk;

Plan the Nature, Timing, and Extent of Substantive Tests and Form Opinion on Internal Control Over Financial Reporting

Other Assurance Services

339

(1)

Summary

340

(14)

PART 3: Auditing the Revenue/Receipt and the Expenditure/Disbursement Cycles

354

(229)

Chapter 9: Audit Sampling

355

(57)

Sampling in Auditing

355

(2)

Audit Populations and Sampling Plans;

Sampling in Tests of Controls;

Sampling in Substantive Tests

Sampling and Audit Risk

357

(4)

Components of Audit Risk;

Sampling Risk and Nonsampling Risk;

Risks of Assessing Control Risk Too High or Too Low;

Risks of Incorrect Rejection or Incorrect Acceptance;

Statistical and Nonstatistical Sampling

Attributes Estimation Sampling in Tests of Controls

361

(12)

Determine the Objectives, Attributes, and Deviation Conditions;

Define the Population;

Determine Sample Size;

Perform the Sampling Plan;

Evaluate the Sample Results;

Other Considerations

Sequential (Stop-or-Go) Sampling

373

(1)

Determine Sample Size;

Perform the Sampling Plan and Evaluate Results

Nonstatistical Sampling in Tests of Controls

374

(3)

Determine Sample Size;

Evaluating Sample Results

Variables Sampling in Substantive Tests of Details

377

(1)

Probability-Proportional-to-Size Sampling

378

(7)

Define the Population;

Determine Sample Size;

Determine the Method of Sample Selection;

Evaluate the Sample

Nonstatistical Sampling in Substantive Tests of Details

385

(3)

Determine Sample Size;

Evaluate the Sample Results

Summary

388

(1)

Appendix: Difference Estimation-A Case Study

389

(23)

Define the Population;

Determine Sample Size;

Determine the Method of Sample Selection; Perform the Sampling Plan; and Evaluate the Sample Results;

Adjusting Recorded Account Balances in Classical Variables Sampling

Chapter 10: Sales and Cash Receipts Transactions

412

(45)

The Revenue/Receipt Cycle

413

(13)

Credit Sales

Cash Collection;

Internal Control Objectives and Potential Errors or Frauds;

Transaction Authorization

Assessing Control Risk and Auditing Internal Control Over Financial Reporting

426

(13)

Obtain an Understanding;

Tests of Controls: Credit Sales and Cash Collections;

Assess Control Risk;

Form a Preliminary Opinion on Management's Assessment of Internal Control Over Financial Reporting

Computer Auditing and Sampling Applied to Tests of Controls Over Billing

439

(4)

Computer System: Billing, Data Entry, and Computer Processing;

Consideration of Internal Control

Other Assurance and Consulting Services

443

(1)

Summary

444

(13)

Chapter 11: Accounts Receivable and Cash Balances

457

(51)

Financial Statement Assertions, Objectives, and Audit Procedures

457

(3)

Existence or Occurrence;

Completeness;

Rights and Obligations;

Valuation or Allocation;

Presentation and Disclosure

Audit Risk: Client Strategies, Threats to the Business, and Substantive Tests in the Revenue/Receipt Cycle

460

(2)

Accounts Receivable and Sales

462

(9)

Verify Mathematical Accuracy;

Confirm Receivables Balances;

Test Cutoff;

Review Collectibility of Receivables;

Perform Analytical Procedures;

Review Financial Statement Presentation and Disclosure

Cash Balances

471

(7)

Confirm Cash Balances;

Verify Mathematical Accuracy;

Test Cutoff;

Review Financial Statement Presentation and Disclosure

Revenue Recognition and Earnings Manipulation

478

(11)

The SEC Responds to Earnings Manipulation: Staff Accounting Bulletin No. 104, "Revenue Recognition";

Common Means to Manipulate Earnings;

Area Franchise Fees: A Case Study in Management and Auditor Incentives

Applying Audit Sampling in Substantive Tests of Accounts Receivable

489

(3)

Updating the Assessment of Control Risk;

Planning the Receivables Confirmation and Selecting a Sampling Plan;

Sample Size

Computer-Assisted Substantive Tests of Accounts Receivable

492

(2)

Summary

494

(14)

Chapter 12: Purchases and Cash Disbursements Transactions

508

(39)

The Expenditure/Disbursement Cycle

508

(10)

Purchasing;

Cash Disbursements;

Internal Control Objectives and Potential Errors or Frauds

Assessing Control Risk and Auditing Internal Control Over Financial Reporting

518

(10)

Obtain an Understanding;

Tests of Controls: Purchasing and Cash Disbursements;

Assess Control Risk;

Form a Preliminary Opinion on Management's Assessment of Internal Control Over Financial Reporting

Computer Auditing and Sampling Applied to Tests of Controls Over Cash Disbursements

528

(5)

Computer System: Accounts Payable, Data Entry, and Computer Processing;

Consideration of Internal Control

Other Assurance and Consulting Services

533

(1)

Summary

534

(13)

Chapter 13: Accounts Payable, Prepaids, and Accrued Liabilities

547

(36)

Financial Statement Assertions, Objectives, and Audit Procedures

547

(2)

Existence or Occurrence;

Completeness;

Rights and Obligations;

Valuation or Allocation;

Presentation and Disclosure

Audit Risk: Nonfinancial Measures and Substantive Tests of Accounts Payable

549

(7)

Verify Mathematical Accuracy;

Confirm Payables;

Test Cutoff;

Test for Unrecorded Liabilities;

Perform Analytical Procedures;

Presentation and Disclosure

Prepaid Expenses and Accrued Liabilities

556

(8)

Prepaid Expenses;

Accrued Liabilities

Expense Recognition and Earnings Manipulation

564

(4)

Environmental Liabilities: A Case Study in Management and Auditor Incentives

Nonstatistical Sampling in Substantive Tests of Accounts Payable

568

(2)

Assessment of Control Risk;

Selecting a Sampling Plan;

Population, Sampling Unit, and Determination of Sample Size;

Evaluating Results

Computer-Assisted Substantive Tests of Accounts Payable

570

(1)

Summary

570

(13)

PART 4: Auditing Other Cycles and Completing an Audit

583

(172)

Chapter 14: Personnel and Payroll

584

(30)

The Expenditure/Disbursement Cycle: Personnel and Payroll

584

(8)

Personnel;

Payroll Preparation and Distribution;

Internal Control Objectives and Potential Errors or Fraud

Considering Internal Control

592

(4)

Obtain an Understanding

Tests of Controls

Personnel and Payroll

Assess Control Risk

Analytical Procedures: Payroll and Accruals

596

(1)

Payroll, Post-Retirement Benefits, and Earnings Manipulation

597

(4)

Capitalized Payroll Costs: Safety-Kleen

Post-Retirement Benefits Other Than Pensions

Summary

601

(13)

Chapter 15: Inventory and Fixed Assets

614

(60)

The Conversion Cycle

614

(3)

Inventory: An Introduction;

Fixed Assets: An Introduction

Inventory and Internal Control

617

(5)

Inventony Control;

Inventory Accounting;

Internal Control Objectives and Potential Errors or Frauds: inventory

Fixed Assets and Internal Control

622

(5)

Fixed Asset Records;

Additions;

Disposals;

Depreciation;

Internal Control Objectives and Potential Errors or Frauds: Fixed Assets

Considering Internal Control: Inventory

627

(5)

Obtain an Understanding;

Tests of Controls: Inventory; Assess Control Risk

Considering Internal Control: Fixed Assets

632

(5)

Obtain an Understanding;

Tests of Controls: Fixed Assets;

Assess Control Risk

Financial Statement Assertions and Audit Procedures

637

(2)

Existence or Occurrence;

Completeness;

Rights and Obligations;

Valuation or Allocation;

Presentation and Disclosure

Substantive Tests of Inventory

639

(7)

Observe Physical Inventory;

Confirm Off-Premise Inventory;

Test Final Priced Inventory;

Test Cutoff;

Perform Analytical Procedures;

Review Financial Statement Disclosures

Substantive Tests of Fixed Assets

646

(5)

Verify Accuracy of Recorded Fixed Assets;

Test Additions and Disposals Since Interim;

Test Cutoff;

Verify Accuracy of Depreciation Expense;

Perform Analytical Procedures;

Review Financial Statement Disclosures

Management Discretion and Write-Downs of Impaired Assets

651

(3)

Management and Auditor Incentives;

Discretionary Write-Downs;

Audit Judgment: Accounting, Liability, and Ethics

Computer-Assisted Substantive Tests of Inventory and Fixed Assets

654

(3)

Assurance Services

657

(1)

Summary

658

(16)

Chapter 16: Investments, Debt, and Equity

674

(46)

The Financing Cycle

674

(9)

Investments;

Debt;

Equity;

Internal Control Objectives and Potential Errors or Frauds: Investments, Debt, and Equity;

Considering Internal Control in the Financing Cycle

Financial Statement Assertions and Audit Procedures

683

(4)

Existence or Occurrence;

Completeness;

Rights and Obligations;

Valuation;

Presentation and Disclosure

Substantive Tests of Investments in Marketable Securities

687

(5)

Verify Mathematical Accuracy and Examine Documentation;

Confirm or Physically Inspect Securities;

Test Cutoff;

Review Valuation;

Perform Analytical Procedures;

Review Financial Statement Disclosures

Substantive Tests of Long-Term Debt

692

(5)

Verify Mathematical Accuracy and Examine Documentation;

Confirm Bonds, Loans, and Notes Payable;

Examine Bond Indentures and Other Long-Term Indebtedness Agreements;

Recalculate Interest and Amortizations;

Perform Analytical Procedures;

Review Financial Statement Disclosures

Substantive Tests of Capital Stock, Retained Earnings, and Earnings per Share

697

(5)

Verify Shareholders' Equity Balances;

Review Stock Issuances, Stock Dividends, and Stock Splits;

Review Treasury Stock Transactions;

Verify Recorded Dividends;

Recalculate Earnings per Share;

Perform Analytical Procedures;

Review Financial Statement Disclosures

Management Discretion in Accounting for Financial Instruments

702

(2)

Management and Auditor Incentives;

Accounting for Financial Instruments: A Case Study;

Audit Judgment: Accounting, Liability, and Ethics

Assurance and Consulting Services Related to Investments

704

(1)

Summary

705

(15)

Chapter 17: Completing an Audit

720

(35)

Substantive Tests of Revenue and Expense Accounts

721

(2)

Tests of Details;

Analytical Procedures

Auditing Accounting Estimates: Loss Contingencies and Fair Value

723

(5)

Evaluating Accounting Estimates;

The Panel on Audit Effectiveness;

Loss Contingencies;

Searching for Loss Contingencies;

Auditing Fair Value

Completing an Audit

728

(10)

Related-Party Transactions;

Subsequent Events Review;

Type I Events;

Type II Events;

Borderline Cases;

Procedures in the Subsequent Period;

Disclosure;

Inquiry of Client's Legal Counsel;

Obtain a Management Representation Letter

Forming an Opinion

738

(2)

Analytical Procedures as an Overall Review;

Audit Documentation Review;

Obtain an Independent Technical Review

Communication with Audit Committees

740

(2)

Auditor Communications to the Audit Committee;

Audit Committee Questions Posed to the Auditor

Subsequent Discovery of Facts Existing at Report Date

742

(2)

Client Makes Disclosure;

Client Refuses Disclosure

Consideration of Omitted Procedures after the Report Date

744

(1)

Summary

744

(11)

PART 5: Other Assurance and Attestation Services, Compliance and Internal Auditing

755

(37)

Chapter 18: Other Assurance and Attestation Services

756

(36)

Assurance Services

757

(6)

Electronic Commerce Assurances: WebTrust and SysTrust;

Health Care Assurances and Core Competencies

Attestation Services

763

(17)

Compilations and Reviews of Unaudited Financial Statements;

Interim Financial Statements;

Comprehensive Bases of Accounting Other Than GAAP;

Specified Elements, Accounts, or Items of a Financial Statement and Nonfinancial Statement Assertions;

Reports on Compliance with Contractual Agreements or Regulatory Requirements;

Letters for Underwriters;

Financial Forecasts and Projections;

Personal Financial Statements;

Reports on the Application of Accounting Principles

Summary

780

Chapter 19: Compliance and Internal Auditing (found online at http://ricchiute.swlearning.com)

Glossary

792

(10)

Index

802

Amazon no longer offers textbook rentals. We do!

Auditing

Auditing

9780324226294

0324226292

Summary

Table of Contents

Supplemental Materials

Write a Review

Amazon no longer offers textbook rentals. We do!

Auditing

Auditing

9780324226294

0324226292

Summary

Table of Contents

Supplemental Materials

Write a Review

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