Suggested Readings

Chapter 1:  Alvin, A. Elder and Beasley (2017) Auditing

and Assurance Services - an Integrated
Nature of Auditing Approach, 16th edition, Pearson, USA,
Chapter 1 and 2.
 Nguyen Quang Quynh, Nguyen Thi Phuong
Hoa at al, (2008), Auditing Theory,
National Economics University Publisher,
Chapter 2.

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Learning objectives
 Definition of auditing and nature of auditing
 Describe assurance services and distinguish OBJECTIVE 2-1
audit services from other assurance and Nature of auditing
nonassurance services
 Factors affecting the demand of auditing
 Demand for auditing

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 What is an audit – Nature of Five key components of auditing
auditing
 Auditing is the accumulation and 1.Information (subject matter):
evaluation of evidence about quantifiable and subjective
information to determine and information
report on the degree of 2. Criteria: established criteria
correspondence between the
information and established 3. Evidence gathering and evaluation
criteria. 4. Competent, independent person
 Auditing is done by a
5. Reporting
competent, independent person.
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Information and established ACCUMULATING AND EVALUATING

criteria
To do an audit, there must be information in a
verifiable form and some standards (criteria) by
which the auditor can evaluate the information.
EVIDENCE
Evidence is any information used by the auditor
to determine whether the information being
audited is stated in accordance with established
criteria.

FASB
Criteria IASB Client
Communications
Testimony
with Outsiders
Transaction
Data Observations

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 Reporting
Competent, independent person

Competence Independence The final stage in the auditing process is

preparing the audit report, which
Evaluation of communicates the auditor’s findings to
Evidence users.

Proper Conclusion

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Audit of Financial Statements Study break 1

 Alex LLP is the external auditor of Green plc, a
listed company. The directors of Green plc
Manager The
Auditors
have requested that Alex LLP carry out audit of
financial statement to assess information in FS
Prepares Criteria Gathers in the compliance with international accounting
Financial (e.g., GAAP)
Statements
Evidence standards .

Issues
 Required: Select which part of the
Report engagement description constitutes: Verified
information, suitable criteria and
Financial
responsible party (auditee) and auditor
The Auditors’
Statements Report (practitioner).

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*Applicable financial reporting framework

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 Study break 2 Distinction between
accounting and auditing
 The internal auditor conducts the audit of
assessing effectiveness of internal control at a
casino which is in compliance with federal and  What is accounting?
state regulations.
 What is auditing?
 The government auditor performs the audit of
federal income tax return of corporation to  Who is responsible for accounting
determine whether the tax law have been or auditing?
followed
 Can
an auditor do both for the
Required: Identify the key elements of these
engagement in these situations.
same company?

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OBJECTIVE 2-2
Describe assurance services and distinguish
audit services from other assurance and
nonassurance services provided by CPAs.
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Assurance services
 An assurance service is an independent
professional service that improves the
quality of information for decision
makers.
 Assurance services can be provided by
CPAs or other professionals.
 Assurance services by CPAs have been
common for years, especially regarding
historical financial statement information.
 Section 404 of the Sarbanes-Oxley Act
now requires assurance regarding
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companies.

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 Attestation services
An attestation service is a type of service in
which the CPA issues a report about a
subject matter or assertion that is made by
another party.
Primary categories of attestation services
include:
• Audits of historical financial statements
• Audits of internal control over financial
reporting
• Reviews of historical financial statements
• Other attestation that may be applied to a
broad range of subjects
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Other assurance and nonassurance
services
Other assurance services do not meet the
definition of attestation services. A written
report is not required, and it need not be about
reliability or compliance.
Nonassurance services: CPA firms perform
numerous other services that generally fall
outside the scope of assurance services. Three
specific examples are:
1. Accounting and bookkeeping services
2. Tax services
3. Management consulting services
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OBJECTIVE 2-3
Demand for auditing

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 Demand for audits
Demand for audits

 Remoteness of information  Remoteness of information: Decision makers

do not have firsthand knowledge and must rely
 Bias and motives of provider
on information provided by others.
 Voluminous data  Biases and motives of the provider:
 Complex exchange transactions Information is provided by someone whose
goals are inconsistent with those of the decision
maker and may be biased.

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Demand for audits The role of auditing

 Auditing can reduce information risk,

 Voluminous data: Higher volumes of and increase confidence of users of FS
transactions increase the likelihood of audited
undetected errors.
Eg: The independent audit provides
 Complex exchange transactions: Transactions assurance to users with respect to the
are increasingly complex and more difficult to
credibility of the financial statements
record properly. Complex accounting standards
are difficult to interpret and apply.

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 The role of auditing
The role of auditing
 Auditing
can enhance financial
management
 Auditingcan improve efficiency &
effectiveness of the organization audited

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OBJECTIVE 2-5
Historical development of auditing
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Historical development of
auditing – Prior to 1840
 In ancient times:
 Early stages of the ancient period: not
existed auditing
 At the end of ancient period: The ownership
and control are separately.(The ancient
checking activities were found in Greece
around 350 B.C. )
 A single public officer was appointed to find
fraudulent actions (embezzlement,
corruption, administrative errors,…).
Examination result was used by court to fine
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the person who did fraudulent actions.

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 Historical development of
auditing – Prior to 1840
 In Middle ages:
 In 1494, “double entry book - keeping”
was published by Luca Pacioli
 The merchants of Florence, Genoa,
Venice used auditors to help them
verify the riches brought by captains of
sailing ships and detect of fraud.
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Historical development of
auditing – 1840s to 1920s
 The advent of the industrial revolution
in the UK made vast changes in
company’s scale and nature of
operations
 The share market during this period was
unregulated and highly speculative
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 Historical development of
auditing –1920s to now
 The advancement of the securities market
facilitated the development of auditing
 In 1934, SEC required that all listed
companies have financial statements
audited by an independent auditor
 From 1960s – 1990s, the provision of
advisory services emerged as a secondary
audit function.
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Historical development of auditing
 1920s to now
 Audit function focuses on assessing
the truth and fairness of the
companies’ financial statements
 Furthermore, auditing provides
advisory services to audit’s client.
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Historical development of auditing
 Prior to 1840
The audit objective in the early period was
primarily designed to verify the honesty of
persons charges with fiscal responsibilites
 1840s – 1920s
This period prefers to period of “auditing
stagnation”
 1920s to now
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Historical development of auditing
– in Viet Nam
 In 1991, independent auditing emerged
 In 1994, Vietnamese State Audit was
established
 In 1996, internal auding was firstly regulated
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