Chapter.

1: The Assurance Services Market

 Introduction: This course provides Business Students With a

comprehension basis for understanding audits of financial statement
performed by external auditor particularly for public companies.
 Public companies: is a corporation that its capital is divided
into shares & usually owned by large number of shareholders
who authorize a professional management to manage their
capital.

The role of auditing & Meaning of auditing

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Auditing: is the accumulation and ovulation of information
(evidence).
 As done by auditors that should be:
1) Competence.
2) Independent.
3) Judgment and experience. (Judgment based on criteria).
 Note:
Two authorities for making auditing standards
* FASB (American) * IASB (International)

 Evidence: is any information used by the auditor to do his

audit & it could be:
 Transaction data.
 Client inquiry.
 Written and electronic communications with out sides.
 Observations.
 Note:
 The evidence should be «appropriate evidence»
«sufficient evidence»

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the auditor must be:
1- Competence auditor: (Qualifications & training)
2- Independent in mental attitude
(The auditor can't accept any gifts from client)
3- Judgment & experience
(The auditor must be qualified to understand the criteria)
 The final stage, is preparing the audit report to the users.
- Accounting and auditing:
 Accounting: is the recording, classifying and summarizing of
economic events for the purpose of providing financial
information used in decision making.
 Auditing: is determining whether record information
properly reflects the economic events that occurred during the
accounting period.

Information Risk
the possibility that the information upon which the business risk
decision was made was inaccurate.
A likely cause of the information risk is the possibility of
inaccurate finical statements.
 Note:
Company's management has incentive to make the business
appear better than it actually may be, so users demand an
independent (external) third party assessment of the information.
 Causes of information Risk.
Because today's information is:
1) Demanded remote (far) users:
In a global economy, it is nearly impossible for decision maker
to have much first hand knowledge about the org.

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 2) Biases and motives of the provider:
If information is provided by some one whose goals are in
consistent.
3) Voluminous data:
As organization become large, so does the volume of their
exchange transactions. This in crease the Risk of information.
4) Complex exchange transactions:
Events and transactions in today's economy are numerous &
complex and there fore more difficult to record properly.
 Reducing Information Risk:
1) User verifies information.
2) User shares information risk with management.
3) Audited financial statements.
Relationships among Auditors, Client, and external users

Services the auditor can provide:

 Assurance Services.
 Non- Assurance Services.
 Assurance Services:

1) attestation Services:
the co. claim something, the auditor check its quality and give
judgment.

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Attestation services fall into 5 categories:
 Audit of financial statement.
 Audit of internal control.
 Review of financial statement.
 Attestation services on information technology.
 Other Attestation services may be applied to any subject
matter.

2) other assurance services:

The CPA is not required to issue a written report (anything
related to the co.)
Examples:
 ISO 900 Certification
 Environnemental audit.
 Compliance with trading policies and procedures
From that:
The main target of assurance services is to improve the quality of
any information that the decision makers depend on it.
 Non- Assurance Services.
1- Accounting and book keeping services.
2- Management consulting services.
3- Tax services.

Types of audits
operational auditing:
 evaluates the efficiency and effectiveness of any part of an
organization's operating procedures and methods.
 EX: Computerized pay roll system.
 Established criteria: company standards for efficiency and
effectiveness in pay roll dep.
 Evidence: reports, payroll records, payroll processing costs.

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Compliance auditing:
 To what extent the auditee compliance with regulations and
laws.
 Ex: company records.
 Established criteria: loan agreement provisions.
 Evidence: financial statements and calculations by the
auditor.
Financial statement auditing:
 * determine whether the F.S are stated in accordance with
specific criteria.
 * Ex: Annual audit of the co.'s F.S
 * Established criteria: GAAP
 * Evidence: Documents, records, outside sources of evidence.

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 Ch.6: Audit responsibilities & objectives

 The auditor role ( objective ) :-

Express an opinion about the fairness of F.St by obtaining a
reasonable assurance that F.St are free of material misstatement
according to standards.
 Note:-
Professional skepticism: I should think in what the
Mgt. give me.

 Reasonable assurance :-
 The auditor can't examine the whole population.
 So, he takes a sample.
 So, his opinion based on sample.
 So, there is some errors.

 Material misstatements :-
Material: significant misstatement that may affect
the F.St users decisions.

Misstatement :
Error: unintentional misstatement.
Fraud: intentional misstatement.
 Illegal act: violation of laws or governmental
regulations.

 To perform the previous responsibilities the auditor

should :-

1) Divide F.St into cycles .

2) Know the mgt. assertions about f.st.
3) Know the general audit objectives.
4) Know specific audit objectives.

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 how dividing F.St into cycles ???
a) Financing from debt and equity.
b) Cash used to purchase raw materials , assets ….etc.
c) Goods are in warehouse as inventory.
d) Selling inventory ( sales)
e) Obtain cash after sale.
f) Use cash in :-
 Repay loans. Acquire new assets Pay salaries.

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