Professional Documents
Culture Documents
CH 7
CH 7
2 Auditing-II
TYPES OF AUDITING
Objective Audit Type Standards
Financial Financial AICPA: GAAS
statement statement
audit
Compliance Financial GAO: GASB
Performance
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COMPLIANCE AUDITS:
Government Entities
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COMPLIANCE AUDITS:
Other Examples
Compliance with:
Minimum wage laws
Employee benefits programs
Commercial bank lending agreements
Special engagements
Hazardous waste trust fund
State-sponsored health insurance program
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RESPONSIBILITIES
UNDER GAAS
Responsibility for detecting violations of
laws, regulations identical to
responsibility for client error, fraud
Assess risk of violations creating material
misstatements
Design procedures to detect anticipated
violations
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EFFECTS OF LAWS,
REGULATIONS
Management responsible for identifying
laws, regulations having direct, material
effect on financial statement
Auditor designs procedures to detect
violations
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COMPLIANCE & INTERNAL
CONTROL
Compliance audit requires auditor to
Understand internal controls
Assess control risk
Obtain knowledge about design,
performance of internal control policies,
procedures
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GOVERNMENT AUDITING
STANDARDS
Written by GAO
GAGAS
AICPA 10 GAAS
Standards related to
Independence & Quality control
Audit documentation
Legal, regulatory requirements
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GOVERNMENT FINANCIAL
AUDITS: Financial Statement Audits
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GOVERNMENT FINANCIAL
AUDITS: Financial-Related Audits
Financial-related audits determine
whether
Financial reports, related items fairly
presented
Financial information in accord with
established, stated criteria
Entity adhered to financial compliance
requirements
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GOVERNMENT
PERFORMANCE AUDITS
Economy & efficiency audits determine
whether
Entity acquires, protects, uses resources
economically & efficiently
Causes of diseconomies, inefficiencies
Compliance with laws, regulations related
to efficiency
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GOVERNMENT PROGRAM
AUDITS
Program audits determine
Extent to which program achieves
results, benefits
Effectiveness of organization,
program, activity, function
Compliance with laws, regulations
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REPORTING ON
COMPLIANCE
Positive assurance on tests for
noncompliance
Description of material instances of
noncompliance, if any
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REPORTING ON INTERNAL
CONTROL
Government auditing standards require
report on internal control in all
governmental financial audits to
Describe costs, benefits, objectives,
limitations of internal control
State that auditor assessed control risk
Describe deficiencies in internal control not
considered reportable conditions
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SINGLE AUDIT ACT
Audit coverage
All governmental units that
receive any federal assistance
Reporting requirements for
governments receiving over
$300,000
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SINGLE AUDIT ACT:
Reports
5 additional reports required on
Compliance with General Requirements
Major Program compliance with specific
requirements
Nonmajor Program compliance with
specific requirements
Schedule of Federal Financial Assistance
Internal controls over Federal Financial
Assistance
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SINGLE AUDIT ACT:
General Requirements 1
9 general requirements
Involve significant national policy
Could materially effect entity’s financial
statements
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SINGLE AUDIT ACT:
General Requirements 2
Political activity
Davis-Bacon Act: labor rates
Civil Rights
Cash Management
Relocation assistance, real property acquisition
Federal Financial Reports
Allowable cost/cost principle
Drug-free workplace
Administrative requirements
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SINGLE AUDIT ACT:
Specific Requirements 1
Major programs
Types services allowed, not allowed
Eligibility
Matching, level of effort, earmarking
Reporting
Special tests & provisions
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SINGLE AUDIT ACT:
Specific Requirements 2
When transactions from nonmajor
programs are tested
Compliance with applicable laws,
regulations
Allowability program expenditures
Eligibility
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INTERNAL AUDITING
Internal auditing is an independent, objective
assurance, consulting activity designed to add
value, improve organizations operations.
It helps organization accomplish objectives by
bringing systematic, disciplined approach to
evaluate, improve effectiveness of risk
management, control, governance
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INTERNAL AUDITING:
Independence, Objectivity
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OPERATIONAL AUDITING
Verification of data
Appraisal of controls
Compliance with policies, plans,
procedures
Protection of assets
Appraisal of performance
Recommendations for operating
improvements
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SCIENTIFIC METHOD &
OPERATIONAL AUDITS
Scientific Method Operational Audit Function
Recognize problem Become familiar with activity to be
reviewed
Formulate hypothesis Hypothesis: control operating
properly relevant to objective
Gather evidence to test Select procedures; gather evidence
hypothesis
Evaluate evidence Evaluate evidence
Develop conclusions Report
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AUDITOR’S CONSIDERATION
INTERNAL AUDIT FUNCTION
SAS 65
Guidance on
Considering work of internal auditors
Using internal auditors to provide direct
assistance
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UNDERSTANDING
CONTROLS: Internal Auditor
Auditor should obtain understanding of internal
audit function as part of assessment of control
risk
Organizational status
Adherence to professional standards
Internal auditor’s audit plan
Access to records; limitations on scope of activities
Charter or mission statement
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ASSESSING COMPETENCE,
OBJECTIVITY: Internal Auditor
SAS 65 requires independent auditor to
review competence, integrity of internal
auditor
Education, experience, certification,
continuing education
Audit policies, programs, procedures
Practices for assigning internal auditors
Quality work paper documentation
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RELIANCE ON INTERNAL
AUDITORS
Independent auditor can rely on
internal auditor after evaluating his/her
work for
Understanding internal control
Assessing risk
Performing substantive procedures
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