The Demand for Auditand Assurance Services,Chapter 1,Assurance Services,Assurance services are professional services that improve the quality of information for decision makers.,Assurance services can be performed by CPAs or by a variety of other professionals.,Attestation Services,An attestation service is a type of assurance service in which the CPA firm issues a report about the reliability of an assertion that is the responsibility of another party.,Other Assurance Services,Most other assurance services do not meet the formal definition of attestation services.,The CPA must be independent.,The CPA is not required to provide a written report.,The CPA must provide assurance.,Assurance Services on Information Technology,There is an increased demand for assurance about computer controls surrounding information transacted electronically and the security of the information related to the transactions., assurance over Web site controls, assurance about information system reliability,Assurance Services on Information Technology,WebTrust is an attestation service, and the WebTrust seal is a symbolic representation of the CPAs report on managements assertions about its disclosure of electronic commerce practices.,Assurance Services on Information Technology,SysTrust is an attest-type engagement to evaluate and test system reliability in areas such as security and data integrity.,Other AssuranceServices Examples,Fraud and illegal acts risk assessment,developing fraud risk profiles and assessing the adequacy of company systems and policies in preventing and detecting fraud and illegal acts.,involves,Assurance, Attestation, and Nonassurance Services,ASSURANCE SERVICES,Other Attestation Services (e.g., WebTrust, SysTrust),Other Assurance Services (e.g., CPA Performance View),Certain Management Consulting,ATTESTATION SERVICES,Audits,Reviews,Assurance, Attestation, and Nonassurance Services,NONASSURANCE SERVICES,Other Management Consulting,Tax Services,Certain Management Consulting,Accounting and Bookkeeping,Auditing Defined,Systematic process Obtaining and Evaluating Evidence To compare Management assertions Recognized criterion Reporting the results of the comparison,Economic Demandfor Auditing,Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate. Information risk this risk the information is inaccurate.,Auditing reduces information risk to a socially acceptable level.,Causes of Information Risk,1. Remoteness of information,2. Biases and motives of the provider,3. Voluminous data,Capital Costs to Shrink Elliotts Example,Assuming a cost of capital of 13%, Elliott estimates this rate is composed of the following:,5.5% risk-free interest rate,3.5% economic risk premium (business risk),4.0% information cost (information risk),Capital Costs to Shrink Elliotts Example,Elliott believes the following factors will drastically reduce information risk:,Advanced technology,New accounting and auditing standards,Auditors finding more efficient ways to audit,Accumulating andEvaluating Evidence,Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.,Competent, Independent Person,The auditor must be qualified to understand the criteria used and must be competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined.,The competence of the individual performing the audit is of little value if he or she is biased in the accumulation and evaluation of evidence.,Reporting,The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditors findings to users.,Audit of Financial Statements,CPA,Examines cancelled checks and other supporting records,Financial Statements,GAAP,Accountants Report,Competent, independent person,Information,Established criteria,Determines correspondence,Accumulates and evaluates evidence,Report on results,Distinction BetweenAuditing and Accounting,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 recorded information properly reflects the economic events that occurred during the accounting period.,Types of Audits,Financial Statement Audit,Operational Audit,Efficiency,Effectiveness,Compliance Audit,Financial Statement Audit,Example,Information,Established Criteria,Available Evidence,Annual audit of Boeings financial statements,Boeings financial statements,Generally accepted accounting principles,Documents, records, and outside sources of evidence,Operational Audit,Example,Information,Established Criteria,Available Evidence,Evaluate computerized payroll system for efficiency and effectiveness,Number of records processed, cost of the department, and number of errors,Company standards for efficiency and e