Accounting

To the Stockholders of EarthWear Clothiers Introductory paragraph: We have audited the consolidated balance sheets of EarthWear Clothiers as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the […]

Financial Statement Auditing mes32502_ch01_001-034.indd 22 09/30/15 02:33 PM The financial statement audit report concludes with the manual or printed signature of the CPA firm providing the audit and with the date of the report. The audit report date indi- cates the last day of the auditor’s responsibility for the review of significant events that have

The Audit Process Now that we have explained some of the fundamental concepts of auditing, let’s summarize the logical thought processes underlying a financial statement audit and then walk through the major phases of an audit. Be sure and take some time here—a thorough understanding of this section will be a great help to you

Inferences Based on Limited Observations Inferences Based on Limited Observations Final PDF to printer Chapter 1 An Introduction to Assurance and Financial Statement Auditing 17 mes32502_ch01_001-034.indd 17 09/30/15 02:33 PM on previous audits, understanding of the client’s internal control system, and knowledge of the client’s industry, is aware of items in an account balance that

Fundamental Concepts in Conducting a Financial Statement Audit An Overview of the Financial Statement Auditing ProcessF I G U R E 1 – 3 Terms of Engagement Implements internal controls Conducts transactions Accumulates transactions into account balances Prepares financial statements Issues financial statements to users Obtains evidence Tests management assertions against criteria (GAAP) Determines overall

Auditing Attest Assurance Final PDF to printer Chapter 1 An Introduction to Assurance and Financial Statement Auditing 13 mes32502_ch01_001-034.indd 13 09/30/15 02:33 PM While different types of “criteria” might be available in various settings, generally accepted accounting principles usually serve as the basis for evaluating management’s assertions in the context of a financial statement audit.

Auditing Consider the following formal definition of auditing: Auditing is a systematic process of objectively obtaining and evaluating evidence regarding asser- tions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.5 Let’s discuss this definition in plain English. The phrase

Auditing, Attest, and Assurance Services Defined Accounting professionals can provide assurance about the reliability and relevance of infor- mation given by one party to another. The broadest category of such services is simply called assurance services. Attest services are a subset of assurance services, and auditing is a type of attest service. Many times these

Summary of Management Assertions by Category Assertions about classes of transactions and events for the period under audit: • Occurrence—transactions and events that have been recorded have occurred and pertain to the entity. • Completeness—all transactions and events that should have been recorded have been recorded. • Authorization—all transactions and events have been properly authorized.*

Assurance and Financial Statement Auditing mes32502_ch01_001-034.indd 10 09/30/15 02:33 PM significantly reducing the cost of capital. In fact, studies indicate that audits save companies billions of dollars in costs of obtaining capital; for example, by getting lower interest rates on loans and selling stock at higher prices. Given that the seller of stocks and bonds