ACCOUNTING Auditing and Assurance Services Fall 2009

Transcription

1 1 of 10 ACCOUNTING Auditing and Assurance Services Fall 2009 Instructor: Zabihollah (Zabi) Rezaee, PhD, CPA, CMA, CIA, CFE, CGFM Thompson-Hill Chair of Excellence/Professor of Accountancy, Former member of the Standing Advisory Group of the PCAOB Classes: TR: 5:30pm-6:55 pm, FCB, Room 267 Office: Room FCB, 216 Office Hours: Contact: Webpage: TR: 4pm-5:30pm and by appointment (phone) ( ) Textbook: Auditing and Assurance Services, 3 rd ed., Timothy J. Louwers, Robert J. Ramsay, David H. Sinason, and Jerry R. Strawser COURSE OBJECTIVE: ISBN# 13: The objective of the course is to develop an understanding of the responsibilities and functions of auditors in the communication of financial information, including the integrated audit of internal control over financial reporting and financial statements, as well as to develop practical application of auditing concepts, standards, and techniques. The AAA (American Accounting Association) committee on basic auditing concepts defines auditing as a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communication the results to interested users. Generally accepted accounting principles (GAAP) provide established criteria for judging the quality of financial information. Public Company Accounting Oversight Board (PCAOB) standards and generally accepted auditing standards (GAAS) provide established criteria for assessing the quality of audit and judging the adequacy of the systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events. The wave of financial scandals of the late 1990s and the early 2000s eroded investor confidence in corporate America and its financial reporting and audit functions. Congress responded with the passage of the Sarbanes-Oxley Act of National stock exchanges (NYSE, NASDAQ, AMEX) issued corporate governance guiding principles. The PCAOB was created to monitor and discipline the auditing profession, and issue auditing, attestation, and ethics standards for public accounting firms that audit the financial statements of public companies. These responses to the financial scandals established new corporate governance reforms, which provide public companies, their executives, boards of directors, audit committees, internal auditors, external auditors, legal counsel, financial analysts, and investment banks with a set of new challenges and opportunities to improve their performance and hold themselves accountable for their

2 2 of 10 actions. Independent auditors play an important role in ensuring vigilant corporate governance, effective internal controls and reliable financial reports which will be discussed in this course. This course is primarily a theory course, as opposed to a problem-solving course. Upon completion of this course, the student will be expected to: 1. Understand the role of independent auditors in our society. 2. Understand generally accepted auditing standards (GAAS). 3. Know PCAOB auditing standards. 4. Learn the integrated audit of both internal control over financial reporting and financial statements. 5. Know the basic principles and concepts of auditing including the differences between financial, compliance, and operational audits. 6. Distinguish between internal and external audits. 7. Evaluate internal controls. 8. Understand and use appropriate statistical sampling and quantitative techniques and prepare audit programs. 9. Communicate effectively both orally and in writing. 10. Understand the purposes and relationships of audit committees. 11. Understand the basic principles concerning the administration of the internal and external audit function. 12. Present audit procedures used by public accounting and industrial firms. 13. Prepare for professional examinations such as CPA, CMA, CIA, and CFE. 14. Apply auditing theory to a simulated case using the computer to produce audit work papers. 15. Learn audit activities, including attestation services and assistance services. 16. Apply audit procedures to electronic commerce and real-time accounting systems. 17. Understand electronic and continuous auditing. 18. Understand the regulatory framework of the auditing profession, including the PCAOB. 19. Understand corporate governance, financial reporting, and audit function provisions of the Sarbanes-Oxley Act of Understand the role of auditors in preventing, detecting, and correcting financial statement fraud. CLASS ATTENDANCE: Daily attendance may not be taken. However, the instructor strongly recommends regular attendance since class presentation will clarify and sometimes add to textbook information. Students will be held responsible for all information covered in class. NONATTENDANCE IS AT THE STUDENT S OWN RISK!

3 3 of 10 DROP POLICY: It is the student s responsibility to comply with university regulations for course changes, withdrawals, etc. The last day to drop the course with a grade of W is September 12, Students will not be able to withdraw from the class with a grade of W after that date. AMERICANS WITH DISABILITIES ACT (ADA): If you have a disability, as defined by the ADA, that might impair your performance in this course, please inform me during the first week of class. BASIS FOR STUDENT EVALUATION: WEIGHT OF ELEMENTS POINTS Cases/presentations 100 Term Paper 100 Tests (four exams) 600 Total 800 GRADING SCALE A = B = C = D = F = 0-59 CLASS PARTICIPATION: Your participation in classroom discussions is essential for a stimulating exchange of ideas and a significant learning experience. The extent and quality of your participation should reflect the extent and quality of your preparation; so your participation will have an important influence on your course grade. Be prepared for each class. READING ASSIGNMENTS: The course will be structured as indicated by the sequence of topics in the assignment schedule. Two or three types of readings are assigned for each topic. The chapters in the assignment schedule refer to Auditing and Assurance Services, 3 rd ed. by Louwers, Ramsay, Sinason, and Strawser. The reading material is technical, and some sections will require more than one reading to attain the level of comprehension necessary to successfully complete this course. Therefore, the additional types of readings are Professional Standards, contemporary articles, and professional publications. Reading assignments are given in the assignment schedule. Related reading assignments are identified by Professional Standards section number (AU, AR, ET, MS, QC, TX and PCAOB AS). AICPA Professional Standards, Vols. A & B, commerce Clearing House, Inc., 2001 AU, etc.), and Professional Standards published by the Public Company Accounting Oversight Board (PCAOB) are available at

4 4 of 10 Although not assigned, you may refer to other auditing textbooks (U.S. Master Auditing Guide 3 rd ed. by D.L. Crumbly, Z. Rezaee, and D.E. Zeigenfuss) or a CPA review textbook to improve your understanding of a particular topic. Such references would be particularly appropriate to learn about the selection and application of specific audit procedures in particular circumstances. As a matter of emphasis, the course is concerned with the issue of why audit procedures are applied, as well as how to apply audit procedures. CASES: Cases may be assigned at the professor s discretion. They are shown in the assignment schedule. Your answers to the cases will not be returned to you. These cases are assigned to help you test: (1) your comprehension of the reading material; and (2) your ability to apply auditing concepts and techniques. Honest preparation of solutions to the cases is of vital importance to you. Each student presents at least one case before the class; however, all of the cases will be discussed in class. If you have not previously attempted a solution, then you will not detect those points of difficulty in your reasoning process. Formal solutions are required for all Handout cases as indicated by (H) on the assignment schedule. Each formal solution will receive a grade based on the general quality of your work, including neatness, legibility, effort, organization, and accuracy. TERM PAPER: One of the primary duties of the auditor is the preparation of written reports, which requires the ability to communicate effectively. Therefore, a term paper will be required for the course. The term paper, which is a culmination of research from various sources, gives the student the opportunity to get deeply involved in a single topic, something that is not usually accomplished in most courses. Each paper will receive a grade based on the general quality of your work, including neatness, legibility, effort, originality, practicality, organization, readability, transition, and completeness. 1. The paper should be approximately typed, double-spaced pages. 2. At least six sources from scholarly journals should be used. 3. The paper should be properly footnoted. 4. A bibliography of all works cited is required. 5. The Accounting Review format should be followed, available at: The following term paper topics are suggested for your benefit. Other topics are acceptable provided that they pertain to the subject matter of this course and are approved by the professor. 1. Staff retention in the public accounting firm 2. Competition in auditing 3. Privilege and accountants working papers 4. Ethics in tax practice 5. Materiality and audit risk 6. Evidential planning decisions 7. Internal control evaluation 8. The current state of statistical sampling and auditing 9. Narrowing the expectation gap 10. The accounting profession in the year The role of the Public Oversight Board in the accounting profession s selfregulation program

5 5 of External auditors relationships with the audit committees 13. Accountant s organizational-professional conflict 14. International similarities and differences in the auditor s report 15. Attitudes toward advertising by accountants 16. Communication with audit committees 17. The use of investigative agencies by auditors 18. Energy audits by internal auditors 19. Operational audits at public utilities 20. Operational audits in hospitals 21. Internal auditors relations with the corporate audit committee 22. The use of budgets as internal audit tools 23. Auditing quality control programs 24. How internal auditors reduce external audit costs 25. An operational audit of engineering 26. Internal audit peer reviews 27. Social responsibility audits 28. The use of statistical sampling by auditors 29. An audit of current liabilities 30. An audit of insurance coverage 31. An audit of inventory management 32. An audit of legal liability 33. Auditing R&D departments 34. Auditing scrap, salvage, and waste 35. Auditing EDP departments 36. Auditing credits and collections 37. The use of quantitative methods by auditors 38. External auditors reliance on internal auditors 39. Development of internal auditing at a specific company 40. An analysis of GAO audit reports 41. Auditing of small businesses (GAAS and the small business audit) 42. Prospective reporting and small business clients 43. Public service and the profession 44. Compatibility of auditing independence and management service (MAS) 45. The accounting profession: ethics, responsibility, and liability 46. Governmental audit standards 47. The auditor s analytical review 48. The nature of reliability of audit evidence 49. The roles of internal and external auditors in auditing EDP systems 50. Relating statistical sampling to audit objectives 51. Auditing the client s judgments 52. The auditor s approach in corporate tax review 53. Attestation 54. Fraud and ethics 55. Governmental accounting and auditing 56. Expectation gap 57. Environmental auditing 58. Continuous auditing 59. On-line auditing 60. Auditing of an EDI system 61. Auditing of marketable securities 62. Forensic accounting 63. Fraud auditing 64. Auditing of ISO environmental standards 65. Auditing of ISO 9000 quality control standards 66. Real time accounting systems 67. Continuous auditing 68. Electronic auditing 69. Assurance audit services

6 6 of The accounting profession in the new millennium 71. Reporting on internal control 72. Internal control of electronic financial reporting 73. Corporate governance 74. Regulatory framework for the auditing professions (PCAOB) 75. The Sarbanes-Oxley Act of Management report on internal control over financial reporting (Section 404 of SOX) 77. Auditor report on internal control over financial reporting (PCAOB Auditing Standards No. 25) 78. SEC and PCAOB auditor independence requirements 79. Audit committee oversight responsibilities under SOX, SEC, and PCAOB 80. The integrated audit 81. Audit firm rotation 82. Audit of stock-based compensation 83. Convergence in accounting standards 84. Audit decision-making and/or ethics 85. Audit risk or audit evidence 86. Audit history, law, or regulation 87. Audit profession 88. Internal, VFM, or other special audits 89. International audit practice or regulation 90. Reports or opinions 91. Audit control systems or analysis 92. Audit sampling 93. Analytical procedures 94. Other assurance services

7 7 of 10 QUESTIONS: A number of questions have been assigned to help you test your comprehension of the reading material your ability to apply the auditing principles, standards, and concepts. The questions will be the basis for part of the classroom discussions. If you are asked to answer a question, you should feel completely free to refer to the AICPA and PCAOB Professional Standards and/or your notes at any time. So long as you are tactful, you should feel completely free to challenge the accuracy of an answer or seek clarification. EXAMINATIONS: Three in-class tests and a comprehensive final examination will be given as indicated in the assignment schedule. The three tests will contain multiple-choice questions and several essay questions. The essay questions will deal with auditing procedures. The comprehensive final examination will contain multiplechoice questions, essay questions, and short cases. HOW TO STUDY Students often ask how to study for this course to make a good grade. The following tips, as well as resources, can help you ace this course. 1. Know what the professor expects. 2. Be your own teacher. 3. Work hard from the first day. 4. Attend every class. 5. Take good notes. 6. Participate in class. 7. Read the textbook several times. 8. Look for patterns. 9. Do the homework. 10. Study with a friend. 11. Study long and hard for each exam. 12. Live healthfully. Howtostudy.org: How-to-study.com: How to Ace Your Accounting Classes Taken from Keys to effective study: Online Resources

8 8 of 10 ACCT 4240 AUDITING AND ASSURANCE SERVICES ASSIGNMENT SCHEDULE FALL 2009 Z. REZAEE DATE TOPICS TEXTBOOK PROFESSIONAL STANDARDS T 9/1 Introduction Professional Practice Chapter 1 AU 110, 411, 801, 161 PCAOB Interim Professional Standards R 9/3 Auditing and Assurance Services Chapter 1 Questions (pp ) AU 530, 642, 722, 312 AU 8001, AR 100, 410 AT 100, 9100, 210 PCAOB Professional Standards T 9/8 Professional Standards Chapter 2 Questions (pp ) AU 150, 161, 201 AU 210, 220 AU 431, 341, 435, 504 AU 550, 552, 625, 508 AS #1, 2, 3 PCAOB Professional Standards R 9/10 Professional Ethics Module B AU 220, 9326 AU 230, 316, 317 PCAOB Independence Ethics Proposal T 9/15 Legal Liability Module C AU 711, 9711 SOX Provisions R 9/17 Reports on Audited Financial Statements Chapter 12 Questions AU 341, 410, 411, 420 AU 431, 435, 504, 530,

9 9 of 10 T 9/22 Assurance and Other Public Accounting Services (pp ) 543 AU 544, 550, 552, 558, 625 AS #1 Module A Questions A.16 A.29 (pp ) PCAOB AS Nos. 1, 2 AU 722, 544, 622, 623, 324 AU 325, 390, 400 R 9/24 T 9/29 Exam 1 Management Fraud and Audit Risk Chapters 1, 2, 12 and Modules A C Chapter 3 Questions (pp ) AU 310, 311, 313, 315 AU 322, 326, 329, 330, 331 R 10/01 Engagement Planning Chapter 4 Questions (pp ) AU 312, 316, 329, 341, 342, 350 PCAOB AS No. 3 T 10/06 Employee Fraud and Audit of Cash Chapter 6 AU 311, 312, 313, 316, 319 R 10/08 Governmental, Internal, and Fraud Audits Module D Questions D.19 D.34 (pp ) AU 322, 801, 500 T 10/13 Review R 10/15 Exam 2 Chapters 3, 4, 6, and Module D 10/17-10/20 fall break R 10/22 T 10/27 Internal Control Evaluations: Assessing Control Risk Information Systems Chapter 5 Questions (pp ) Module H Questions H.22 H.36 (pp ) AU 319, 325, 326, 339 AS #2 PCAOB AS No. 2 AU 311, 319, 322, 326, 329 R 10/29 Employee Fraud and Audit of Cash Chapter 7 Questions (pp. AU 326, 329, 330, 333,

10 10 of 10 Revenue and Collection Cycle ) 339 T 11/03 Acquisition and Expenditure Cycle Chapter 8 Questions (pp ) AU 311, 312, 316, 319 AU 326, 329, 331, 333, 334 R 11/05 Production and Payroll Cycle Chapter 9 Questions (pp ) AU 311, 312, 316, 317, 319, 326 AU 329, 339 T 11/10 Finance and Investment Cycle Chapter 10 Questions (pp ) R 11/12 T 11/17 Review Exam 3 Chapters 5, 7 10, Module H R 11/19 T 11/24 Overview of Sampling Attribute Sampling Module E Questions E.25 E.45 (pp ) Module F Questions F.24 F.41 (pp ) AU 312, 313, 319, 326, 350 Sentence outline due for term paper. AU 312, 319, 350 T 12/01 Variable Sampling 11/26-11/29 thanksgiving break Module E R 12/03 T 12/08 Test of Balances with Dollar-Value Sampling Module G Questions B.18 B.37 (pp ) Completion of the Audit Chapter 11 Questions (pp ) Last day of classes, 12/9. AU 312, 326, 350 Term paper due. R 12/17 Final exam 5:30pm-7:30pm Chapter 11 & Modules E G Note: A sentence outline for the term paper is due on November 19th, and the term paper is due on December 8th.