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An Introduction to the Audit Standards
Are you thinking about joining the auditing profession? Or are you new to the auditing world? If so, understanding the audit process (and audit standards) can feel like one of Earth’s greatest mysteries! Are you dealing with PCAOB standards? U.S. GAAS standards? What are the responsibilities of an auditor? Well, we’re here for you! We have an Introduction to Audit course collection that will answer all your questions!
Audit overview
The purpose of an audit is to provide users of the financial statements (e.g., investors and other stakeholders) with an opinion from the independent auditor. The auditor’s opinion concludes on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework (e.g., U.S. GAAP or IFRS). An audit is NOT double checking management’s math.
In order to form an opinion on whether the financial statements are presented fairly, auditors must plan and perform an audit that obtains reasonable assurance – that is a high level! – that the financial statements, as a whole, are free of material misstatement due to error or fraud. Not only does this mean testing the mundane and ordinary transactions (hello, cash confirmations!), but also digging into the subjective areas, the judgmental areas, the risky areas, and evaluating management’s processes, inputs, and assumptions, to ensure that each would yield an output that is consistent with the reporting framework being applied (hello, impairment testing, valuations, and allowances!).
Stages of an audit
How does the audit team accomplish this virtuous (and sometimes seemingly monumental) task? Through a well-planned, well-performed, and well-documented audit! For audits of private entities, this means applying the AICPA’s Auditing Standards Board’s (ASB) Statements on Auditing Standards (SAS) (i.e., U.S. GAAS). For audits of public companies, this means applying the PCAOB’s Auditing Standards. Whatever guidance you’re applying, at a very high level, these are the different stages of an audit:
- Identifying and assessing the risks of material misstatement – This is typically performed through obtaining and documenting a thorough understanding of management’s processes, including its control environment. While we highlight this step as one of the first stages, it is important to remember that risk assessment is iterative and should always be revisited constantly throughout the audit!
- Planning the nature, timing, and extent of procedures to be performed: Remember, as risk rises, this should have a direct impact on the nature, timing, and extent of procedures to be performed.
- Perform procedures that are responsive to the risks identified: This is where we get the all-important audit evidence that supports our audit opinion! The higher the quality of audit evidence we obtain, the less we will need additional corroborative evidence. Evidence can come from test of controls, test of details, substantive analytical procedures, or a combination of them all.
- Evaluate and conclude on the evidence obtained: Did the audit team obtain sufficient appropriate audit evidence to support the opinion? Did the audit conclude on their test work? Is it all retained appropriately in accordance with the applicable auditing standards?
Audit quality has been at the forefront of the financial news landscape of late. The PCAOB (who sets the auditing standards for external auditors of public companies) inspects public company auditors to ensure audits are up-to-snuff. Lately, their findings have shown perhaps we are all a bit rusty on our auditing requirements. In fact, audits with deficiencies rose, for the second year in a row, to 40% in 2022, up from 34% in 2021 and 20% in 2020!
If you’re like me and you could use a reminder of the audit standards requirements (under either U.S. GAAS or PCAOB), look no further! We recently released the following courses to provide you and your team a holistic view of the audit:
Introduction to audit and the independent auditor
Do your friends think you do taxes for a living even though you’re a financial statement auditor? Do you, as a financial statement auditor, understand the purpose of your job and the various requirements that come along with it?
In this CPE eligible (1.0 hour) eLearning course, we focus on the purpose of a financial statement audit and the numerous responsibilities of a financial statement auditor as prescribed by both PCAOB and U.S. GAAS auditing standards, including what it means to be “independent”. Additionally, we introduce the various risks that a financial statement auditor must consider and address.
Audit planning and materiality
Behind every successful audit is a well-designed planning process. So, what are the key elements of planning that produce an effective audit? Find out the formula for a successful “audit method” in this CPE-eligible (1.0 CPE) eLearning course. This course details the planning requirements under the auditing standards and explains the role of materiality in planning an audit, including how audit risk and materiality impacts the nature, timing, and extent of procedures performed during the audit. Materiality requirements under the auditing standards are also discussed.
Audit evidence
“Sufficient appropriate audit evidence” is a phrase mentioned by U.S. GAAS (AU-C Section 500), International Auditing Standards (ISA 500), and PCAOB Auditing Standards (AS 1105). We know it is critical to be able to conclude that we, as auditors, have obtained enough evidence to provide a basis for our audit opinion. But what does this mean? Is it judgmental? Or formulaic? What can be considered audit evidence? What are the key attributes of good audit evidence?
In this 1.0 CPE-eligible eLearning course, we’ll explore the answer to those mysteries and more as we take a closer look at the definition of audit evidence, how much audit evidence is required, and how to tell if it is relevant and reliable. You’ll consider the interaction between audit evidence and financial statement assertions, specific audit procedures, selecting items for testing, and you’ll even explore evidence obtained from others. This course is a must for any auditor, whether auditing under U.S. GAAS or PCAOB audit standards!
Supervision, audit documentation, and review
Fundamental to any quality audit is the supervision of the engagement, the thoroughness of audit documentation, and the careful review of the audit work performed and documented. In this CPE eligible (1.0 hour) eLearning course, we will explore the considerations around supervision of engagement teams, fundamental requirements for audit documentation, and key concepts for reviewers, including the engagement quality control reviewer.
About GAAP Dynamics
We’re a DIFFERENT type of accounting training firm. We view training as an opportunity to empower professionals to make informed decisions at the right time. Whether it’s U.S. GAAP, IFRS, or audit training, we’ve trained thousands of professionals since 2001, including at some of the world’s largest firms. Our promise: Accurate, relevant, engaging, and fun training. Want to know how GAAP Dynamics can help you? Let’s talk!
Disclaimer
This post is for informational purposes only and should not be relied upon as official accounting guidance. While we’ve ensured accuracy as of the publishing date, standards evolve. Please consult a professional for specific advice.
