The Audit Process

Description

The Audit Process provides an essential introduction to the principles and practices of auditing. This accessible textbook guides students through every step of the audit process and provides plenty of opportunities to practise what they are learning. Completely updated in line with the latest standards, regulatory processes and corporate governance, the seventh edition of this comprehensive text is ideally suited for auditing modules taught on undergraduate and postgraduate courses in accounting and finance. Cover Brief Contents Contents Acknowledgements List of Case Studies Index of Legal Cases Preface Chapter 1: Why Are Auditors Needed? Opening Remarks Basic Principles: Introduction through a Simple Case Justification of Audit Introduction to Truth and Fairness in Accounting Basic Audit Framework Some Initial Ideas on an Extended Role for Audit Assurance Services Summary of Principles Definition of an Audit of Financial and Other Information Current Developments Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 2: An Overview of the Postulates and Concepts of Auditing The Importance of Theory and Concepts in Underpinning Auditing Practice The Postulates of Auditing The Concepts of Auditing: Credibility, Process, Communication, Performance Introduction to the Audit Expectations Gap Introduction to Audit Quality Introduction to Corporate Governance Public Interest The Layers of Regulation and Control Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 3: The Meaning and Importance of Auditor Independence: Factors Affecting Independence and Measures to Attain It Introduction Independence and the Role of Audit Definitions of Independence Practitioner and Profession Independence Conflict, Power of Auditor and Client and Effect on Perceived Independence Published Codes of Ethics Audit Firm's Control Environment Safeguards to Counter Threats to Integrity, Objectivity and Independence Small Entities Summary Key Points of the Chapter References and Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 4: Audit Regulation The Need for Regulation The UK Regulatory System The Current Regulatory System The Role of the RSBs and RQBs in the Regulation of Their Members and Registered Audit Firms European Union Influence Appointment, Resignation and Removal of Auditors and the Companies Act 2006 The Statutory and Practical Relationships Rules on Appointment, Removal and Resignation of the Auditor Small Companies Audit Tendering Summary Key Points of the Chapter References Further Reading Suggested Solutions to Tasks Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 5: Corporate Governance Introduction to Corporate Governance Part 1: The Need for Effective Corporate Governance Part 2: Models of Corporate Governance and the UK Corporate Governance Code Models of Corporate Governance The UK Corporate Governance Code Board Committees The UK Stewardship Code Audit Firm Corporate Governance Concluding Remarks on Corporate Governance Summary Key Points of the Chapter References and Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 6: The Risk-Based Approach to Audit: Audit Judgement Why Is a Risk-Based Approach to Audit an Aid to the Auditor? Broad Approach to Minimize Audit Risk A Practical Example Other Practical Matters Business Risk Approach to Audit Business Risk and Inherent Risk Approaches: Similarities and Dissimilarities The Business Risk Approach and Smaller Clients and Smaller Audit Firms Analytical Review as a Risk Analysis Tool Judgement in Accounting and Auditing and Its Relationship to Risk Management of the Audit Process The Terms of Reference Provide the Audit Framework Planning the Assignment Summary Key Points of the Chapter References Further Reading Suggested Solutions to Tasks Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 7: The Search for Evidence Explained The Audit Defined as a Search for Evidence to Enable an Opinion to Be Formed Forming Conclusions on the Basis of Evidence: The Exercise of Judgement Reliability of Audit Evidence (Grades of Audit Evidence) The Business Risk Approach to Gathering Audit Evidence The Stages of the Audit Process and the Evidential Requirements at Each Stage Limited Assurance and Compilation Engagements and Agreed upon Procedures Conclusion Summary Key Points of the Chapter Reference Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 8: Systems Work: Basic Ideas 1 Introduction Layers of Regulation and Control Expanded Accounting and Quality Assurance/Control Systems General Controls Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 9: Systems Work: Basic Ideas 2 Introduction Application Controls Data Capture/Input Controls Processing Controls Output Controls Database Systems E-Commerce Audit Approaches to Systems and Controls Summary Key Points of the Chapter Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 10: Testing and Evaluation of Systems Introduction Sales and Receivables System Purchases and Trade Payables System Payroll System General and Application Controls in a Sales System Tests of Controls Evaluation of Systems and Audit Conclusions Summary Key Points of the Chapter Reference Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 11: Substantive Testing, Computer-Assisted Audit Techniques and Audit Programmes Introduction Substantive Testing of Transactions, Account Balances and Disclosures The Use of Audit Software Directional Testing Substantive Audit Programmes for Wages Substantive Audit Programmes for Cash and Bank Balances Communication of Audit Matters to Those Charged with Governance (Management Letter) Audit Management with the Computer Summary Key Points of the Chapter Reference Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 12: Sampling and Materiality Introduction What Is Sampling? Designing and Selecting the Sample for Testing Sample Selection Methodology Evaluation of Test Results Monetary Unit Sampling (MUS) Comparative Advantages of Statistical and Non-Statistical Sampling Alternative Statistical Sampling Methods Materiality Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 13: Final Work: General Principles, Analytical Review of Financial Statements and Management Assertions on Financial Statement Headings Introduction Prefinal Work Balance Sheet Date Work Bridging Work between Conclusion of Interim Work and the Balance Sheet Date Analytical Procedures Detailed Final Audit Work: General Matters Summary Key Points of the Chapter Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 14: Final Work: Non-Current Assets, Trade Receivables and Financial Assets Introduction Tangible Non-Current Assets and Depreciation Trade Receivables and Sales Financial Assets Summary Key Points of the Chapter Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 15: Final Work: Specific Problems Related to Inventories, Construction Contracts, Trade Payables and Financial Liabilities Introduction Inventories Analytical Procedures Valuation of Construction Contracts Trade Payables and Purchases Analytical Procedures Financial Liabilities Summary Key Points of the Chapter Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 16: Final Review: Post-Balance Sheet Period, Provisions, Contingencies, Letter of Representation Introduction Post-Balance Sheet Events Provisions, Contingent Liabilities and Contingent Assets Going Concern Audit Work to Detect Post-Balance Sheet Events and Contingencies Evaluation of Misstatements Identified during the Audit Management Letter of Representation Audit Documentation Role of the Final Review Summary Key Points of the Chapter Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 17: Assurance Engagements and Internal Audit Introduction Assurance Engagements Internal Audit How to Make the Internal Audit Function Effective Reliance on Internal Audit by the External Auditor Outsourcing of Internal Audit Work Key Points of the Chapter Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 18: The Auditors' Report Introduction The Unmodified Opinion Specific Audit Considerations in Respect of Quoted Companies/Public Interest Entities The Modified Audit Opinion Limitation of Scope Disagreement Disclaimer of Responsibility Reporting on Corporate Governance Issues Summary Key Points of the Chapter Reference Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 19: Fraud and Going Concern Introduction to Fraud Responsibility for Fraud Detection Recent Debates Relating to Fraud Case Law Relating to Fraud Auditing Scandals Consideration of Law and Regulations Introduction to Going Concern Directors' and Auditors' Responsibilities for Going Concern Reporting on Going Concern Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 20: The Audit Expectations Gap and Audit Quality The Audit Expectations Gap The Causes of the Audit Expectations Gap, Possible Developments and Solutions Audit Quality Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topic for Class Discussion without Solution Chapter 21: The Auditor and Liability under the Law Introduction Criminal Liability Civil Liability Case Law Auditing Standards Professional Conduct Potential Ways of Reducing Auditor Liability Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 22: Issues in Auditing Introduction The Accounting/Auditing Profession? Regulation IFAC, the Accountancy Profession and Globalization Audit Reporting Independence Choice in the UK Audit Market Audit Data Analytics Summary Key Points of the Chapter References Further Reading Self-Assessment Questions (Solutions Available to Students) Self-Assessment Questions (Solutions Available to Tutors) Topics for Class Discussion without Solutions Chapter 23: Examination Hints and Final Remarks Introduction General Examination Hints Auditing as an Examination Subject Final Remarks Credits Index