The Demand for Audit and Other Assurance Services

Chapter 1

The Demand for Audit and Other Assurance Services

To do audit there must be:

- Information in verifiable form

- Standards (criteria) to evaluate information

• Audit of historical financial statements – criteria – GAAP or Internal Financial Reporting Standards (IFRS)

• Audit of Tax Return – criteria – Internal Revenue Code

- Evidence

• Electronic or documentary data about transaction

• Written or electronic communication with outsiders

• Observations by the auditor

• Oral testimony of the auditee (client)

- Competent and Independent Person

• Competent to know type and amount of evidence

• Must have independent mental attitude

• Independent to keep confidence of users relaying on his report

- Audit report

• Communicates auditor’s finding with users

• Informs readers of the degree of correspondence between the information audited and established criteria.

Accountants - record, classify and summarize economic events in order to prepare financial statements for decision makings. They must understand accounting and make sure everything in properly and in timely manner recorded.

Auditors – determine whether recorded information properly reflects economic events that occurred during a period. They must have expertise in determining proper audit procedures, number and type of tests performed and they need to evaluate the results.

Causes of Information Risk

- Remoteness of information

- Biases and motives of the provider

- Volumes data – the bigger organization the bigger volume of exchange transactions.

- Complex exchange transactions

Reducing Information Risk

- Users verifies information – users goes to business premises to examine documents

- User shares information risk with management – management is responsible for information provided so when bank will provide money based on financial statements provided by management and the company will not be able to pay there may be a lawsuit.

- Audited...