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Diff between assurance, attestation and audit
assurance: most broad, ex: restaurant review attestation:
testing an assertion Audit: testing assertions about financials
TERM 2
Who needs independence?
DEFINITION 2
Assurance, attestation and audit. Consulting doesn't need it
TERM 3
2 types of independence
DEFINITION 3
Independence in mind and appearance
TERM 4
benefits of audits
DEFINITION 4
reduces info risk, develop internal processes, deters fraud,
increases compliance, market permissions, access to
specialized expertise, All improve quality of info
TERM 5
Attestations require:
DEFINITION 5
-verifiable assertion made by one party, -criteria to judge the
assertion, -assurance provider/ attestor who is qualified
(auditor), -written report,
assertions to be violated (main categories)
transactions, accounts, presentation
TERM 7
Transaction assertions
DEFINITION 7
occurrence, completeness, accuracy, cutoff, classification
TERM 8
accounts assertions
DEFINITION 8
existence, rigths and obligations, completeness, value and
allocation
TERM 9
presentation and disclosure assertions
DEFINITION 9
occurrence, rights and obligations, completeness,
classification and understandibility, accuracy and valuation,
TERM 10
info assymetry- types of
services
DEFINITION 10
search (can tell right away), experience (can tell right after),
credence (can't tell until way later, similar to financial
statements)
5 threats to independence
financial interests, business relationships (accepting tickets),
employment relationships (spouse as management), scope
of services, fee arrangements
TERM 17
promisor
DEFINITION 17
makes the claims
TERM 18
trustor
DEFINITION 18
people who rely on the claims (ex: stockholders)
TERM 19
exogenous
DEFINITION 19
gov imposed
TERM 20
endogenous
DEFINITION 20
demand for assertion is driven by supply/demand of market
direct independence
government, regulation
TERM 22
indirect indpendence
DEFINITION 22
auditor values, firm culture, firm policies
TERM 23
Bazerman, morgan and lowenstein article
DEFINITION 23
two views of auditor independence: deliberate collusion with
clients, unconscious bias, also claims auditor independence
is impossible
TERM 24
deliberate bias
DEFINITION 24
evaluate evidence correctly but dont report
TERM 25
unconscious bias
DEFINITION 25
cannot evaluate evidence correctly, thus, report is based on
evaluation but incorrect
variants of
skepticism
conditional (better, investigate every blip that appears on
radar screen, become wary and followup on red flags),
invariably (regardless of past positive experiences,
regardless of good reasons to trust management, too
skeptical)
TERM 32
grouptalks 1-
DEFINITION 32
1. Andersen and market for lemons applied to audit 2.
Financial statement insurance 3. auditor gap- clarify auditor
role 4. PCAOB- only 2 CPAS out of 5, 3 diff sets of standards,
costly
TERM 33
high quality info is...
DEFINITION 33
reliable (consistent) and relevant
TERM 34
info risk
DEFINITION 34
chance of making a poor decision due to low quality info
TERM 35
info reliability components
DEFINITION 35
degree of precision (is there noise/error?), degree of
neutrality (bias?)
explain M=Yr-Yt
M is misstatement amount, Yr is recorded value, Yt=true
value
TERM 37
Kinney and martin article
DEFINITION 37
talks about bias
TERM 38
Klein article
DEFINITION 38
trusters and promisers would find voluntary means to
provide assurance
TERM 39
PCAOB
DEFINITION 39
handles external monitoring
