Auditing Theory and Practice Australasian Edition

Guide to the text
Guide to the online resources
Preface
About the authors
Acknowledgements
Part 1: The auditor’s role in society
Chapter 1: Introduction to audit
Introduction
Professional engagements
Level of assurance
Scope
Users of audit report
Concept of audit
What is a financial statement audit?
Theoretical explanations
Conditions calling for an audit
Audit practice in Australia and New Zealand
Audit professionals
Audit guidance
Auditing standards
Standards for financial statement audit
International standards
Study tools
Chapter 2: Audit concepts, role and history
Introduction
The history of audit
Industrial Revolution, 18–19th centuries
Early 20th century
Post-World Wars to present
Conceptual framework for audit
Postulates in audit
Concept: Credibility through ethics
Concept: Credibility through process
Concept: Credibility through disclosure
Credibility through accountability
A conceptual framework for audit: Summary and considerations
The role of the external auditor
Role senders
Role conflict: The expectation gap
Study tools
Chapter 3: Statutory law
Introduction
Statutory law and the auditor
Auditor–client relationship in statute
Auditor’s appointment
Audit firm: Legal form
Working with the auditor
Audit committees
Audit report
Auditor ethics
Audit and Indigenous tradition
Statutory law: Applications in Australia
Corporations Act 2001 (Cth) (Corporations Act)
Financial Reporting Council (FRC)
Australian Securities and Investments Commission Act 2001 (ASIC Act)
Corporate Law Economic Reform Program (Audit Reform & Corporate Disclosure) Act 2004 (CLERP 9 Act)
Australian Prudential Regulation Authority (APRA)
Auditor and the client: Requirements in Australia
Lodging requirements: Australia
Statutory law: Applications in New Zealand
Companies Act 1993 (Cos Act)
Financial Markets Conduct Act 2013 (FMCA)
Financial Markets Authority Act 2011 (FMA Act)
Financial Reporting Act 2013 (FRA)
Auditor Regulation Act 2011 (ARA)
Auditor and the client: Requirements in New Zealand
Lodging requirements: New Zealand
Study tools
Chapter 4: Auditor professionalism and audit firms
Introduction
History of auditing profession
Professional history
Professions’ roles in standard-setting
Code of ethics for assurance services
Independence
Financial interests and conflicts
Fee dependence and lowballing
Incompatible services
Auditor rotation
Management advisory services (MAS)
Personal relationships and conflicts
Confidentiality
Credibility through accountability
Peer review
Quality management
Managing a firm’s accountability
Arguments for and against
Firm structure options
Legislated restrictions
Large firm benefits
National practices
Study tools
Chapter 5: The courts: The legal liability of auditors
Introduction
‘To whom’: The auditor’s duty of care
Duty of care under contract
Duty to third parties
‘For what’: Reasonable skill and care
What the courts expect
Principles tested: 1970
Principles in the modern era
Contributory negligence
When auditors are complicit
Study tools
Part 2: Audit planning
Chapter 6: Audit risk
Introduction
A risk approach
Overall audit risk
Audit risk models
Applying an audit risk model
Quantitative aspects
Qualitative aspects
Misstatement sources and risk
Errors
Employee fraud
Distortion
Misstatement characteristics
Study tools
Chapter 7: Audit judgement, materiality and evidence
Introduction
Audit judgement
Influences on audit decisions
Summary of audit judgement
Materiality
Accounting versus audit materiality
Determining audit materiality
Audit evidence
Sufficiency of evidence
Appropriateness: Assertions
Reliability of evidence
Study tools
Chapter 8: Audit testing and working papers
Introduction
Audit testing
‘To analyse the validity’
‘A premise’
Examine or subject to a process
‘All or a portion of that claim’
Testing strategies
Working papers
Working paper structures
Audit working paper principles
IT and computerised testing support
Automated working papers
Audit software routines
Data-extraction software for substantive testing
AI and expert systems
Study tools
Chapter 9: Audit process and analytical procedures
Introduction
Audit approaches
Audit process steps
Initial planning: Steps 1–4
Detailed planning: Steps 5–7
Audit test responses: Steps 8–10
Completion: Steps 11–13
Analytical procedures
AP and the audit process
Specific analytical procedures
Variations
Study tools
Chapter 10: Audit planning
Introduction
Initial planning process
Initial planning: Preliminary activities
Initial planning: Review the business
Initial planning: Perform risk analysis
Initial planning: Form audit strategy
Detailed planning process
Detailed planning: Study the accounting system
Detailed planning: Evaluate internal controls
Detailed planning: The audit plan
Study tools
Part 3: Audit testing
Chapter 11: Principles of internal control
Introduction
Control systems: Levels
Organisational layer
Management level
Systems level
Accounting level
Control system: Objectives
Establishment
Maintenance
Verification
Computer information systems (CIS)
Components in CIS
Characteristics of a CIS
Internal controls: Audit implications
Audit benefits of control systems
Audit challenges from control systems
Study tools
Chapter 12: Internal control and the auditor
Introduction
Audit strategy and the client’s system
Controls and auditability
Controls and process
Controls and timing
Documentation: Studying the system
Flowcharts
Data flow diagrams (DFDs)
Audit response: Tests of controls
Governance: Testing and evidence
Segregation of duties: Tests of controls
Systems development: Tests of controls
External services: Tests of controls
Accounting process: Tests of controls
Study tools
Chapter 13: Audit sampling
Introduction
Sampling: Audit applications
Sampling for compliance and substantive tests
Sampling and materiality
Statistical and non-statistical sampling
Sampling and judgement
The objective
The population
The confidence level
Tolerable misstatement
Expected error
Sampling procedures
Determine sample size
Select the sample
Perform the test
Analyse individual errors
Generalise (extrapolate) sample results to the population
Accept or reject the hypothesis
Examples for audit sampling
Test of control example
Substantive test example using PPS
Study tools
Chapter 14: Systems testing I: Sales, purchases and payroll
Introduction
Systems and structure
Sales cycle
Sales cycle risks
Sales cycle controls
Sales department
Sales cycle: Substantive tests
Purchases cycle
Purchases cycle risks
Purchases cycle controls
Purchases cycle: Substantive procedures
Payroll cycle
Payroll cycle risks
Payroll cycle controls
Payroll cycle: Substantive procedures
Study tools
Chapter 15: Systems II: Warehousing, financing and fixed assets
Introduction
Warehousing (inventory) subsystem
Risks in warehousing
Warehousing controls
Warehousing substantive procedures
Finance subsystem
Cash and liquid assets
Traditional investments
Derivatives and financial instruments
Equity and liability accounts
Fixed assets and intangibles
Fraud
Distortion
Audit of fixed assets
Intangible assets
Study tools
Part 4: Audit communication and report
Chapter 16: Completion and review
Introduction
Letter of representation
Going concern
Subsequent events
Disclosure (presentation) review
Stock exchange disclosures
Legal and regulatory disclosures
Overseas disclosure mandates
Other disclosure requirements
Related party transactions
Management letter
The final review
Study tools
Chapter 17: Audit report and opinion
Introduction
Audit communications
Audit report
Purpose and history
Structure and content
Audit opinion
Unqualified audit opinions
Qualified audit opinions
Other engagements
Study tools
Part 5: Specific types of audit
Chapter 18: Internal audit
Introduction
‘Other’ assurance engagements
Internal audit role
Internal audit profession
Regulation and authority
Internal audit functions
Developing effective control systems
Transforming role
Risk management
Oversight and testing processes
Communication
Fraud deterrence
External auditor relationship
Cloud and virtual system audits
Study tools
Chapter 19: Social audit
Introduction
Public sector audit
Government auditors
Public sector reporting requirements
Value for money
Consolidated accounts audit for the public sector
Non-profit and small business (SMEs)
Non-profit charities
Small and medium enterprises (SMEs)
Audit challenges
Environmental audits
Study tools
Chapter 20: Fraud audit
Introduction
Fraud defined
Fraud types
Incentives for committing fraud and fraud indicators
Incentives for committing fraud
Fraud indicators
Fraud audit purpose
Financial (statutory) audit
Fraud audit (non-statutory)
Forensic audit
Fraud audit process
Investigation types
Fraud audit approaches
Sampling for fraud audit
Fraud audit: Regulatory environment
Professional associations
Legislation
Study tools
Conclusion
Glossary
References
Index