Accounting 312 (ACCTG 312) – University of Auckland

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  • UniversityUniversity of Auckland
  • AreaBusiness and commerce
  • CourseAuditing
  • Course CodeACCTG 312
  • ProfessorTim Shaw and Debbie Alexander
29 Purchases
A+Verified Grade
  • Authorwavvey
  • Created2015
  • Pages98
  • Approved3 February 2016

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About these notes

Accounting 312 (ACCTG312) – University of Auckland
These notes got me an A+ for this paper.
Includes summaries of all lectures organised on a weekly format, including all tutorial summaries (along with model answers). Includes an exam revision guide on topics most likely to be assessed as per the lecturer’s recommendation.
Extremely useful in working through past exam papers and doing assignments.
Also, very useful in preparing for tutorials, as prepared notes for tutorials are mandatory to received participation marks.

ALL topics are covered in the notes.

Objectives • obtain ‘reasonable’ assurance whether the financial report as a whole is free from ‘material misstatement’ (whether by fraud or error) thereby enabling the auditor to express an opinion on whether the financial report is prepared in accordance with the applicable financial reporting framework Assurance • entities provide reports to users for making decisions • reports are potentially biased — the report providers have vested interests • the credibility of the report can be enhanced by having an independent expert report on it • FS are just one type of report that can be assured (most common however) • auditors express an opinion that is designed to enhance the confidence of the intended users of the info • levels of assurance? – reasonable assurance (as opposed to absolute assurance) — in audits – limited assurance • types of assurance – attest reporting engagement • auditor issues an opinion on written assertions made by management – direct reporting assurance engagement • auditor issues an opinion directly on a subject matter What Happens in an Audit? • firstly, a consideration whether to accept the audit • assess inherent risk; what can go wrong • assess control risk; will management find and correct errors • inspect evidence for the assertions in the FSs • report; FSs true and fair and comply with GAAP WHY IS THERE DEMAND FOR AUDITING AND ASSURANCE? – Agency Theory • users want assurance – e.g. bank manager providing a loan or a share investor • users value assurance – can borrow at lower rates, as their company is seen as safer – people will prefer to invest in your company • “price protection” – investors are aware of manager’s self-interested natures and price their cost of capital accordingly; auditing reduces this, so managers may want auditing – Information Hypothesis • “signalling” — by nature, managers know more than investors do, and so managers can signal to investors that their information is reliable by getting an auditor – Insurance Hypothesis • auditors can be sued if company fails 1 – Management Control • top management also benefit from assurance about information received from lower levels – Confirmation Hypothesis • managers make unaudited announcements • market accepts based on later audited results – Response to Risk • auditing as part of portfolio to deal with risk Cost of Audit Failure? • employees could lose jobs and any investments in their company • suppliers lose money owed to them • investors lose their investment • governments lose unpaid taxes • management and auditors lose reputation Social Benefits of Audit? • investor protection • protection of other stakeholders • countries may require companies to be audited AUDIT EXPECTATION GAP “the gap between society’s expectations of auditors and auditor’s performance as perceived by society” Solutions? • for deficient performance and standards? BETTER AUDITING • for unreasonable expectations? PUBLIC EDUCATION EXPECTATION GAP DUTIES Fraud – not always accepted as a major duty by auditors – ISA 240: “the auditor must consider the risks of material misstatements in the FS due to fraud” – expected to find MATERIAL fraud 2 Internal Control – auditors must find weaknesses in internal control and report on it – auditors can “assess control risk at the maximum” and rely on other types of testing – required to report weaknesses that they find to management Going Concern – e.g. “where were the auditors?” question when companies collapse – users expect auditors to predict a company’s collapse, or even prevent it – actual duty? examine this issue and only report if there are concerns Liability – are auditors liable whenever there are misstatements in the FS? • need to show that auditor had a duty of care, was negligent, loss was suffered, loss as a result of auditor – directors and shareholders often subject to this ‘gap’ CONSEQUENCES OF THE EXPECTATION GAP – developments in auditing standards – reduced public support for auditors – increased litigation against auditors BRIDGING THE EXPECTATION GAP – engagement letter to clarify responsibilities to management – audit report now explains directors’ and auditors responsibilities – expanded duties? going concern and fraud duties – changes to regulation of NZ auditing 3 ACCTG 312 – THE AUDITING ENVIRONMENT Objectives • obtain ‘reasonable’ assurance whether the financial report as a whole is free


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