Chapter 16 Topics Beyond the Integrated Audit Prepared by Richard J Campbell Copyright 2011, Wiley and Sons Learning Objectives De s c ribe fo re ns ic ac c o unting and c o ntras t it with ICFR and financ ial s tate me nt audits Unde rs tand inte rnal audit ac tivitie s and the ro le o f the inte rnal audit func tio n within o rg anizatio ns Le arn the e xte ns io n o f typic al audit ac tivitie s re quire d whe n auditing s tate and lo c al g o ve rnme nt e ntitie s Explain the purpo s e s and ac tivitie s o f c o mpilatio n and re vie w e ng ag e me nts , applic able s tandards , and ac c o untants ’ re po rts Dis c us s the type s o f info rmatio n fo r whic h ac c o untants c an is s ue atte s t re po rts , lis t the re quire me nts fo r an atte s t s e rvic e to be po s s ible , and dis ting uis h atte s t e ng ag e me nts fro m o the r s e rvic e s Ide ntify o the r audito rs ’ s e rvic e s pro vide d fo r public c o mpanie s , e xplain the audito rs ’ wo rk ac tivitie s , and de s c ribe the re s ulting re po rt Chapter 16-1 FORENS IC ACCOUNTING The te rm fo re ns ic ac c o unting mo s t c o mmo nly re fe rs to fraud inve s tig atio ns and ac c o unting wo rk to s uppo rt le g al ac tio ns The As s o c iatio n o f Ce rtifie d Fraud Examine rs (ACFE) is o ne o f the pre mie r o rg anizatio ns fo r fo re ns ic ac c o untants Fo re ns ic ac c o unting e nc o mpas s e s two majo r c o mpo ne nts : inve s tig ative fo re ns ic s e rvic e s and litig atio n s uppo rt Chapter 16 -2 Learning Objective #1 FORENS IC ACCOUNTING Fo re ns ic ac c o untants inve s tig ate many s ituatio ns and s us pe c te d ille g al ac ts inc luding : Emplo ye e the ft Ve ndo r fraud Cus to me r fraud Tax e vas io n Co nflic ts in divo rc e and bankruptc y pro c e e ding s Ins uranc e c laim filing s Ide ntity the ft Org anize d c rime Chapter 16 -3 Learning Objective #1 FORENS IC ACCOUNTING During an inte rvie w, the fo re ns ic ac c o untant may fo c us o n a rang e o f is s ue s , inc luding : The to ne s e t by to p manag e me nt to ward e thic al be havio r Manag e me nt’s value s and be lie fs Re ward s ys te ms The po te ntial fo r manag e me nt o ve rride o f inte rnal c o ntro ls Fo re ns ic ac c o untants may re ly o n e vide nc e o btaine d fro m re al e s tate re c o rds , c o urt re c o rds , c o rpo rate and partne rs hip re c o rds , and o the r public re c o rds to unc o ve r po te ntial fraud mo tive s Chapter 16 -4 Learning Objective #1 INTERNAL AUDITING Ac c o untants who wo rk within e ntitie s as inte rnal audito rs als o pe rfo rm impo rtant func tio ns fo r c o mpanie s , no t-fo r-pro fit o rg anizatio ns , and g o ve rnme nt units The Ins titute o f Inte rnal Audito rs (IIA) is the mo s t no table pro fe s s io nal o rg anizatio n fo r inte rnal audito rs The inte rnal audito r’s g o al is to he lp impro ve the o rg anizatio n’s o pe ratio ns , ris k manag e me nt, inte rnal c o ntro ls , and g o ve rnanc e Chapter 16 -5 Learning Objective #2 INTERNAL AUDITING Inte rnal audito rs as s is t in S OX c o mplianc e Chapter 16 - Learning Objective #2 INTERNAL AUDITING Inte rnal audito rs as s is t in S OX c o mplianc e Chapter 16 -7 Learning Objective #2 S TATE AND LOCAL GOVERNMENT AUDITS Financ ial s tate me nt audits o f s tate and lo c al g o ve rnme nts are pe rfo rme d by e xte rnal audito rs who wo rk e ithe r fo r public ac c o unting firms o r s e parate g o ve rnme nt-re late d units Chapter 16 -8 Learning Objective #3 Ele me nts o f an Eng ag e me nt Le tte r fo r a S S ARS Financ ial S tate me nt Re vie w Eng ag e me nt Chapter 16-19 Learning Objective #4 Ele me nts o f an Eng ag e me nt Le tte r fo r a S S ARS Financ ial S tate me nt Re vie w Eng ag e me nt Chapter 16-20 Learning Objective #4 Inquirie s Made During a Re vie w EXHIBIT 16-3 Chapter 16-21 Learning Objective #4 Inde pe nde nt Ac c o untant’s Re vie w Re po rt Chapter 16-22 Learning Objective #2 ATTES T ENGAGEMENTS Targ e ts o f atte s t e ng ag e me nts inc lude financ ial fo re c as ts and pro je c tio ns , c o mplianc e with laws and re g ulatio ns , e ffe c tive ne s s o f inte rnal c o ntro ls fo r no npublic c o mpanie s , the ac c urac y and re liability o f re po rte d pe rfo rmanc e me as ure s , and the c o mplianc e with S EC re g ulatio ns o f a c o mpany’s manag e me nt dis c us s io n and analys is Chapter 16-23 Learning Objective #5 Example s o f Atte s t Eng ag e me nts Chapter 16-24 Learning Objective #5 Availability o f Crite ria EXHIBIT 16-4 Chapter 16-25 Learning Objective #5 Type s o f Atte s t Eng ag e me nts and Re po rts EXHIBIT 16-5 Chapter 16-26 Learning Objective #5 Inde pe nde nt Ac c o untant’s Atte s t Examinatio n-Le ve l Re po rt Chapter 16-27 Learning Objective #5 S EC-RELATED ENGAGEMENTS CPAs pe rfo rm many s e rvic e s in c o nne c tio n with S EC filing s s uc h as is s uing c o mfo rt le tte rs to unde rwrite rs , pe rfo rming inte rim re vie ws , and c o nduc ting ac tivitie s re late d to re g is tratio n s tate me nts fo r public o ffe ring s o f s e c uritie s Le tte rs fo r unde rwrite rs are c o mmo nly c alle d c o mfo rt le tte rs be c aus e o f the c o nc e pt that the y pro vide “c o mfo rt” o n s pe c ific is s ue s in a c o mpany’s financ ial info rmatio n Chapter 16-28 Learning Objective #5 Audito r’s Re vie w Re po rt o n Inte rim Financ ial S tate me nts Chapter 16-29 Learning Objective #5 Review Question Forensic accounting (a) is best described by the term fraud audit (b) includes investigative services and litigation support (c) can only be carried out by CPAs (d) follows the same approach as traditional auditing except that materiality thresholds are lower Chapter 16-30 Review Question The independence of internal auditors and the internal audit function is enhanced by (a) avoiding conflicts of interest (b) being placed high in the organizational hierarchy and having access to the audit committee (c) conducting their tasks in an objective manner (d) all of the above Chapter 16-31 Review Question An examination attest engagement provides: (a) positive assurance (b) moderate or limited assurance (c) no assurance (d) agreed upon procedures assurance Chapter 16-32 Copyright “Copyright © 2011 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.”