Overview_of_Audits

Overview of Audits Independent Certified Public Accountants (CPAs) function in an atmosphere of change and it can provide an affluence of responsibilities and career opportunities. CPAs must possess integrity, objectivity, and aptitude when working in this industry. The American Institute of CPAs establishes professional constraints for CPAs to accomplish research while publishing materials on an array of subjects in reference to auditing, accounting, and assurance and attestation services. Through this paper the CPA profession and licensing requirements will be examined as well as how a CPA can be of value, and critiquing current auditing standards. The importance of ethics in the auditing process, role of reducing information risks for decision makers and how independent audits can help an organization will also be analyzed to gain a clear understanding of audits. Examine the CPA Profession and Licensing Requirements CPAs provide many services while serving in a capacity as an independent auditor. CPAs can also serve as tax advisors or financial advisors for nonprofit organizations, government, individuals and businesses. CPAs have supplemented their usual audit and tax duties with many services today. Some of those services include providing assurance, attestation, suggest tax planning tactics, evaluate an organizations accounting systems and even consulting for business problems. CPAs must uphold a stringent code of professional conduct. The State of Florida currently requires a candidate to possess 150 credit hours to receive the CPA license but does not need the 150 hours to sit for the exam. Once the candidate passes the examination, then they will be mailed the CPA licensure package from the Florida Board of Accountancy. As soon as the licensure package has been received the applicant has one year to apply for the CPA license and if the applicant does not apply within the one year period then the exam grades will expire and the applicant will need to retake the CPA exam. Per the Florida Department of Business and Professional Regulation (2009): To successfully obtain an original license a candidate must submit the CPA Original Licensure application with a $50.00 non refundable fee within one year of receipt, score 80% on the Florida Laws and Rules Examination and if applicant sat under the old rule must also evidence one year of work experience in public or governmental accounting. (¶ 2) When it comes to the CPA profession accountants must uphold a high level of integrity. Ethics in this profession is invaluable due to the many clients a CPA serves. The CPA profession must follow rules and regulations of the laws, while having self-discipline when working for their clients. The American Institute of Certified Public Accountants has two sections: “A set of six positive essays expressing the profession’s high ideals and the enforceable Rules of Conduct” (Louwers, Ramsay, Sinason, and Strawser, 2004, p. 491). Explain how a licensed CPA (as an outside auditor) can be of value to this company and to your organization A CPA can scrutinize financial statements that an organizations management prepared as an outside auditor. The CPA will also produce a report based on the findings in the organizations financial statements and whether it complies with the Generally Accepted Auditing Standards (GAAS) and if it is fairly stated. A CPA is of great value for many organizations because they are able to use high-level techniques and findings to reach a fair judgment on the financial statements. An annual audit is conducted to look at all supporting documents, ledgers and journals, which can be seen as an important measure. The reports given to the organizations from the auditor’s findings can help the organization improve current business processes and controls. A limitation of being a CPA as an outside auditor is that the auditor may have a weaken sense of independence impairment, which would get in the way of the auditor providing independent and objective opinions about their findings resulting in the organization not being able to depend on the external audit. Critique current auditing standards GAAS has placed an increased amount of legal liability on an auditor. The auditor is required to spend more time scrutinizing an organizations internal control and provide recommendations where ever needed. Moreover, GAAS allows for there to be different methods for assessment decisions. “This difference is the reason audit reports refer to an audit “conducted in accordance with generally accepted auditing standards,” rather than in accordance with audit procedures” (Louwers, Ramsay, Sinason, and Strawser, 2004, p. 33). Standards change all the time and auditors need a way to ensure that they are following all procedures. There must always be procedures in place for these standards to improve upon the current auditing standards. Several types of audits exist such as the Financial Statements Audits, attestation engagements and performance audits headed by the U.S. General Accounting Office (GAO) for governmental entities. Public companies are governed by the Public Company Accounting Oversight Board (PCAOB), while private companies are governed by the American Institute for CPAs (AICPA). The standard for public companies is the Professional Auditing Standards and private companies use the Statements on Auditing Standards (SASs). The government standard is the Government Auditing Standards, also known as the “Yellow Book”. A common violation for auditors is auditor independence. Some auditors for accounting firms are continuously failing to stay independent from the organizations they audit. Another common violation is that the financial statements being audited are sometimes misstated. Auditors must realize the need to remain independent, as they may face legal liabilities. As a way to monitor CPA firms, five quality control elements exist. The quality control elements consists of independence, integrity, and objectivity, personnel management, acceptance and continuance of clients and engagements, engagement performance, and monitoring. “CPA firms are required to establish and document quality control policies and procedures, communicate them to their personnel, and assign a person or committee responsibility for managing the firm’s quality control” (Louwers, Ramsay, Sinason, and Strawser, 2004, p. 33). Analyze the importance of ethics in the audit process Ethics in the auditing process is very important to the clients the auditors serve and it also provides a basis for the structure of an organization. For an auditor to have a high degree of ethics and integrity, tends to provide a good confidence level to its clients. Due to corporate scams of the past, integrity is needed in helping investors make the right investment decisions and it can also assist with restoring the reputation of auditors. Through ethics in the auditing profession the auditor can assert their independence, professional competence and objectivity. Without ethics in corporations and the auditing process, fraudulent activities would be a major issue. Being able to ask certain questions at various levels of a firm, can give an auditor a mental picture of the firm and whether they have ethics at all levels. Although ethics in a corporation is important, there must also be a way to consistently improve the controls for it, as some people will likely find a loophole to commit deceptive acts. Ethics can be improved upon by continuously measuring the efficiency and input of the audit committee. Another way is by ensuring that the audit committee’s autonomy is genuine as well as apparent. The reporting relationship between management and the audit committee should also be appropriate. Assess the role of auditing in reducing information risk for decision makers Auditors play a major role in reducing information risk. Through following auditing standards and careful monitoring of financial statements, the risk is reduced for the decision maker. Ethics play a major role in determining reduced information risk because an ethical auditor will provide an organization or individual with the best opinion without jeopardizing their reputation. The general public is also provided with assurance, outside of an organizations management’s own declarations that the information provided is valid. Finding ways to ensure that the information provided is valid is by controlling risk. “Control risk is the probability that a material misstatement (error or fraud) could occur and not be prevented or detected on a timely basis by the company’s internal controls” (Louwers, Ramsay, Sinason, and Strawser, 2004, p. 37). Acceptable internal control has the likelihood to reduce the risk of fabricated information being relayed to decision makers. In order for auditors to perform a control risk assessment they must develop an audit program. The audit program “specifies the nature, timing, and extent of further audit procedures necessary for gathering sufficient evidence about the account balances that will go into the financial statements” (Louwers, Ramsay, Sinason, and Strawser, 2004, p. 37). Although, controls provide reasonable assurance there may still be some breakdown due to human judgment being flawed, management may override the findings and cost constraints. The only way these limitations can be mitigated is through the use of implementing corrective actions. Explain how independent audits could help the decision makers at your organization Independent auditors execute a fundamental service in many organizations as well as my own. Due to uncertainties and risks, the independent auditors assist everyone with making intelligent decisions. Auditors must abide by its industry’s strict standards and because of this, organizations confidence levels are high when a virtuous audit is given. “Independent auditors generally begin work with explicit representations from management—financial statement numbers and information disclosed in footnotes—and then set out to obtain evidence to prove or disprove these representations” (Louwers, Ramsay, Sinason, and Strawser, 2004, p. 4). Due to the transparency of providing all documents the real profit is identified to decision makers in the organization. The integrity and public confidence is maintained by the idea that disciplinary actions and penalties will result if the sanctions are violated. Conclusion Through performing this analysis the CPA profession and licensing requirements were examined as well as how a CPA can be of value, and critiquing current auditing standards. The importance of ethics in the auditing process, role of reducing information risks for decision makers and how independent audits can help an organization were also assessed to gain a clear understanding of audits. The role of CPAs can provide many benefits to an organization, by providing timely and pertinent information to facilitate managers and business owners with staying in control of their finances and enhance their financial position while monitoring the operating results. References Florida Department of Business and Professional Regulation. (2009). Division of Certified Public Accounting. Retrieved April 3, 2009 from http://www.myflorida.com/dbpr/cpa/licensure.html Louwers, T.J., Ramsay, R.J., Sinason, D.H., & Strawser, J.R. (2004). Auditing and Assurance Services. New York: McGraw-Hill Companies. Louwers, T.J., Ramsay, R.J., Sinason, D.H., & Strawser, J.R. (2004). Auditing and Assurance Services-Module B. New York: McGraw-Hill Companies.