This course teaches you how to conduct financial statement auditing. In this first lecture it provides an overview of public accounting and auditing.

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Introduction to Auditing

This lecture discusses the different players in the audit industry. It discusses about the public companies that are the clients and issuers of financial statements, public accountants who conduct the audit, standard setters, regulators, and the users of financial statements such as the investors and lenders.

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Players in the Audit Industry

This lecture reviews the principles of Generally Accepted Auditing STandards (GAAS) and Audit Quality. It discusses the general standards, examination standards, and the reporting standards.

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Generally Accepted Auditing Standards (GAAS) - Overview

This lecture discusses auditing ethics and some of the common rules of professional conduct for public accountants. Understanding that ethics is a set of moral principles or values is not very complex. What is complex is to understand why people behave differently in similar situations.

Public accounting is a profession. This means that the public accountant has the responsibility to act in the public interest, which may in some instances be contrary to their own best interest. 

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Auditing Ethics and Rules of Professional Conduct

This lecture looks at the standard audit report for an unqualified opinion. An unqualified audit report basically says that the financial statements are fair in all material aspects which is in your opinion as the auditor. Before you can say that, you need to pass through five important gates:
<ol>
	<li>You're engaged to perform an audit.</li>
	<li>You followed <a title="Generally Accepted Auditing Standards (GAAS)" href="https://financetrain.com/generally-accepted-auditing-standards-gaas/">GAAS</a></li>
	<li>You gathered sufficient appropriate audit evidence</li>
	<li>You have evaluated the fairness of presentation relative to GAAP/IFRS</li>
	<li>You have no reservations whatsoever.</li>
</ol>
If all of these have been achieved, it's time to draft the audit report.

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Understanding the Independent Auditors' Report

In this lecture, we will look at how the auditors express their dissatisfaction with the financial information prepared by management. there are two broad situations that we need to consider, which result in four different types of opinions, two for each situation. The two situations are as follows: First, when we have financial statements that are materially misstated. and second situation is when the auditor is unable to obtain sufficient appropriate audit evidence.

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Auditor's Report with Reservations

This lecture provides a high level overview of the audit process and provides you a feel of what an audit process is and how it is conducted. There are four broad steps: Acceptance Continuance, Planning, Execution (Risk Response), and Reporting.

There are two key things here. The management prepares the financial statements, and the auditors are responsible for their opinion, which is based on the evaluation of the audit evidence they gather.

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The Auditing Process

This video discusses the various assertions made by the management in preparing the financial statements. When the management puts its financial statements in front of the auditors, it is asserting that these are the numbers and that they don't have a second set of books hidden away in the back of the closet. Management assertions are multi-faceted and can be dissected to help focus on the audit procedures.

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Auditing: Management Assertions

In this lecture we will differentiate between the various types of audit evidence. Audit evidence is the stuff that auditors gather to support their opinion on the fairness of presentation of the financial information prepared by management. The audit evidence must be documents and must support risks at the assertion level.

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The Audit Evidence

In this lecture you will learn about what determines the extent of audit work performed. You will learn about how audits are tailored for different circumstances. The lecture deals with audit risk. The audit risk is the risk that the auditor gets it wrong. First, we need to recognize that an audit provides reasonable assurance, not absolute assurance or a guarantee. Secondly, the opinion states that the financial statements are free of material misstatements, not all statements but material ones. With this understanding in mind, it is entirely possible that the auditor gets their opinion wrong when there are intact one or more material misstatements contained within the financial statements that were not detected during the course of the audit.

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Audit Risk Models

In this lecture, you will learn about how to assess inherent risk. Inherent risk accounts for one third of the audit risk and yet it probably has the least amount of evidence available, meaning that it requires the most professional judgement. This video discusses the major factors that an auditor should consider when he is assessing inherent risk as he prepares his audit plan.

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Auditing: Assessing Inherent Risk

Materiality is a very important concept in the context of the audit because it identifies the amount or type of errors that would change the decision of a user using the financial information presented. 

This lecture discusses what materiality is, how it is determined, and how it is used during the audit.

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Auditing: The Concept of Materiality

This lecture explains what exactly is the client risk profile and how it is used. GAAS requires that we gain an understanding of the client's business and document this understanding in the audit file. The better we understand our client's business, the better we are able to assess the client business risk.

This is a perfect example of why good auditors need to be more than just good bean counters.

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Auditing: Client Risk Profile

The discipline of preparing well documented, and organizing working papers is equally important for an auditor as the audit itself. In public accounting, GAAS requires the auditor to document all the evidence that supports the audit opinion.

The lecture covers how an auditor should document their work. Those of you working in industry should pay attention to some of these practices.

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How Auditors Document Their Work?

In this lecture, we will learn about internal control. The lecture discusses what an internal control is and why they are important for management to establish. This is another aspect of financial management and financial statement auditing that requires a high degree of professional judgment. 

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Internal Controls in a Company

In this lecture, we will use a framework to describe a system of internal controls of a company. The COSO Framework of Internal COntrol defines the entity controls as those that are implemented for multiple transaction cycles or for the entire organization.

COSO stands for The Committee of Sponsoring Organizations of the Treadway Commission. It is a joint initiative of private sector organizations and is dedicated to providing thought leadership through the development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence.

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COSO - Integrated Internal Control Framework

In the previous lecture, we learned about what internal controls were, what they looked like, and what they set out to achieve. In this lecture, will discuss why we assess internal control. We will discuss documenting internal controls and assessing controls risk. Auditors must gain an understanding of internal control even if they are not planning to rely on internal controls.

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Assessing Control Risk

If the auditor assesses control risk at less than maximum, then he needs to perform tests of control to support that reliance.

In this lecture , we will continue our discussion of how an auditor justifies their reliance on internal controls by testing them.

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Testing Internal Controls

In this lecture, we will discuss the internal control systems in small businesses. Small businesses generally have fewer employees and less resources to dedicate to intrenal controls. 

The video discusses the auditing issues associated with small businesses. it also covers review and compilation engagements.

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Auditing Issues in Small Businesses

The audit plan is often prepared by an audit senior or an audit manager. This lecture summarizes the steps of the audit planning approach.

The first step is to take last year's file and carry forward the relevant information which will be updated.

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Auditing Planning Approach

This lecture discusses audit programs. The audit program is that insane checklist of procedures that get performed by the audit team to gather evidence. There are basically three types of procedures that get listed on the audit programs: 1) Tests of controls, 2) Analytical procedures, and 3) Tests of details.

Each transaction cycle will have its own audit program with a mix of these types of procedures that will vary depending on the risk assessments established during the audit plan.

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Audit Programs

In this video, we are going to get our hands a little bit dirty and look at a transactional cycle and walk through how we would audit it. The video exposes you to how a transactional cycle actually works, and then discuss some of the audit procedures we would use to nail down our assessment of control risk.

For this video, we are going to use the sales cycle, which is typically comprised of the following accounts:

Sales, returns, bad debt and allowances, receivables, cash receipts, and commodity tax collection.

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Auditing the Sales Cycle

In this lecture, we will continue with the audit field work on the sale cycle by performing substantive procedures. We design our substantive procedures with our audit objectives in mind which are really just the same thing as the management assertions formatted into a statement of objectives.

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Substantive Audit Procedures

Learn Auditing

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Learn Auditing

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