This text offers a structured approach to principles of auditing using International Standards on Auditing as its basis.  Written by a team of influential professional auditors with a wealth of teaching experience this book provides a real world perspective on current auditing practices with coverage of cutting edge developments and techniques. The full text downloaded to your computer With eBooks you can: search for key concepts, words and phrases make highlights and notes as you study share your notes with friends eBooks are downloaded to your computer and accessible either offline through the Bookshelf (available as a free download), available online and also via the iPad and Android apps. Upon purchase, you'll gain instant access to this eBook. Time limit The eBooks products do not have an expiry date. You will continue to access your digital ebook products whilst you have your Bookshelf installed.

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Principles of Auditing: An Introduction to International Standards onAuditing, Third Edition

Rick Hayes, Roger Dassen, Arnold Schilder, Philip Wallage, Hans Gortemaker

Hayes, Rick, Hayes, Rick, Wallage, Philip, Gortemaker, Hans

Rick Hayes; Philip Wallage; J.C.A.. Görtemaker

Rick Hayes, Hans Gortemaker and Philip Wallage

Philip Wallage; Hans Gortemaker; Rick Hayes

Rick Stephan Hayes

Prentice Hall, Financial Times

Financial Times Prentice Hall

Pearson Education, Limited

Varly (Editions de)

Longman

United Kingdom and Ireland, United Kingdom

Pearson Education (UK), Harlow, 2014

3rd ed, Harlow, United Kingdom, 2015

Third edition, Harlow, England, 2014

3rd ed, Harlow, 2014

France, France

3, 20140626

lg2867030

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Cover......Page 1
Contents......Page 6
List of Illustrations......Page 13
Foreword......Page 17
Preface......Page 19
Acknowledgements......Page 21
1.1 Learning Objectives......Page 24
1.2 Auditing through World History......Page 25
1.3 The Auditor, Corporations and Financial Information......Page 26
1.4 International Accounting and Auditing Standards......Page 28
1.5 An Audit Defined......Page 33
1.6 Types of Audit......Page 36
1.7 Types of Auditor......Page 38
1.8 Setting Audit Objectives Based on Management Assertions......Page 41
1.9 The Audit Process Model......Page 44
1.10 International Audit Firms......Page 49
1.11 Summary......Page 54
1.12 Questions, Exercises and Cases......Page 57
1.13 Notes......Page 62
2.1 Learning Objectives......Page 65
2.3 Theories on the Demand and Supply of Audit Services......Page 66
2.4 Audit Regulation: International Perspective......Page 69
2.5 Independent Oversight......Page 71
2.6 Audit Firms......Page 73
2.7 Legal Liability......Page 75
2.8 Some Developments in the Audit Market......Page 81
2.9 Examples of Landmark Studies and Legislation that Influenced the International Audit Market......Page 87
2.10 Summary......Page 89
2.11 Questions, Exercises and Cases......Page 91
2.12 Notes......Page 95
3.1 Learning Objectives......Page 98
3.2 What Are Ethics?......Page 99
3.3 The International Ethics Standards Board of Accountants (IESBA) Code of Ethics for Professional Accountants......Page 101
3.4 Part A – General Application of the IESBA Code of Ethics for Professional Accountants......Page 102
3.5 Part B – Ethics Applicable to Professional Accountants in Public Practice......Page 109
3.6 Independence – Audit and Review Engagements (Section 290)......Page 115
3.7 Part C – Professional Accountants in Business......Page 127
3.9 Summary......Page 132
3.10 Questions, Exercises and Cases......Page 136
3.11 Notes......Page 140
4.1 Learning Objectives......Page 142
4.2 International Framework for Auditor Services......Page 143
4.3 Elements of an Assurance Engagement......Page 146
4.4 General Considerations in an Assurance Engagement......Page 155
4.5 Audits of Historical Financial Information......Page 159
4.6 Professional Judgement, Professional Scepticism and Inherent Limitations......Page 160
4.7 Quality Control (ISQC #1 and ISA 220)......Page 162
4.8 Summary......Page 166
4.9 Questions, Exercises and Cases......Page 169
4.10 Notes......Page 172
5.1 Learning Objectives......Page 175
5.2 Client Acceptance: The First Step on the Journey to an Opinion......Page 176
5.3 Evaluate the Client's Background......Page 177
5.4 Ability to Meet Ethical and Specific Competence Requirements......Page 181
5.5 Use of Other Professionals in the Audit......Page 186
5.6 Communicating With the Predecessor (Existing) Auditor......Page 188
5.7 Acceptance by the Client – The Engagement Proposal......Page 189
5.8 The Audit Engagement Letter......Page 193
5.9 Summary......Page 197
5.10 Questions, Exercises and Cases......Page 199
5.11 Notes......Page 202
6.1 Learning Objectives......Page 204
6.2 Planning Objective and Procedures......Page 205
6.3 Understanding the Entity and its Environment......Page 207
6.4 Audit Risk Model......Page 217
6.5 Materiality......Page 224
6.6 Fraud and Irregularities......Page 230
6.7 Using the Work of Others (including ISA 610, ISA 620) and Considering Auditee Use of Service Organisations (ISA 402)......Page 236
6.8 Inherent Risk Assessment......Page 240
6.9 Other Planning Activities......Page 241
6.10 Summary......Page 245
6.11 Questions, Exercises and Cases......Page 249
6.12 Notes......Page 253
7.1 Learning Objectives......Page 257
7.3 Internal Control Defined......Page 258
7.4 The Importance of Internal Control......Page 263
7.5 IT Risk and Controls......Page 264
7.6 Components of Internal Control......Page 266
7.7 Control Environment......Page 267
7.8 Risk Assessment......Page 276
7.9 Information Systems, Communication and Related Business Processes......Page 278
7.10 Control Activities (Control Procedures)......Page 281
7.11 Monitoring of Controls......Page 287
7.12 Hard and Soft Control......Page 288
7.13 Design of Internal Controls......Page 291
7.14 Preliminary Assessment of Control Risk......Page 293
7.15 Summary......Page 294
7.16 Questions, Exercises and Cases......Page 297
7.17 Notes......Page 302
8.1 Learning Objectives......Page 305
8.2 Introduction......Page 306
8.3 The Analytical Review Process......Page 307
8.4 Formulating Expectations......Page 312
8.5 General Analytical Procedures......Page 314
8.6 Analytical Procedures During Different Phases in the Audit Process......Page 321
8.7 Analytical Procedures as Substantive Tests......Page 323
8.8 Computer Assisted Audit Techniques (CAATs) and Generalised Audit Software (GAS)......Page 325
8.9 Analytical Procedures Using Data Mining Techniques......Page 328
8.11 Summary......Page 330
8.12 Questions, Exercises and Cases......Page 333
8.13 Notes......Page 337
8.A.1 Preface......Page 338
8.A.3 Definitions......Page 339
8.A.4 Sample Design, Size and Selection......Page 342
8.A.5 Performing Audit Procedures (530.9)......Page 348
8.A.7 Projecting Misstatements (530.14 and 530.A18)......Page 349
8.A.8 Evaluating Results of Audit Sampling (530.15 and 530.A21–23)......Page 351
8.A.9 Questions, Exercises and Cases......Page 352
8.A.10 Notes......Page 354
9.1 Learning Objectives......Page 355
9.2 Introduction......Page 356
9.3 The Basis of Evidence......Page 358
9.4 Financial Statement Assertions......Page 359
9.5 Test of Controls......Page 360
9.6 Substantive Procedures......Page 363
9.7 Sufficient Appropriate Audit Evidence......Page 368
9.8 Summary......Page 375
9.9 Questions, Exercises and Cases......Page 378
9.10 Notes......Page 384
10.1 Learning Objectives......Page 386
10.3 Audit Procedures for Obtaining Audit Evidence......Page 387
10.4 External Confirmation......Page 394
10.5 Sampling......Page 399
10.6 Audit of Estimates......Page 401
10.7 Evaluation of Misstatements Identified During the Audit (ISA 450)......Page 403
10.8 Related Parties......Page 404
10.9 Written Representations (Letter of Representation)......Page 410
10.10 Summary......Page 415
10.11 Questions, Exercises and Cases......Page 418
10.12 Notes......Page 423
10.A.1 Introduction......Page 426
10.A.2 Form and Content of the Working Papers......Page 428
10.A.3 Document Retention......Page 430
10.A.4 Permanent and Current Files......Page 431
10.A.5 Preparation of Working Schedule......Page 436
10.A.6 Adjusting Entry......Page 437
10.A.7 Summary......Page 439
10.A.8 Notes......Page 441
11.1 Learning Objectives......Page 442
11.2 Introduction......Page 443
11.3 Quality Control (ISQC #1, ISA 220, SOX)......Page 445
11.4 Evaluate Governance Evidence......Page 448
11.5 Review for Discovery of Subsequent Events......Page 452
11.6 Review Financial Statements and Other Report Material......Page 455
11.7 Wrap-up Procedures......Page 458
11.8 Going Concern Issues......Page 465
11.9 Matters for Attention of Partners (MAPs)......Page 467
11.10 Reports to the Board of Directors......Page 468
11.11 Summary......Page 469
11.12 Questions, Exercises and Cases......Page 472
11.13 Notes......Page 478
12.1 Learning Objectives......Page 481
12.2 Introduction......Page 482
12.3 Basic Elements of the Auditor's Report......Page 483
12.4 Types of Report Expressing Audit Opinions......Page 491
12.5 Emphasis of a Matter Paragraph......Page 500
12.6 Circumstances That May Result in Other Than an Unmodified Opinion......Page 507
12.7 Uncertainties Leading to Qualification of Opinions......Page 509
12.8 Communications with those Charged with Governance......Page 510
12.9 Long-Form Audit Report......Page 516
12.11 Summary......Page 518
12.12 Questions, Exercises and Cases......Page 521
12.13 Notes......Page 528
13.1 Learning Objectives......Page 530
13.3 Acceptance and Continuance......Page 531
13.4 Overall Audit Strategy and Audit Plan......Page 532
13.5 Communication......Page 539
13.6 Consolidation......Page 541
13.8 Reporting......Page 542
13.10 Extended Example of a Group Audit......Page 543
13.11 The Audit Planning Memorandum – Strategy Part......Page 549
13.12 The Audit Planning Memorandum – Plan Part......Page 554
13.13 Audit Programme (Audit Plan)......Page 558
13.14 Completion Memorandum......Page 574
13.15 Summary......Page 579
13.16 Questions, Exercises and Cases......Page 582
13.17 Notes......Page 592
14.1 Learning Objectives......Page 594
14.3 Special Areas Engagements......Page 595
14.4 Review Engagements......Page 601
14.5 Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (ISAE 3000–3699)......Page 604
14.6 Related Services......Page 619
14.7 Summary......Page 623
14.8 Questions, Exercises and Cases......Page 627
14.9 Notes......Page 630
15.1 Learning Objectives......Page 634
15.2 Introduction......Page 635
15.3 The Nature of Corporate Governance......Page 637
15.4 Corporate Governance Structures......Page 644
15.5 Corporate Governance Committees and Reports......Page 645
15.6 Best Practice from a Global Perspective......Page 648
15.7 Corporate Governance and the Role of the Auditor......Page 664
15.8 The Audit Profession and Corporate Governance......Page 668
15.9 Summary......Page 671
15.10 Questions, Exercises and Cases......Page 674
15.11 Notes......Page 676
A......Page 679
B......Page 685
C......Page 686
D......Page 690
E......Page 692
F......Page 695
G......Page 697
I......Page 698
L......Page 701
M......Page 702
N......Page 704
O......Page 705
P......Page 706
R......Page 710
S......Page 713
T......Page 716
W......Page 718
X......Page 719
A......Page 720
B......Page 721
C......Page 722
E......Page 724
F......Page 726
G......Page 727
I......Page 728
L......Page 730
O......Page 731
P......Page 732
R......Page 733
S......Page 734
U......Page 736
Z......Page 737

Cover 1
Contents 6
List of Illustrations 13
Foreword 17
Preface 19
Acknowledgements 21
1 International Auditing Overview 24
1.1 Learning Objectives 24
1.2 Auditing through World History 25
1.3 The Auditor, Corporations and Financial Information 26
1.4 International Accounting and Auditing Standards 28
1.5 An Audit Defined 33
1.6 Types of Audit 36
1.7 Types of Auditor 38
1.8 Setting Audit Objectives Based on Management Assertions 41
1.9 The Audit Process Model 44
1.10 International Audit Firms 49
1.11 Summary 54
1.12 Questions, Exercises and Cases 57
1.13 Notes 62
2 The Audit Market 65
2.1 Learning Objectives 65
2.2 Introduction 66
2.3 Theories on the Demand and Supply of Audit Services 66
2.4 Audit Regulation: International Perspective 69
2.5 Independent Oversight 71
2.6 Audit Firms 73
2.7 Legal Liability 75
2.8 Some Developments in the Audit Market 81
2.9 Examples of Landmark Studies and Legislation that Influenced the International Audit Market 87
2.10 Summary 89
2.11 Questions, Exercises and Cases 91
2.12 Notes 95
3 Ethics for Professional Accountants 98
3.1 Learning Objectives 98
3.2 What Are Ethics? 99
3.3 The International Ethics Standards Board of Accountants (IESBA) Code of Ethics for Professional Accountants 101
3.4 Part A – General Application of the IESBA Code of Ethics for Professional Accountants 102
3.5 Part B – Ethics Applicable to Professional Accountants in Public Practice 109
3.6 Independence – Audit and Review Engagements (Section 290) 115
3.7 Part C – Professional Accountants in Business 127
3.8 Enforcement of Ethical Requirements 132
3.9 Summary 132
3.10 Questions, Exercises and Cases 136
3.11 Notes 140
4 An Auditor's Services 142
4.1 Learning Objectives 142
4.2 International Framework for Auditor Services 143
4.3 Elements of an Assurance Engagement 146
4.4 General Considerations in an Assurance Engagement 155
4.5 Audits of Historical Financial Information 159
4.6 Professional Judgement, Professional Scepticism and Inherent Limitations 160
4.7 Quality Control (ISQC #1 and ISA 220) 162
4.8 Summary 166
4.9 Questions, Exercises and Cases 169
4.10 Notes 172
5 Client Acceptance 175
5.1 Learning Objectives 175
5.2 Client Acceptance: The First Step on the Journey to an Opinion 176
5.3 Evaluate the Client's Background 177
5.4 Ability to Meet Ethical and Specific Competence Requirements 181
5.5 Use of Other Professionals in the Audit 186
5.6 Communicating With the Predecessor (Existing) Auditor 188
5.7 Acceptance by the Client – The Engagement Proposal 189
5.8 The Audit Engagement Letter 193
5.9 Summary 197
5.10 Questions, Exercises and Cases 199
5.11 Notes 202
6 Main Audit Concepts and Planning the Audit (ISA 300, 315, 320) 204
6.1 Learning Objectives 204
6.2 Planning Objective and Procedures 205
6.3 Understanding the Entity and its Environment 207
6.4 Audit Risk Model 217
6.5 Materiality 224
6.6 Fraud and Irregularities 230
6.7 Using the Work of Others (including ISA 610, ISA 620) and Considering Auditee Use of Service Organisations (ISA 402) 236
6.8 Inherent Risk Assessment 240
6.9 Other Planning Activities 241
6.10 Summary 245
6.11 Questions, Exercises and Cases 249
6.12 Notes 253
7 Internal Control and Control Risk 257
7.1 Learning Objectives 257
7.2 Introduction 258
7.3 Internal Control Defined 258
7.4 The Importance of Internal Control 263
7.5 IT Risk and Controls 264
7.6 Components of Internal Control 266
7.7 Control Environment 267
7.8 Risk Assessment 276
7.9 Information Systems, Communication and Related Business Processes 278
7.10 Control Activities (Control Procedures) 281
7.11 Monitoring of Controls 287
7.12 Hard and Soft Control 288
7.13 Design of Internal Controls 291
7.14 Preliminary Assessment of Control Risk 293
7.15 Summary 294
7.16 Questions, Exercises and Cases 297
7.17 Notes 302
8 Analytical Procedures 305
8.1 Learning Objectives 305
8.2 Introduction 306
8.3 The Analytical Review Process 307
8.4 Formulating Expectations 312
8.5 General Analytical Procedures 314
8.6 Analytical Procedures During Different Phases in the Audit Process 321
8.7 Analytical Procedures as Substantive Tests 323
8.8 Computer Assisted Audit Techniques (CAATs) and Generalised Audit Software (GAS) 325
8.9 Analytical Procedures Using Data Mining Techniques 328
8.10 Follow-Up in Case of Unexpected Deviations 330
8.11 Summary 330
8.12 Questions, Exercises and Cases 333
8.13 Notes 337
Appendix to Chapter 8 Audit Sampling and Other Selective Testing Procedures 338
8.A.1 Preface 338
8.A.2 Objective 339
8.A.3 Definitions 339
8.A.4 Sample Design, Size and Selection 342
8.A.5 Performing Audit Procedures (530.9) 348
8.A.6 Nature and Cause of Deviations (530.12 and 530.A17) 349
8.A.7 Projecting Misstatements (530.14 and 530.A18) 349
8.A.8 Evaluating Results of Audit Sampling (530.15 and 530.A21–23) 351
8.A.9 Questions, Exercises and Cases 352
8.A.10 Notes 354
9 Auditor's Response to Assessed Risk (ISA 330, ISA 500) 355
9.1 Learning Objectives 355
9.2 Introduction 356
9.3 The Basis of Evidence 358
9.4 Financial Statement Assertions 359
9.5 Test of Controls 360
9.6 Substantive Procedures 363
9.7 Sufficient Appropriate Audit Evidence 368
9.8 Summary 375
9.9 Questions, Exercises and Cases 378
9.10 Notes 384
10 Audit Evidence 386
10.1 Learning Objectives 386
10.2 Introduction 387
10.3 Audit Procedures for Obtaining Audit Evidence 387
10.4 External Confirmation 394
10.5 Sampling 399
10.6 Audit of Estimates 401
10.7 Evaluation of Misstatements Identified During the Audit (ISA 450) 403
10.8 Related Parties 404
10.9 Written Representations (Letter of Representation) 410
10.10 Summary 415
10.11 Questions, Exercises and Cases 418
10.12 Notes 423
Appendix to Chapter 10 Audit Documentation and Working Papers 426
10.A.1 Introduction 426
10.A.2 Form and Content of the Working Papers 428
10.A.3 Document Retention 430
10.A.4 Permanent and Current Files 431
10.A.5 Preparation of Working Schedule 436
10.A.6 Adjusting Entry 437
10.A.7 Summary 439
10.A.8 Notes 441
11 Completing the Audit 442
11.1 Learning Objectives 442
11.2 Introduction 443
11.3 Quality Control (ISQC #1, ISA 220, SOX) 445
11.4 Evaluate Governance Evidence 448
11.5 Review for Discovery of Subsequent Events 452
11.6 Review Financial Statements and Other Report Material 455
11.7 Wrap-up Procedures 458
11.8 Going Concern Issues 465
11.9 Matters for Attention of Partners (MAPs) 467
11.10 Reports to the Board of Directors 468
11.11 Summary 469
11.12 Questions, Exercises and Cases 472
11.13 Notes 478
12 Audit Reports and Communications 481
12.1 Learning Objectives 481
12.2 Introduction 482
12.3 Basic Elements of the Auditor's Report 483
12.4 Types of Report Expressing Audit Opinions 491
12.5 Emphasis of a Matter Paragraph 500
12.6 Circumstances That May Result in Other Than an Unmodified Opinion 507
12.7 Uncertainties Leading to Qualification of Opinions 509
12.8 Communications with those Charged with Governance 510
12.9 Long-Form Audit Report 516
12.10 Management Letter 518
12.11 Summary 518
12.12 Questions, Exercises and Cases 521
12.13 Notes 528
13 Overview of a Group Audit 530
13.1 Learning Objectives 530
13.2 Introduction 531
13.3 Acceptance and Continuance 531
13.4 Overall Audit Strategy and Audit Plan 532
13.5 Communication 539
13.6 Consolidation 541
13.7 Subsequent Events 542
13.8 Reporting 542
13.9 Documentation 543
13.10 Extended Example of a Group Audit 543
13.11 The Audit Planning Memorandum – Strategy Part 549
13.12 The Audit Planning Memorandum – Plan Part 554
13.13 Audit Programme (Audit Plan) 558
13.14 Completion Memorandum 574
13.15 Summary 579
13.16 Questions, Exercises and Cases 582
13.17 Notes 592
14 Other Assurance and Non-Assurance Engagements 594
14.1 Learning Objectives 594
14.2 Introduction 595
14.3 Special Areas Engagements 595
14.4 Review Engagements 601
14.5 Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (ISAE 3000–3699) 604
14.6 Related Services 619
14.7 Summary 623
14.8 Questions, Exercises and Cases 627
14.9 Notes 630
15 Corporate Governance and the Role of the Auditor 634
15.1 Learning Objectives 634
15.2 Introduction 635
15.3 The Nature of Corporate Governance 637
15.4 Corporate Governance Structures 644
15.5 Corporate Governance Committees and Reports 645
15.6 Best Practice from a Global Perspective 648
15.7 Corporate Governance and the Role of the Auditor 664
15.8 The Audit Profession and Corporate Governance 668
15.9 Summary 671
15.10 Questions, Exercises and Cases 674
15.11 Notes 676
Glossary 679
A 679
B 685
C 686
D 690
E 692
F 695
G 697
H 698
I 698
J 701
K 701
L 701
M 702
N 704
O 705
P 706
Q 710
R 710
S 713
T 716
U 718
V 718
W 718
X 719
Index 720
A 720
B 721
C 722
D 724
E 724
F 726
G 727
H 728
I 728
J 730
K 730
L 730
M 731
N 731
O 731
P 732
Q 733
R 733
S 734
T 736
U 736
V 737
W 737
X 737
Z 737

2020-11-29