well
hello and welcome to the Becker CPA Review Course
my name's Tim Garry and I wanted your national instructors
and if you're looking to prepare and pass the auditing section at the exam
you're in the right spot we're going to start with auditing 1
other reports now before we get started with that
let's take a step back and let's take a look at how this portion at the CPA exam
is structured
and what they're gonna test you on so that we know exactly what we should be
focusing our energies
and are valuable time on as we get ready to pass
the auditing section of the exam so let's take a look at the introductory
area
if you would let's start by looking at
how long is this exam well it's for
hours and there will be four test let's
on this exam the first three test let's we'll all be multiple choice questions
and please observe that though he will combine for a total of 60 points
that's 20 points hurt each test let
now each single test let will be having 30 multiple choice questions
and we recommend that you spend between 50 and 55 minutes on
each those 3 test let's the final test let the fourth one
is going to be your task based simulations
and you will see 7 task based simulations
for 40 points and notice where recommending that you give that one
between an hour and one hour and 15 minutes
now let's talk a little bit about the subject areas what they call the content
specification outlines see s I'll first novel
you'll note that we have auditing and at s station engagements
acceptance and understanding the assignment and that's gonna be
12 to 16 points we then have a second section known as
auditing and at s station understanding the entity and its environment including
internal control
another 16 to 20 points
the third major
category is going to be auditing and attestation performing audit procedures
and evaluating evidence another 16 to 20 points
we then go to section for which is going to be evaluating
audit findings communications and reporting
and that's going to be another 16 to 20 points
we have
counting and review services engagements for 12 to 16 points
and then last but not least professional responsibilities
the final 16 to 20 points so again
what we're going to do in this particular program that we're going to
help prepare you to pass that section of the exam
is we're going to ultimately breaking up into logical format
and the way we've decided that makes the most sense for most candidates and we've
been doing this for 30 years now at least
I have been course Packers been doing it over all for fifty to sixty years
what we're going to do is we're going to start with audit reports the final
product we're gonna show you what the ultimate result is
and then go back and then we're gonna go through the process
look at internal control assessing it then we'll go ultimately into gathering
evidence
and they will look at some other little miscellaneous areas so again
over the course of all these topics in class we'll cover
everything you need to know in order to pass the CPA exam
so let's take a look in jump into the materials we're gonna start
with audited financial statements the basics
first of all of course there's the independent audit function
and the purpose other naughty well the purpose of an audit is to provide
financial statement users
and again users are a lot of people its management it's the shareholders the
bondholders acceptor
with and opinion on whether the financial statements are presented
fairly
in all material respects in accordance with applicable financial
reporting framework translation again we have to be so generic
another word are they in compliance with Jack typically US cap
I now what we're going to do is we're going to take a look at some of these
pass keys
these are quick blurbs that help you put things in focus
and what I'd like you to do is take a look at the last two lines
I'd like you to highlight these note right here
when it comes to these framework in the design to meet the needs
in civil y range users so again
that's what we're talking about there's a wide range futures and again
we could be using US gap or international financial reporting
standards
known as I first and of course special-purpose framework
which will be looking at in our next session together I
one other item you're going to note that we also try to compare
US auditing standards with international Standards on Auditing
and I'd like you to look down at the second paragraph you're in high like
this as well
any knowledge is explicit or implicitly
that to achieve their presentation financials
it may be necessary for management to provide disclosures
be on specifically require specifically required by the framework
and that's that's all I want to highlight an idiot knowledge is
explicitly that it may be necessary for management
in extremely rare circumstances
22 heart from a requirement in the framework to achieve the presentation so
let's just chat about that one for a moment one of those
kinda her ball questions that you might see is
that you're going to hear a question that would say management
to party from generally accepted accounting principles
because otherwise if they had complied would not have been
again fairly representing the financial position therefore
they used kind of their own made up rules to quote
ultimately achieve fairly presenting the financials
well that's the ultimate objective so if that's the case
you can still give them a good opinion known as an unmodified
previously known as an unqualified opinion so it's okay in those
rare circumstances how rare well in the thirty plus years that I've been
providing
counting services to the public I have yet
to see the first time that that is ever happen
so it's more than academic issue and of course the examiners are testing us on
that academic thought process
now the one that I had you highlight stated that again
it sometimes necessary to go above and beyond it's sort of like saying
the spirit %uh the rule don't just comply
with the ultimate letter of the law go with the spirit
so it says you have to tell me how you did in school don't just give me
your grade level tell me if you got in trouble in school
you are a discipline problem I wanted all that and the same thing applies when
you're looking at financial statements when you're looking at a financial
not only do you want to see the numbers and the required footnotes but you also
want to have management
you any other relevant information that would be essential for you to make
sound economic decisions that's the purpose
a view highlighting that alright the audit function
ads credibility because again it's a third party
testing to the validity of those financials
member management is going to be perceived as being bias they want to
present the best picture to show that
they did a really good job all right let's go down under C-one
and I'd like you to highlight management's responsibility
and after you highlighted that which make a little no
what is management responsible for well put down equals
financial statements and
internal control put that down management is responsible for
the financial statements and internal control
in fact what we're going to see when we look at the unmodified opinion
is that statement is specifically explicitly stated
in the report
all right let's move on to number two and what I like
auditor's responsibilities I like that
and their alternate responsibility write this down
test function right that's too express an opinion
or possibly disclaim 1 but it's the a test
function remember the auditor is not the one
who prepares the financials and the footnotes the auditor is not the one
ultimately creates internal control the auditor is the one
testing to ultimately management's representations
let's go onto performance
and when you highlight reasonable assurance
remember ultimately the auditor cat
absolutely guarantee with 100 percent certainty
that those statements and the internal control everything is fine
can't do that there's a cost-benefit relationship there's also the idea that
maybe somebody created a fraud and covered it up and because this company
is so large
its hard to discover all the things that might be wrong
so again it's just to provide reasonable
assurance number two there are inherent limitations
vannatter like you to highlight that and then
under to a highlight the nature of financial reporting
and go to the second line because they involve
judgment by management that's the nature of financial reporting
there's lots of judgment and therefore because there's lots of judgment
we have to again getting the heads the management and there are so many things
that they may be making judgments on that we have to kinda second-guess them
out in the margin just kinda emphasize what some of those judgments that
management makes
that we have to ultimately evaluate put down these following
blurbs one intangibles we have to determine if they've been properly
allocated to
and whether or not there in pairs of intangibles obviously just the word
impairment
however they tested for impairment what are the uses their assumptions
another one would be asset life
and the salvage value again
what period of time did you deem that an ass that would be useful
and what did you do would be the salvage value next item bad debts
what percentage of your receivables won't be collectible
warranties what percentage of your products will come back with defects
and of course lawsuits what's the likelihood of losing
and how much so those are all judgments
and they are inherent limitations as part of the process
now in to be let's highlight the nature
up the audit procedures then what i'd like you to do is make another no
again there are certain types of things that we have to be aware of and one of
them is
fraud and then in brackets but that's intentional
fraud is intentional or
errors and errors are
unintentional again it still means the financials maybe misstated
but it wasn't on intentional our I unintentional versus intentional
alright let's go on
letter C highlight timeliness a financial reporting
had the balance between cost and benefit obviously
auditors could come in and look at every single transaction
but the cost would be prohibited