2. Introductory Questions:
 How is the audit role understood and interpreted in
the market place?
 Is there a conflict in the market understanding of
services offered by accountants?
 What is an audit?
 What is the role and services of the auditor?
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3. A friend of yours, an investor in the NZX, has just
received the annual financial report of FredenHeim Ltd.,
a listed company.
He made the following comment:
I see the auditors have issued a clear report on the
company. I can therefore invest a further amount of
money into the company, as there will be no risk that I
will lose my money owing to mismanagement.
Your comments on this statement?
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4.  Audit enhances credibility.
 Will not guarantee future viability.
 Does not guarantee efficiency and
effectiveness.
 Gives reasonable but not absolute assurance.
 Inherent limitations in audit could affect
auditor’s ability to detect fraud.
 Audit work open to subjective judgement.

5.  Fraud Detection.
 Predicting Company Failure.
 Detecting & Reporting illegal acts.
 Balance Sheet valuations.
 Duty of care and independence.
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6.  Enron, Worldcom.,HIH, Lehman Brothers, Fannie Mae
 Bernard Madoff, AIG Bonusses, Bank of America/
Merrill lynch, Bear Stearns
 South Canterbury Finance,
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7.  Definition as per American Accounting
Association
 ‘Auditing is a systematic process of objectively
obtaining and evaluating evidence regarding
assertions about economic actions and events
to ascertain the degree of correspondence
between those assertions and established
criteria and communicating the results to
interested users.’ (AAA 1973)

8.  YouTube - The Audit
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9.  Tax advice, fraud investigations, business advisory
services, independent audit, provision of forecasts.
 Three main types of engagements:
 Financial statement audits.
 Assurance services.
 All professional engagements.
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10.  Internal Auditors
 Certified Fraud Auditors
 Computer Auditors (EDP)
 Government Auditors
10

11.  NZ Law requires an auditor to form an opinion on the
financial accounts.
 Opinion based on accounts being ‘true and fair’ and
that they comply with accepted accounting principles.
(IFRS)
 IAS200.02 says it is to enable auditor to express an
opinion whether fin. Statements are prepared in all
material aspects in accordance with an identified
financial reporting framework.

12. 1. Conflicts of Interest.
2. Remoteness.
3. Complexity.
4. Consequence of error.
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13.  Credibility of Accounts
 In general due to 3 forms of control an audit
imposes:
 Preventative control.
 Detective control.
 Reporting control.
 To shareholders.
 To economic markets.
 For small and medium enterprises.
 Statutory Audits.
 Management Audits.
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14.  Conceptual benchmark of an audit.
 Not defined in the Companies Act 1993 nor by Courts.
 Broad terms has come to mean : auditor is judging the
reasonableness of the information being presented.
 In NZ Sec 16 of FRA (1993)requires an auditor to
express an opinion that accounts show a true and fair
view and comply with GAAP.
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15.  NZICA imposes professional standards on its
members.
 Operates as a standard setting organisation with the
power to censure, suspend members not complying
with its Standards.
 Audit and assurance
 NZICA adopting the international standards issued by
through IFAC (IAASB).
 Has monopoly on certain NZ Audits.
 the MED report in 2005 recommends regulation of
auditors by government (rather than profession).
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16.  Australia(AuSB)
 International Audit profession(IAASB)
 UK (APB)
 Canada(CICA)
 INTOSAI
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17.  Level of assurance : Positive vs. Negative.
 Positive assurance –high but not absolute confidence.
 Negative assurance – moderate level of assurance.
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18.  What the engagement includes, and what it does not
include.
 NZ specific terms described on p 11 of text.
 Reporting engagement
 Attest audit
 Review engagement
 Agreed-upon procedures
 Service engagements
 Advisory engagements
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19.  Proposals to resolve these gaps include:
 Audit report changes.
 Educate the report user.
 Improve the audit process.
 Independently regulate the profession.
 Reduce auditor conflicts of interest.
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20. 20

21.  Introductory Questions:
 What does accountability mean?
 What is the primary purpose of accounting and
auditing according to different theories?

22.  Essentially, the auditor’s role serves
(or may be intended to serve) the
accountability of management or the company to
users including shareholders,
some 3rd parties and others.

23.  Neo Classical economics
 Serves market players
 Agency and Transaction cost Theories
 monitors agents such as managers
 Social Accountability Theory
 serves the broader public interest in information;
opinion is a public good

24.  Accountability is owed to providers of capital.
 Reason why markets and industry are
interested in audited financial statements.
 “Purchased” Insurance.

25.  Accountability is owed to the general public
 Offers an expanded social role for auditing
carbon emissions trading
 Auditor to protect society from poor managers

26.  Threat of audit should improve quality of
statements
 Help to evaluate and decide on board
appointments.