Hello, and welcome welcome to auditing. Today we�re going to be talking about auditing,
and I realize some of you have seen this in college some of you may have never seen it,
but that's fine because I�m going to teach you what you need to know to get you through
the CPA exam. My name is Roger Philipp. Also, make sure you watch the intro because in the
intro, I�ll introduce myself but also talk about the course, the exam itself, and a good
study program and study schedule to enable you to get through the CPA exam. So, very
important, make sure you watch that. What are we starting out with? We�re starting
out with audit standards and engagement planning. So what we�re looking at here is we�re
going out, we're going to perform an audit on a client. Now, we�re going to talk about
different types of audits in a moment, about a compliance audit, an operational audit,
a financial statement audit for example. But what we�re looking at here is mainly the
financial statement audit. Now in this type of audit, which I�ll come back to, we're
looking at these financial statements. What I want you to realize for auditing, I want
you to memorize stuff, but I want you to understand it. And as you�ll see in the next 25 to
30 hours, I'm going to walk you through it step by step by step to make sure you understand
auditing. With auditing, we�re looking at these financial statements. These are management�s
financial statements. Management is responsible for the preparation. Management is responsible
for the fair presentation of the statements. The preparation and presentation. Our job
as an auditor should we decide at to accept it, is to obtain sufficient appropriate audit
evidence in order to afford us a reasonable basis for giving an opinion on these financial
statements. So our job is to give an opinion these statements. �In our opinion, the statements
referred to above presents fairly in all material respects.� What we�re saying is, �In
my opinion, the numbers are presented fairly.� So what we�re doing here in auditing, there's
a lot of overlap from, for example, your favorite intermediate accounting class. Because in
intermediate accounting, we talked about things like cash, receivables, inventory, accounts
payable, notes payable and so on. Here in auditing we're talking about not necessarily
how to prepare the valuation in the FAR exam, but here what we�re looking at is, how do
you audit that? How do I obtain enough good evidence so I can give an opinion on these
numbers? Because investors rely on these numbers, creditors rely on these numbers, people look
at these statements. They rely on our opinion in order to make a financial investment in
the company. Therefore, it's imperative that we�re objective, unbiased, independent,
clear mental attitude...all of this stuff that we�ll talk about in just a few minutes.
But the big picture of auditing is that, for example, we�ll talk down the road, but when
we�re looking at these statements, there are certain assertions, for example, P E R
C V, perceive. These are some of the assertions management makes in the financial statements.
For example, management is asserting that all these numbers are properly presented,
adequately disclosed. They exist. Rights. They own them. Completeness, cutoff, valuation,
allocation, accuracy, classification. So, these are some other things that they�re
asserting. So management is saying, �Hey! In these statements, in these numbers...�
and for the next 25 hours when I say, �Whose statements are these?� To stay awake, I
want you to go, �Management!� Old air out, fresh oxygen in, and then brain cells
start cranking, you stay awake, you learn, you learn, you pass the exam, become a CPA
and find out what true happiness really is. Alright? I�m so excited. So, this is what
management is asserting, and I'll actually teach you U PERCV: understandability and classification
presentation of disclosure, existence and occurrence rights and obligations, completeness,
cutoff value, allocation, valuation accuracy. These are the assertions. So, for example,
when you think back on your intermediate accounting, accounts receivable should be valued in the
balance sheet at how much? Their NRV, which stands for their net realizable value. Net
realizable value is the amount you expect to receive within one year or the accounting
cycle, whichever is longer. Inventory should be at the lower of cost or market. LCM. so,
what we have to do as an auditor, is in the financial exam, in FAR, you�re going through
and calculating the valuation. You've got to value receivables if they�re NRV. You�ve
got to go through and come up with bad debt expense, percentage of credit sales, aging
of AR and so on. We�re looking at the dollars. Here in audit, we're looking at making sure
that receivables exists. It�s the company�s receivable. The proper amount at the NRV.
They�re complete, they�re understand...they�re classified properly. If you factor discount,
pledge these receivables as collateral for a loan that has to be disclosed here in the
statements. So, again, in financial accounting, we care about the dollars. Here in auditing,
we care about giving an opinion, that in my opinion, the numbers are presented fairly
in all material respects. That�s what we're trying to do here.