YORK UNIVERSITY Faculty of Liberal Arts and Professional Studies School of Administrative Studies

AP/ADMS 4551 - Section N Auditing and Other Assurance Services Winter 2013 COURSE OUTLINE Schedule:

Section Course Director Date of week and time Location Larry Yarmolinsky Wednesday N 4-7 pm ACW 303 [email protected]

Course Description:

This course provides an introduction to auditing and other assurance services for students who have not had significant exposure to auditing concepts or significant auditing experience.

The primary emphasis of the course is on the auditor’s decision-making process and the nature and amount of audit evidence needed to render an opinion on the fairness of an organization’s financial statements. Topics include professional standards, rules of conduct, ethical considerations, legal liability, audit and review objectives, the audit risk model, audit evidence, development and execution of compliance and substantive audit strategies, sampling methods and audit reports.

Required Text(s) and Academic Honesty Warning:

Alvin A. Arens, Randal J. Elder, Mark S. Beasley and Ingrid Splettstoesser-Hogeterp, (2010), Auditing: The Art and Science of Assurance Engagements, Canadian Eleventh Edition, Pearson /Prentice Hall.

C.I.C.A. Handbook, Canadian Institute of Chartered Accountants Accounting and Assurance Handbooks [Part I and Part II] - Available on-line through York Library e-resources. Students must have passport account to access the Handbook.

I.C.A.O. Member's Handbook, Institute of Chartered Accountants, most recent edition. This material is also available on the Internet at http://www.icao.on.ca Lecture slides, Hand In Assignments, Term Paper, Oral Presentation requirements and Solutions to In Class Discussion Questions will be posted on the course website.

WARNINGS -- Academic Honesty.

The instructor enforces all Faculty rules, especially those regarding academic honesty. There is zero tolerance in this area. Plagiarism is a violation of academic honesty. The use of another’s material without permission and without recognition is plagiarism. This applies to textbooks, study guides, solution manuals, a friend’s assignment, past assignments, Internet resources or any other material irrespective of the source. Any students handing in or providing material with plagiarism will be prosecuted. Students must be aware of York University’s Academic Honesty standards, Section D Serious Offenses Against the Standards of Academic Honesty. Course Learning Objectives:  To understand the purposes, benefits and disadvantages of auditing and assurance engagements, and the responsibilities of both management and the auditor.  Be able to explain the environment within which audit and assurance engagements are conducted, and the impact that the environment has upon such engagements; identify and discuss relevant standards and legislation that are part of this environment.  To describe and assess the processes involved in conducting a financial statement audit, including risk assessment, planning, execution and reporting.  To understand the objectives of the financial statement audit, and to design audit procedures for specific audit objectives, in the context of risks (analytical review, control procedures, tests of details, sampling).  To develop analytical and communication skills.

Organization of the Course:

This course outline will provide a broad overview of the content, structure and other aspects of the course. The course content and structure is, however, subject to change.

This course requires substantial group work. Groups will be formed and group work will start in the first class.

Learning Objectives and Required Readings Assignments and Class Work Session 1 – Jan 9 The Demand for Auditing / The Public Accounting Discussion/practice questions: Profession Textbook 1-13, 2-20

Learning Objectives: Form Groups -Define and explain auditing -Distinguish between accounting and auditing In-class group exercises: Textbook 1- -Identify the factors that affect the demand for audits 16 (Consumers’ Union) Please bring -Describe the types of auditors and types of audits questions posted to course website -Explain the various standards under generally accepted auditing standards (GAAS) -Identify quality control standards

Read: Chapter 1 – The Auditing Profession Chapter 2- The Public Accounting Profession CICA Handbook: CAS 200 - Overall Objective of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards CAS 220 - Quality Control for an Audit of Financial Statements

Session 2 – Jan 16 Overview of the Audit Process Discussion/practice questions: Textbook 5-22, 5-24, 5-25 Learning Objectives: - Understand the objective of conducting an audit of financial statements In-class group exercise: Kingston - Understand the difference between management and Company (Course Website) auditor responsibilities relating to the financial statements - Understand the financial statement cycles approach to segmenting the audit - Understand the relationship among financial statements, management assertions, audit objectives, and audit procedures - Identify the major phases of the audit process - Grasp the basic elements of audit reporting

Read: Chapter 5 - Audit Responsibilities and Objectives Chapter 22 -Auditor Reporting, p. 714-720 CICA Handbook: CAS 500 - Audit Evidence

Session 3 – Jan 23 Materiality, Risk, and Developing the Client Risk Profile Discussion/practice questions: Textbook 7-18, 7-19, 7-20, 8-23, 8-24 Learning Objectives: -Understand materiality and its purpose In-class group exercises: -Explain the relationship between materiality, risk and Materiality – Who’s Right? (Course audit evidence Website) -Identify the various bases for determining materiality HighTech Software & Games Inc. -Understand how to assess business risk and its (Course Website) relationship to the audit risk model Epoch Jeans (Course Website) _ Understand the type of evidence used in developing a client risk profile Linking risk factors (Course Website) Understand how to develop and apply analytical review in developing the client risk profile -Understand when need to rely on the work of a specialist Individual Hand-In Assignment #1 Read: (Course Website) Chapter 7 - Materiality and Risk Chapter 8 – Client Risk Profile and Documentation p. 239- 253 Chapter 6 – Purpose and timing of analytical procedures (p. 182-189) and Appendix 6A CICA Handbook: CAS 200 (see Session 1) CAS 315 - Identifying and Assessing the Risks of Material Misstatements through Understanding the Entity and its Environment CAS 320 - Materiality in Planning and Performing an Audit CAS 210 - Agreeing the Terms of audit Engagements CAS 300 - Planning an Audit of Financial Statements CAS 510 - Initial Engagements – Opening Balances CAS 520 - Analytical Procedures CAS 620 - Using the Work of an Auditor’s Expert

Session 4 – Jan 30 Corporate Governance, Internal Controls, and Control Discussion/practice questions: Risk Textbook 9-22, 9-24, Segregation of Duties (Course Learning Objectives: Website) - Describe internal control and understand its role in developing the client risk profile In-class group exercises: -Understand the importance of internal control for Northern Frontier Park (Course management and the auditor Website) -Understand the four components of internal control Little City Payroll – Identifying Control -Identify the components of the control environment Weaknesses (Course Website) -Understand how to assess control risk Acco (course website) -Understand the different approaches used to understand the client’s internal control -Link internal control to audit objectives and audit procedures -Discuss the purpose of a management letter -Understand the relationship between corporate governance strategies and risk management.

Read Chapter 9 Internal Controls and Control Risk Chapter 10 – Corporate governance and entity level controls (pp. 311-323) Chapter 14 -- Methodology for Designing Tests of Controls for Sales (pp. 455-468) Chapter 18 -- Test of Controls, for the audit of the acquisition and payment cycle (pp. 600-605) CICA Handbook: CAS 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and Management CAS 260, Communications with Those Charged with governance

Session 5 – February 6 Audit Evidence, Evidence Mix, and Audit Strategy Discussion/practice questions: Textbook, 6-22, 6-23, 6-26, 12-18, Learning Objectives 12-22 and 12-23 Explain the purposes of working papers and identify the various types of working papers In-class group exercises: Understand the factors that influence audit evidence Epoch Jeans – cont’d (course decisions website) Evaluate the quality of evidence Lernout & Hauspie (course website) Understand the relationship between analytical procedures, test of controls and test of details Individual Hand-in Assignment #2 – Understand how to develop an audit strategy that is Course Website efficient and effective

Read Chapter 8 – The Nature of Working Papers (p. 253-260) Chapter 6 – Audit Evidence Chapter 12 – Overall Audit Plan and Audit Program CICA Handbook: CAS 230 - Audit Documentation CAS 330 - The Auditor’s Responses to Assessed Risks CAS 500 - Audit Evidence

Session 6 – February 13 Fraud Auditing Discussion/practice questions: Textbook 11-23, 11-30 Learning Objectives Understand the fraud and the fraud triangle Understand the difference between fraudulent financial In-class group exercises: reporting and misappropriation of assets Little City Payroll – Fraud Risk Understand the features of corporate governance and of Assessment (course website) the control environment that that could reduce fraud risk Lola Whole Foods (course website) Understand the auditor’s responsibility for assessing and detecting fraud Group Assignment #1 Due – See the course website for the posted Read assignment Chapter 11 CICA Handbook: CAS 240-The auditor’s responsibilities relating to fraud in an audit of financial statements

February 20 Reading Week - NO CLASSES

Session 7 – Sunday February 24 th at (12 – 2 Location TBD pm)

MIDTERM EXAM INATION (covers materials from session 1-6)

There will be no class on Wednesday February 27- as the midterm was on the previous Sunday

Session 8 – March 6 Discussion/practice questions: Audit Sampling Textbook 13-22, and 13-26

Learning Objectives: In-Class Group Exercises: - Explain why sampling is important in auditing Packet Corporation (website) -Explain the concept of representative sampling Dan Scribner (website) -Distinguish between statistical and non statistical sampling -List the advantages and disadvantages of statistical versus non statistical sampling -Describe the steps in planning, selecting and evaluating a sample -Identify the steps to conduct attribute sampling

Read: Chapter 13 -- Audit Sampling Concepts Chapter 14 -- Audit of the Sales and Collection Cycle – Tests of Controls Application of Attribute Sampling (pp. 481-486)

CICA Handbook: · CAS 530, Audit Sampling Session 9 – March 13 Discussion/practice questions: 15-29, Application of the Audit Process: The Sales/Receivable 15-31, Adecco Employment Services Cycle (Course Website)

Learning Objectives: In-class group exercise -Identify the typical records and transactions in the sales Fisher Boats (Course Website) cycle Verona Shoe (Course Website) - Understand the relationship between overall audit planning risks and risks for sales and collections cycle Group Assignment #2 Due - See the assertions course website for the posted - Identify and describe the processes for designing assignment control tests and test of details for the sales and collection cycle - Identify the various analytical procedures used in the audit of the sales and collection cycle -Comparison of positive and negative confirmations -Discuss the process for confirming accounts receivable confirmations and following up non replies

Read: Chapter 14 - Audit of the Sales and Collection Cycle – Tests of Controls (p. 443-455 and 464- Chapter 15 – Designing Tests of Details of Balances for Accounts Receivable

Session 10 – March 20 Discussion/practice questions: 19-18, Application of the Audit Process: The Inventory and Hillmart Retail (Course Website), Warehousing Cycle And Acquisition and Payment Cycle Consumer Electronics (Course Website) Learning Objectives - Explain the components of the inventory and In-class group exercise warehousing cycle to the auditor Harris and the Auditors (Course - Explain the components of the Acquisition and Website) Payment cycle to the auditor Individual Hand-in Assignment # 3 -Identify the various types of analytical procedures relating to the inventory and warehousing cycle -Identify the various types of analytical procedures relating to the Acquisition and Payment cycle. -Discuss the physical observation and pricing/compilation audit tests for inventory - Understand the relationships among the tests of different cycles

Read: Chapter 18, 19

Session 11 – March 27 Discussion/practice questions: Professional Relationships and Legal Liability Textbook 3 -16, 3-17, 3-24, 4-13, 4- 16, and 4-18 Learning Objectives: - Explain what ethics are and why they are important to In-class group exercises: auditors Textbook 4-17 -Understand the six fundamental statements of accepted Lance Popper (course website) conduct -Understand the various facets of independence -Understand confidentiality as it applies to a public accountant -Understand advertising and solicitation from the perspective of a public accountant -Discuss how public accountants become associated with information and their responsibilities -Compare the auditor’s responsibilities with respect to errors, fraud, and other irregularities -Distinguish between a business failure and an audit failure -Describe the accountant’s liability to third parties under common law and the related defenses -Discuss the profession’s response to legal liability -Examine the impact of Sarbanes Oxley and Bill 198

Readings: Chapter 3 -- Professional Relationships: The role of ethics and independence Chapter 4 –Legal Liability CICA Handbook Section 5020 - Association CAS 240 - The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements CAS 250 - Consideration of Laws and Regulations in an Audit of Financial Statements · ICAO Handbook - Rules of Professional Conduct (available from www.icao.on.ca. Click on Site Map, scroll down to Resources and click on Member’s Handbook. Download the pdf file titled “Rules of Professional Conduct.”)

Session 12 – April 3 Discussion/practice questions: 21-17, Contingent Liabilities, Audit Completion and Modifications to the Auditor’s Standard Report In-class group exercises: Textbook 22-22, Read: Report Qualifications (Course Chapter 21 - Completing the Audit Website) Chapter 22 - Audit Reporting p.720-737 Gabby – review question (course website) CAS 260 - Communications with Those Charged with governance Individual Hand-in Assignment # 4 CAS 560 - Subsequent Events CAS 570 - Going Concern CAS 580 - Written Representations CAS 450 - Evaluation of Misstatements Identified during the Audit CAS 700 - listed in S1 CAS 705 - Modifications to the Opinion in the Independent Auditor’s Report CAS 710 - Comparative Information – Corresponding Figures and Comparative Financial Statements CAS 706 - Emphasis of Matter Paragraphs and Other Matter CAS 720 - The auditor’s responsibility in relation to other information in documents containing audited financial statements

Session 13 – FINAL EXAMINATION (covers the entire course-during regular examination schedule: April 10th – April 26th) Weighting of Course:

Class Attendance, Participation, and Hand 15% Various Sessions in Assignments (4) Midterm Examination (Sessions 1-6) 25% Session 7 Group Assignments(2) 20% Various Sessions Final Examination 40% During exam schedule (April 10-26th) TOTAL 100%

(1) Break-down of Attendance, Hand-in assignment and Class Participation:

Mark Allocation Description 8 Hand-in assignments (4 assignments) 5 In-class group and individual participation 2 Attendance 15 TOTAL % OF FINAL GRADE

Instructions for the “Hand In Assignments” will be posted on the course website.

(2) The four individual assignments and two group assignments are to be posted to turnitin.com using Moodle – details will be given at the first session.

Missed Midterm

If a midterm examination is missed due to a valid reason such as illness or other reason approved by the Course Director the midterm mark of 25% will be added to the final examination percentage.

The documentation required to support this reallocation are as follows: 1. For illness, a completed medical form (physician's statement) provided by the Registrar’s Office, OR for another valid reason, the documentation requested by the Course Director, AND 2. A signed statement stating that you are aware that your final examination will be worth 65%. This signed statement is to be attached to the documentation provided in (1) above.

An email notification of the missed midterm must be sent to the course director within 2 days of the missed midterm and the required documentation must be delivered to the course director/ Room 282 Atkinson within 7 days of the missed midterm.

Deferred Examination Policy

Deferred standing may be granted to students who are unable to write their final examination at the scheduled time or to submit their outstanding course work on the last day of classes. In order to apply for deferred standing, students must register at http://apps.eso.yorku.ca/apps/adms/deferredexams.nsf then subsequently hand in a completed DSA (Deferred Standing Agreement) form with supporting documentation directly to the main office of the School of Administrative Studies (282 Atkinson). Write your ticket number from the online registration system directly onto the DSA form. The DSA and supporting documentation must be submitted no later than five (5) business days from the date of the exam to the main office of the School of Administrative Studies (282 Atkinson), NOT to the Course Director. These requests will be considered on their merit and decisions will be made on a case by case basis. Decisions will be made available by logging into the following link: http://apps.eso.yorku.ca/apps/adms/deferredexams.nsf. No individualized communication will be sent by the School to the students (no letter or e-mails).

Students with an approved DSA will be able to write their deferred examination during the School's deferred examination period. No further extensions of deferred exams shall be granted. The format and covered content of the deferred examination may be different from that of the originally scheduled examination. The deferred exam may be closed book, cumulative and comprehensive and may include all subjects/topics of the textbook whether they have been covered in class or not. Any request for deferred standing on medical grounds must include an Attending Physician's Statement form; a “Doctor’s Note” will not be accepted.

DSA Form: http://www.registrar.yorku.ca/pdf/deferred_standing_agreement.pdf

Attending Physician's Statement form: http://www.yorku.ca/laps/council/students/documents/APS.pdf

The deferred examinations for the Winter 2013 term shall be held in the period May 24-26, 2013.