Auditing: A Practical Approach

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3RD EDITION Auditing A PR ACTICAL APPROACH M O R O N E Y | C A M P B E L L | H A M I LT O N Auditing: A Practical Approach 3RD EDITION Robyn Moroney Fiona Campbell Jane Hamilton Third edition published 2017 by John Wiley & Sons Australia, Ltd 42 McDougall Street, Milton Qld 4064 Typeset in 10/12 pt Times LT Std © Robyn Moroney, Fiona Campbell, Jane Hamilton 2010, 2014 The moral rights of the authors have been asserted. National Library of Australia Cataloguing-in-Publication entry Creator: Title: Edition: ISBN: Subjects: Other Creators/ Contributors: Dewey Number: Moroney, Robyn, author. Auditing: a practical approach / Robyn Moroney, Fiona Campbell, Jane Hamilton. Third edition. 9780730326496 (ebook) Auditing — Australia — Handbooks, manuals, etc. Auditing — Handbooks, manuals, etc. Campbell, Fiona Margaret, author. Hamilton, Jane Maree, author. 657.45 Reproduction and Communication for educational purposes The Australian Copyright Act 1968 (the Act) allows a maximum of 10% of the pages of this work or — where this work is divided into chapters — one chapter, whichever is the greater, to be reproduced and/or communicated by any educational institution for its educational purposes provided that the educational institution (or the body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL). Reproduction and Communication for other purposes Except as permitted under the Act (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher. The authors and publisher would like to thank the copyright holders, organisations and individuals for their permission to reproduce copyright material in this book. Every effort has been made to trace the ownership of copyright material. Information that will enable the publisher to rectify any error or omission in subsequent editions will be welcome. In such cases, please contact the Permissions Section of John Wiley & Sons Australia, Ltd. Cover images: © Marish / Shutterstock.com; © EY. Typeset in India by Aptara 10 9 8 7 6 5 4 3 2 1 CONTENTS About the authors viii Preface ix CHAPTER 1 Introduction and overview of audit and assurance 1 Audit process in focus 4 1.1 Auditing and assurance defined 5 1.2 Different assurance services 5 1.2.1 Financial report audits 5 1.2.2 Compliance audits 7 1.2.3 Performance audits 7 1.2.4 Comprehensive audits 8 1.2.5 Internal audits 8 1.2.6 Corporate social responsibility (CSR) assurance 8 1.3 Different levels of assurance 13 1.3.1 Reasonable assurance 13 1.3.2 Limited assurance 16 1.3.3 No assurance 18 1.4 Different audit opinions 21 1.5 Preparers and auditors 22 1.5.1 Preparer responsibility 22 1.5.2 Auditor responsibility 23 1.5.3 Assurance providers 24 1.6 Demand for audit and assurance services 25 1.6.1 Financial report users 25 1.6.2 Sources of demand for audit and assurance services 26 1.6.3 Theoretical frameworks 27 1.6.4 Demand in a voluntary setting 28 1.7 The role of regulators and regulations 29 1.7.1 Regulators 29 1.7.2 Regulation 31 1.8 The audit expectation gap 34 Summary 36 Key terms 37 Multiple-choice questions 37 Review questions 39 Professional application questions 39 Research question 43 Further reading 43 Solutions to multiple-choice questions 43 Notes 43 Acknowledgements 44 CHAPTER 2 Ethics, legal liability and client acceptance 45 Audit process in focus 47 2.1 The fundamental principles of professional ethics 47 2.1.1 Integrity 48 2.1.2 Objectivity 48 2.1.3 Professional competence and due care 48 2.1.4 Confidentiality 48 2.1.5 Professional behaviour 49 2.2 Independence 50 2.2.1 Threats to independence