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Auditing

FOR

DUMmIES

by Maire Loughran, CPA

‰

Auditing For Dummies

Published by

Wiley Publishing, Inc.

111 River St.

Hoboken, NJ 07030-5774

www.wiley.com

Published by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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Library of Congress Control Number: 2010929305

ISBN: 978-0-470-53071-9

Manufactured in the United States of America

10 9 8 7 6 5 4 3 2 1

About the Author

Maire Loughran

is a certified public accountant and a member of the

American Institute of Certified Public Accountants. Her professional

experience includes four years of internal auditing for a publicly traded

company in the aerospace industry, two years as an auditor in the not-for-

profit sector, and even some experience as a U.S. federal agent! Her public

accounting experience includes financial reporting and analysis, audits of

private corporations, accounting for e-commerce, and forensic accounting.

Maire is a full adjunct professor who teaches graduate and undergraduate

auditing, accounting, and taxation classes. Interested in many different

business-related fields, she has written a training manual for a Microsoft

product and a guide to starting a home-based business, as well as the Arts

and Crafts Business Guide for About.com, a part of The New York Times

Company.

Dedication

To my much-loved son Joey, who serves his country aboard the USS

Harry S.

Truman:

I am prouder of you than mere words can ever describe. And to my late

husband Jeff, so long gone from our lives but never absent from our hearts.

Author’s Acknowledgments

To the Ursuline nuns and Jesuit priests who provided me with a stellar

education, and to my parents, who selflessly footed the bill.

To my agent, Barb Doyen, for all her hard work and support.

And to Joan Friedman, Chad Sievers, and Todd Lothery for their months of

editing, follow-through, and advice.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments at

http://dummies.custhelp.com

. For

other comments, please contact our Customer Care Department within the U.S. at 877-762-2974,

outside the U.S. at 317-572-3993, or fax 317-572-4002.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and

Media Development

Project Editor:

Chad R. Sievers

Contributor:

Joan Friedman

Acquisitions Editor:

Stacy Kennedy

Copy Editor:

Todd Lothery

Assistant Editor:

Erin Calligan Mooney

Senior Editorial Assistant:

David Lutton

Technical Editor:

Mary Ann Merryman, CPA, CFE

Editorial Manager:

Michelle Hacker

Editorial Assistant:

Rachelle Amick

Cover Photos:

Robyn Mackenzie

Cartoons:

Rich Tennant

(www.the5thwave.com)

Special Help:

Danielle Voirol

Composition Services

Project Coordinator:

Patrick Redmond

Layout and Graphics:

Nikki Gately,

Kelly Kijovsky

Proofreaders:

Jessica Kramer, Toni Settle

Indexer:

Potomac Indexing, LLC

Publishing and Editorial for Consumer Dummies

Diane Graves Steele,

Vice President and Publisher, Consumer Dummies

Kristin Ferguson-Wagstaffe,

Product Development Director, Consumer Dummies

Ensley Eikenburg,

Associate Publisher, Travel

Kelly Regan,

Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings,

Vice President and Publisher, Dummies Technology/General User

Composition Services

Debbie Stailey,

Director of Composition Services

Contents at a Glance

Introduction ................................................................ 1

Part I: Getting an Auditing Initiation ............................ 7

Chapter 1: Taking Auditing into Account ....................................................................... 9

Chapter 2: The Role of Auditing in Public Accounting................................................ 21

Chapter 3: Understanding Professional Standards and Ethics .................................. 33

Part II: Performing the Initial Auditing Steps .............. 45

Chapter 4: Getting Engaged: Preparing to Conduct an Audit..................................... 47

Chapter 5: Assessing Audit Risk .................................................................................... 67

Chapter 6: Collecting and Documenting Audit Evidence ............................................ 91

Chapter 7: Auditing a Client’s Internal Controls ........................................................ 111

Chapter 8: Sampling the Records ................................................................................ 133

Part III: Auditing How a Client Conducts Business ..... 153

Chapter 9: The Revenue Process: Auditing How a Business Makes Money ........... 155

Chapter 10: The Purchasing Process: Auditing How a Business Spends Money... 181

Chapter 11: The Human Resources Process: Auditing Personnel Practices.......... 201

Chapter 12: Inventory Management: Auditing How a Business Manages

Its Products .................................................................................................................. 219

Part IV: Focusing on a Client’s Finances .................... 239

Chapter 13: Auditing Fixed and Intangible Assets ..................................................... 241

Chapter 14: Auditing Long-Term Liabilities and Stockholder Equity...................... 261

Chapter 15: Auditing Cash and Investments .............................................................. 283

Part V: Completing the Audit .................................... 297

Chapter 16: Performing Final Due Diligence ............................................................... 299

Chapter 17: Wrapping It Up: Issuing the Report ........................................................ 313

Chapter 18: The Spectrum of Engagement Services.................................................. 325

Part VI: The Part of Tens .......................................... 339

Chapter 19: Ten Procedures to Obtain Audit Evidence ............................................ 341

Chapter 20: Ten Tips to Stay Educated in Audit Procedures................................... 345

Index ...................................................................... 349

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