Key Features

• Chapter 5 has been extensively updated with more emphasis on additional internal control auditing and reporting requirements of PCAOB Auditing Standard No. 5 (AS 5).
• All chapters and modules have been revised to incorporate professional standards through SAS 114, and now include international standards of auditing (ISAs).
• All chapters feature new end-of-chapter material, including Kaplan CPA Simulations. The Kaplan Simulations are available on the book’s Online Learning Center (OLC), www.mhhe.com/louwers3e.
• A free copy of ACL auditing software is included with each copy of Auditing & Assurance Services. Selected chapters also include exercises to be used with the software (available on the book’s OLC.)
• Two new Comprehensive Cases on public accounting firm fees and indemnification clauses are included. All cases are now located after Module H.

Part I: The Contemporary Auditing Environment

CHAPTER 1: Auditing and Assurance Services

• Coverage of ISAs has been added.
• An Auditing Insight has been added for assurance services in the market for baseball cards.
• Assertions have been conformed to new auditing standards.
• GAO engagement examples have been updated.

CHAPTER 2: Professional Standards

• Coverage of the 10 GAAS has been revised to incorporate the most recent editorial and wording changes to these standards (provided by SAS 113).
• The most recent (2007) auditors’ report for Wal-Mart Stores, Inc. has been included to demonstrate the four standards of reporting.
• Attestation standards have been revised to incorporate the most recent editorial and wording changes to these standards (SSAE 114).
• The discussion of the PCAOB’s monitoring role has been expanded, including a summary of the findings from the most recent inspection reports for the Big Four firms.

CHAPTER 3: Management Fraud and Audit Risk

• Auditing Insights have been added that discuss illegal acts involving Siemens, materiality fraud at HealthSouth, and additional verdicts for “When CEO’s Go Bad.”
• A discussion of the risk of material misstatement has been added to the discussion of the audit risk model.
• The exhibit entitled “General Categories of Errors and Frauds” has been expanded to include specific examples of frauds and errors.
• The exhibit listing assertions and related audit procedures has been expanded to include both the PCAOB and new ASB financial statement assertions.
• Although key examples, findings and implications have been kept, the discussion of the effectiveness of audit procedures has been reduced.
• The discussions of audit procedures and audit programs have been reordered to increase readability and understandability.

Part II: The Financial Statement Audit

CHAPTER 4: Engagement Planning

• The ERM model has been further expanded and explained comparing Wal-Mart’s timely response to Hurricane Katrina with FEMA’s delayed response.
• The discussion of engagement letters has been expanded to include limited liability caps and indemnification clauses. A mini-case discussing the issue in depth has also been added.
• The discussion of working with internal auditors has been expanded as a result of AS 5.

CHAPTER 5: Risk Assessment: Internal Control Evaluation

• Krispy Kreme’s management report on the company’s numerous internal control deficiencies provides the introduction for the chapter.
• The chapter has an increased focus on assessing the risk of material misstatement (not just control risk).
• Two Auditing Insights for internal controls have been added, highlighting real world examples of control deficiencies.
• A new discussion of Entity-Level Controls has been added.
• The section discussing additional procedures required for publicly traded companies has been completely rewritten as a result of the issuance of AS 5.
• A summary of Moody’s report on internal control deficiencies has been added.
• The definitions of significant deficiencies and material weaknesses have been amended and examples of each have been provided.
• A summary of evidence is provided on the question of whether Sarbanes-Oxley is working or not.
• Reports on internal control over financial reporting have been moved from Chapter 12 and expanded for more extensive coverage.
• New AS 5 questions have been added to EOC materials.

CHAPTER 6: Employee Fraud and the audit of Cash

• New ISAs and AS 5 coverage has been added.
• New Auditing Insights--The Model Employee, Lapping up the Profits, Lack of Separation of Duties, Training to Catch Fraudulent Checks, and Payroll Fraud—have been added.
• All assertions have been conformed to new auditing standards.

CHAPTER 7: Revenue and Collection Cycle

• New ISAs and AS 5 coverage has been added.
• Auditing Insights for TJ Maxx, PCAOB Inspections, and the revenue and collection cycle have been added.
• The risk assessment discussion and assertions have been conformed to new auditing standards.
• The confirmation discussion has been updated for AICPA Practice Alert 03-1: Audit Confirmations, June 2007.
• Discussion of required disclosures for revenue and collection cycle has been added.

CHAPTER 8: Acquisition and Expenditure Cycle

• New ISAs and AS 5 coverage has been added.
• The risk assessment discussion has been conformed to new standards.
• Discussion has been added for auditing the income tax provision.
• Auditing Insights have been added for H&R Block, and PCAOB inspections of the acquisition and expenditure cycle.
• Discussion has been added for the required disclosures for acquisition and expenditure cycle.
• The payroll cycle has been shortened and and moved from Chapter five.

CHAPTER 9: Production Cycle

• New ISAs and AS 5 coverage have been added.
• Risk assessment discussion has been conformed to new auditing standards.
• Assertions have been conformed to new auditing standards.
• A new section on the use of technology in taking inventory (bar codes and computers; RFID) has been added.
• Auditing Insights for Lack of Separation of Duties, Stolen Inventory Sold on eBay, Using RFID to combat counterfeit fraud, and PCAOB inspections and the production cycle have been added.
• Analysis of presentation and disclosure of inventory in Boeing Corporation’s 2006 annual report has been added.

CHAPTER 10: Finance and Investment Cycle

• New ISAs and AS 5 coverage has been added.
• Risk assessment discussion has been conformed to new auditing standards.
• Assertions have been conformed to new auditing standards.
• Auditing Insights for Watch Out for Leases, the Importance of Disclosure, Not Disclosing Information Can Hurt, and PCAOB inspections and the Investment Cycle have been added.

CHAPTER 11: Completing the Audit

• Merck’s potential liabilities related to customer use of Vioxx are discussed in the section on auditing contingencies.
• The sample management representation letter has been modified to include matters identified by AS 5.
• An Auditing Insight has been added highlighting the recent failure of management representations involving KPMG and Gemstar-TV Guide.
• Other Auditing Insights involving Wal-Mart, PricewaterhouseCoopers and Cisco Systems have been added.
• The discussion of adjustments has been expanded to include both the rollover method and iron curtain method (with an example of each).
• The auditors’ required communications with individuals charged with governance under SAS 114 have been included.

 CHAPTER 12: Reports on Audited Financial Statements

• Reports on internal control over financial reporting have been moved to Chapter 5 for more extensive coverage.
• The integrated report on the entity’s financial statements and internal control over financial reporting has been modified in response to AS 5.
• The opening vignette discusses PricewaterhouseCoopers’ reporting in the Adelphia Communications case.
• The auditors’ standard report has been revised to focus on the PCAOB version.
• Reports issued in various scenarios have been revised to be derived from the same standard auditors’ report to allow readers to more clearly see how these matters affect the content of auditors’ reports.
• A schematic has been added to illustrate the auditors’ various options when a division of responsibility exists.
• A summary table has been included that identifies how the standard report is modified for a variety of reporting issues.

Part III: Other Topics

MODULE A: Other Public Accounting Services

• The coverage of assurance services has been updated (e.g., a new WebTrust report has been included), but is being deemphasized with the profession’s renewed focus on auditing engagements.
• Auditing Insights have been added summarizing recent academic research addressing prospective financial information and internal control attestation engagements and the value of “plain paper” financial statements.
• The discussion of reviews and compilations has been revised following recent SSAR issuances.
• A summary of the differences among audits, reviews, and compilations has been added.

 MODULE B: Professional Ethics

• This module has been completely reorganized and rewritten. Additionally, interpretations formerly included in an appendix have been incorporated into the body of the text without reducing readability.
• Two Auditing Insights have been added addressing sanctions for wrong-doing, including the PCAOB censuring an accountant and China executing an accountant for committing fraud.
• An Auditing Insight has been added regarding client confidentiality.

MODULE C: Legal Liability

• An opening vignette discussing BDO Seidman’s potential liability in the E.S. Bankest case and their decision to fight this case in court has been added.
• A summary of major settlements involving all of the Big Four firms has been included.
• A schematic illustrating the roles and responsibilities of auditors, clients, and third-party users of financial statements has been added to show how legal liability arises.
• The discussion of SEC filing processes and expanded discussion of auditors’ liability under the Securities Acts has been greatly reduced.
• A table has been added that summarizes the parties involved, plaintiff proof, type of offense, and auditor defenses for common law liability and liability under the Securities Acts.
• The section that summarizes significant changes in the landscape of auditors’ liability has been expanded.

MODULE D: Internal, Governmental, and Fraud Audits

• Two Auditing Insights—Who’s Minding Cash, and “How Hard Did You Study for Your Last Exam?—have been added.
• Coverage of the reliance of Congress on the GAO has been added.
• The governmental audit section for new yellow book standards has been updated.

 MODULE E: Overview of Sampling

• The risk assessment discussion has been conformed to new auditing standards.
• A brief discussion of audit sampling has been added so Module E can be used as a stand-alone chapter on sampling.
• Updated for SAS 111.
• The results of the study "How Reliable is Haphazard Sampling?" by Hall, Herron and Pierce has been incorporated.
• An Auditing Insight for PCAOB Inspections and Sampling has been added.

MODULE F: Attribute Sampling

• The risk assessment discussion has been conformed to new auditing standards.
• A new section on nonstatistical attribute sampling has been added.

MODULE G: Variables Sampling

• Conformed risk assessment discussion to new auditing standards.
• Expanded discussion of dollar unit sampling to include effects of understatements.

MODULE H: Information Systems Auditing

• An opening vignette has been added that discusses weaknesses in Fannie Mae’s information technology controls.
• A summary of examples from PCAOB inspection reports has been added.
• Summary tables for categories, examples and objectives of ITGC, as well as a summary table of the different types of ITAC have been added.
• Numerous Auditing Insights discussing issues related to information technology controls in business have been added.

Comprehensive Cases:

• Six comprehensive cases are now included: Arthur Andersen, KPMG, HealthSouth Corporation, Parmalat, public accounting firm fees, and a case concerning indemnification clauses.