Understanding an Audit

Understanding an Audit

Texas Tech University - ALCJanuary 22, 2008

Agenda

• Grant Thornton overview• Breakout #1• Changes in the audit profession• Criteria for accepting new clients• Breakout #2• Audit process• Breakout #3

Our guiding principles…R I P L

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• Professional excellence in all our efforts

• Leadership in the accounting profession, the business community and within our firm

Offer meaningfuland challenging work

Foster aculture of pride

by enhancingour reputation

in the marketplace

Providecareer

developmentto support our

professional growth

Recognize what we doand pay us fairly

Create an environmentwhere we feel

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The Grant Thornton Experience for Our People

The Grant ThorntonExperience

for Our People

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Sr. Associate Sr. Associate Advisory Advisory CouncilCouncil

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chin

g an

d M

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ring

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TIME

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OW

TH

FY '05 = $728M

Our financial track record

FY '07 = $1 B

Service line and industries: U.S. firm growth

Attract top quality talent: Headcount growth

TIME

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OW

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FY '03 = 320 Partners, 2943 Employees



442 Partners 4923 Employees

FY '06 =

495 Partners 4999 EmployeesFY '07=

Countries with Grant Thornton LLP or Grant Thornton International member firm offices

Grant Thornton International

Grant Thornton is a premier global accounting firm, focused on serving a diverse group of public and private companies since 1924.

Grant Thornton US50 locations from coast to coast

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plan design

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• GPS is located in Alexandria and recently added an office in San Antonio

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A passion for the business of accounting

Agenda

• Grant Thornton overview• Breakout #1 • Changes in the audit profession • Criteria for accepting new clients• Breakout #2• Audit process• Breakout #3

Breakout #1

Why are audits needed?

What does an audit entail?

Why would anyone

want to be an auditor?

What is the value of an audit?

What is the value of an audit?• Provides independent assurance on information• Increases the reliability of information for users

– Public, stockholders, investors, lenders, government

Why do we need audits?• To obtain sufficient relevant and reliable audit

evidence in order to afford a reasonable basis for our opinion on the client’s financial statements

• accounting rules and regulations have become more complex (i.e., revenue recognition, derivatives, special purpose entities, etc.)

• accounting industry has been moving to more of a fair value of accounting, which is much more difficult to estimate than historical cost

• Sarbanes-Oxley Act signed into law July 2002

• expectations of CPAs continue to increase with regards to integrity, competence and fraud discovery

Changes in public accounting…..

Who are these individuals and why are they significant to public accounting?

1 32

4 5 6

Criminal Penalties

Sarbanes-Oxley Certification 10 to 20 years

Escaping from prison 1 to 2 years

Kidnapping involving ransom3 to 5 years

Second degree murder 11 to 14 years

Air piracy 20 to 25 years

Agenda

• Grant Thornton overview• Breakout #1• Changes in the audit profession• Criteria for accepting new clients• Breakout #2• Audit process• Breakout #3

Criteria for accepting new clients

• industry environment• future growth of the company• material litigation and ongoing investigations• management integrity• international structure• satisfactory engagement economics• reasons for leaving current auditors, if applicable

Agenda

• Grant Thornton overview• Breakout #1• Changes in the audit profession• Criteria for accepting new clients• Breakout #2 • Audit process• Breakout #3

Not black and white… Podco Manufacturing - Background

• high-tech manufacturing company• signed sales agreement with i-pod to manufacture part for

4th generation i-pod• company has no cash flow • stock based payment because limited cash• company is family-owned and well known in the

community• company founded 3 years ago and are looking for a new

auditor• company is involved in significant litigation regarding

patent infringement• company has incurred double digit growth for two years• intends to go public in 3 years

What factors would you consider when deciding if you should

accept Podco Manufacturing

as a new client?

What are the risks?

BREAKOUT #2Bidding on an Audit Proposal

Agenda


Audit process

Audit process can be broken down as follows:

1. Planning

2. Preliminary

3. Final Fieldwork

4. Issue the Report

5. Engagement Wrap-up

Agenda


Breakout #3Audit process

Determine which stage the following audit procedures are performed. The stages of an audit are as follows:

1. Planning 2. Preliminary 3. Final Fieldwork 4. Issue the Report5. Wrap-up

• Partner - Overall responsibility for services provided

• Senior Manager\Manager - Supervises the audit work

• Senior Associate - Responsible for day-to-day conduct of the audit

• Staff/ Associate - Perform procedures as assigned

• Intern - Perform procedures as assigned

• Concurring reviewer - Quality Assurance

The audit engagement team

Step 1 – Planning

• risk assessment – fraud risk factors– changes in IT systems– impact of new accounting pronouncements– turnover of top management– prior year issues– gather knowledge of the business

• design and develop appropriate audit procedures, based upon risk assessment

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Step 2 – Preliminary Stage Testing and evaluation of controls

• staff and senior complete tests of controls

• audit significant transactions• perform some analytical work• vouch property additions• continuous job training and

feedback for Staff and Seniors

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Step 3 – Final fieldwork

• perform substantive test of account balances

• perform legal circularization• draft financial statements• perform search for unrecorded

liabilities• feedback for Staff and Seniors

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Step 4 - Issue the Report

• quality control reviews• review client- prepared

financials • issue audit opinion• issue Internal Control

Letter• archive files

33

Step 5 – Engagement wrap up

• time analysis by area

• formal evaluations of staff and seniors

• audit team analysis of planning ideas for next audit

34

Questions

A passion for the business of accounting

Understanding an Audit

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