International auditing standards in the United States : comparing and understanding standards for ISA and PCAOB

306 Pages·2015·2.255 MB·English

by  Anandarajan, Asokan., Kleinman, Gary

THE BUSINESS International Auditing KA Financial Accounting
LN
EXPERT PRESS Standards in the United States EINAN and Auditing Collection
DIGITAL LIBRARIES MD
Comparing and Understanding AA Scott Showalter and Jan Williams, Editors
NR
EBOOKS FOR A
Standards for ISA and PCAOB JA
BUSINESS STUDENTS N
Curriculum-oriented, born- Asokan Anandarajan • Gary Kleinman • International

digital books for advanced
International auditing of publicly owned corporations is governed
business students, written largely by either U.S. Public Company Accounting Oversight
by academic thought Board (PCAOB) auditing standards or International Standards Auditing
leaders who translate real- on Auditing (ISA) established by the International Federation of
world business experience Accountants (IFAC). In some respects, the U.S. PCAOB and ISA are
into course readings and similar, but in other ways they are not. In International Auditing Standards in
reference materials for Standards in the United States, the authors describe key d ifferences
I
N
students expecting to tackle between PCAOB auditing standards and ISA. The goal in doing so
T
management and leadership is to provide students, managers, and researchers with a clear, E the United States
R
challenges during their concise guide to the major differences between PCAOB and ISA N
professional careers. standards. Understanding these differences will provide the reader AT
with a greater appreciation of the differences in the auditing I
O
POLICIES BUILT
process between nations, and a greater understanding of what the N Comparing and
BY LIBRARIANS audit opinion means as issued in different parts of the world. A
L
• Unlimited simultaneous A
usage Asokan Anandarajan, professor of accounting and accounting U Understanding
information systems at the School of Management, New Jersey D
• Unrestricted downloading I
Institute of Technology, Newark, NJ. He has an MBA and MPhil T
and printing I
from Cranfield University, UK and a PhD in accounting from Drexel N Standards for ISA
• Perpetual access for a G
one-time fee University, Philadelphia. His research interests relate to earnings S
• No platform or management and expectation gap auditing standards. He has T
published in many peer reviewed research journals i ncluding: A and PCAOB
maintenance fees N
Accounting Horizons, Auditing: A Journal of Practice and Theory, D
• Free MARC records
A
Accounting and Finance, and Advances in Accounting.
• No license to execute R
D
The Digital Libraries are a Gary Kleinman teaches in the School of Business at Montclair S
comprehensive, cost-effective State University. He has a CPA license and obtained his PhD from IN Asokan Anandarajan
way to deliver practical Rutgers University, Newark, NJ. Dr. Kleinman has an e xtensive T
H Gary Kleinman
treatments of important research background, some of his many research articles have E
business issues to every appeared in the Journal of Accounting, Auditing and Finance; the J ournal U
of International Accounting Research; Review of Quantitative Finance N
student and faculty member. I
and Accounting; Research in Accounting Regulation, and A ccounting, T
E
Economics and Law: A Convivium. In addition, Dr. K leinman has also D
co-authored two books on auditing, an academically oriented S
T
book and a practitioner-oriented text concerning PCAOB and SEC A
For further information, a
standards on auditing. T
E
free trial, or to order, contact:  S
[email protected]
Financial Accounting
www.businessexpertpress.com/librarians
and Auditing Collection
Scott Showalter and Jan Williams, Editors
ISBN: 978-1-60649-612-1
International Auditing
Standards in the
United States

International Auditing
Standards in the
United States
Comparing and Understanding
Standards for ISA and PCAOB
Asokan Anandarajan and
Gary Kleinman
International Auditing Standards in the United States: Comparing and
Understanding Standards for ISA and PCAOB
Copyright © Business Expert Press, LLC, 2015.
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any
means—electronic, mechanical, photocopy, recording, or any other
except for brief quotations, not to exceed 400 words, without the prior
permission of the publisher.
First published in 2015 by
Business Expert Press, LLC
222 East 46th Street, New York, NY 10017
www.businessexpertpress.com
ISBN-13: 978-1-60649-612-1 (paperback)
ISBN-13: 978-1-60649-613-8 (e-book)
Business Expert Press Financial Accounting and Auditing Collection
Collection ISSN: 2151-2795 (print)
Collection ISSN: 2151-2817 (electronic)
Cover and interior design by Exeter Premedia Services Private Ltd.,
Chennai, India
First edition: 2015
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
Abstract
International auditing of publicly owned corporations is governed largely
by either U.S. Public Company Accounting Oversight Board (PCAOB)
auditing standards or International Standards on Auditing (ISA) estab-
lished by the International Federation of Accountants (IFAC). In some
respects, the U.S. PCAOB and ISA are similar, but in other ways they are
not. In this book, we describe key differences between PCAOB auditing
standards and ISA. Our goal in doing so is to provide students, manag-
ers, and researchers with a clear, concise guide to the major differences
between PCAOB and ISA standards. Understanding these differences will
provide the reader with a greater appreciation of the differences in the
auditing process between nations, and a greater understanding of what
the audit opinion means as issued in different parts of the world.
Keywords
convergence between ISA and GAAS, divergence between PCAOB and
IAS, generally accepted auditing standards (GAAS), international stan-
dards on auditing (ISA), PCAOB auditing s tandards, public corporation
accounting oversight board (PCAOB)

Contents
Preface ��������������������������������������������������������������������������������������������������ix
Acknowledgments ���������������������������������������������������������������������������������xiii
Chapter 1 International Auditing: A History and Introduction .......1
Chapter 2 The International and U.S. Audit Environments ...........25
Chapter 3 Ethics for International Auditors ...................................59
Chapter 4 U.S. Auditing Standards and the Role of the PCAOB ...83
Chapter 5 Planning an Audit and Client Acceptance .....................95
Chapter 6 Risk Assessment and Tests of Internal Controls ...........129
Chapter 7 Analytical Procedures ..................................................163
Chapter 8 Substantive Testing .....................................................177
Chapter 9 Audit Sampling ...........................................................195
Chapter 10 Audit Documentation and Working Papers ................213
Chapter 11 Audit Reports and Communication ............................227
Chapter 12 Final Considerations About Auditing ..........................259
About the Authors �������������������������������������������������������������������������������271
References �������������������������������������������������������������������������������������������273
Index �������������������������������������������������������������������������������������������������281

Preface
There has been a great deal written on the topic of the globalization
of business operations and finances over the last 30 years. Increasingly,
corporations in one nation set up offshore operations in another nation.
Further, corporations in one state invest in, or extend credit to, corpo-
rations in another state. In addition, capital markets that individual and
institutional investors invest in are global in that capital can be disinvested
from one firm in State A and almost immediately invested in another
firm in State B within moments. The importance of accounting infor-
mation in facilitating these initial investment decisions and in providing
the information investors/creditors need to monitor the outcome of these
decisions cannot be understated. The problems encountered by investors
in making these initial decisions and in monitoring the results of these
decisions mirror those that initially gave rise in the United States to the
U.S. requirements that first financial statements in proxy statements be
audited (i.e., as codified in the Securities Act of 1933) and then that
financial statements of all publicly listed firms in the United States be
audited by independent auditors (as codified in the Securities Exchange
Act of 1934). While figures may not lie, liars do figure. These acts were
passed due to President Franklin Delano Roosevelt’s recognition that, as
part of the need to restore public confidence in the security markets in
the United States during the Great Depression, investors and creditors
needed to have confidence in the information that they were provided
by firms seeking funds or else they would not invest. That confidence,
of course, was provided by requiring independent auditors to audit the
numbers provided by firm management on their financial statements
using audit methodologies. At that time, of course, the amount of inter-
national investment was small compared to today. The size of domestic,
let alone international, financial markets and cross-market investing was
small as well.
Since World War II, the size of the domestic U.S. financial market has
grown much larger, as have the financial markets of the European Union,