1 Introduction and Overview of Audit and Assurance 1-1 Assurance, Attestation, and Audit Services 1-3 Different Assurance Services 1-6 Demand for Audit and Assurance Services 1-8 Preparers and Auditors 1-11 The Role of Regulators and Regulations 1-13 Audit Report on Financial Statements 1-19 Audit Report on Internal Controls over Financial Reporting 1-25 The Audit Expectation Gap 1-28 2 Professionalism and Professional Responsibilities 2-1 Professionalism and Accounting 2-3 The Structure of the AICPA Code of Professional Conduct 2-5 Conceptual Framework for Members in Public Practice 2-7 Integrity and Objectivity 2-11 Independence 2-12 General Standards 2-23 Other Rules of Conduct for Members in Public Practice 2-24 Auditor Liability Under Common Law 2-26 Auditor Liability Under Statutory Law 2-33 3 Risk Assessment Part I: Audit Risk and Audit Strategy 3-1 Client Acceptance and Continuance Decisions 3-3 Phases of an Audit 3-8 Materiality 3-10 Professional Skepticism and Audit Risk 3-14 Audit Strategy 3-21 Fraud Risk 3-25 4 Risk Assessment Part II: Understanding the Client 4-1 Understanding the Client 4-3 Client Approaches to Measuring Performance 4-12 Analytical Procedures 4-14 Related Parties 4-22 Corporate Governance 4-23 Internal Control and Information Technology 4-26 Closing Procedures 4-27 5 Audit Evidence 5-1 Management Assertions 5-3 Characteristics of Audit Evidence 5-7 Procedures for Gathering Audit Evidence 5-10 Using the Work of Others 5-18 Documentation--Audit Working Papers 5-24 6 Gaining an Understanding of the Client''s System of Internal Control 6-1 Internal Control Defined 6-3 Entity-Level Internal Controls 6-7 Transaction-Level Internal Controls 6-19 Information Technology (IT) Controls 6-23 Documenting Internal Controls 6-29 Identifying Strengths and Weaknesses in a System of Internal Controls 6-31 Management Letters 6-33 7 Audit Data Analytics 7-1 Steps in Performing Audit Data Analytics 7-3 Steps Associated with Accessing and Preparing Data for Audit Data Analytics 7-11 Using Audit Data Analytics as a Risk Assessment Procedure 7-13 Applying Audit Data Analytics as a Risk Assessment Procedure 7-17 Using Audit Data Analytics as a Substantive Test 7-37 Applying Audit Data Analytics as a Substantive Test 7-38 Validating Sales Revenue and Accounts Receivable with Subsequent Cash Receipts 7-38 8 Risk Response: Performing Tests of Controls 8-1 Steps in Assessing Control Risk 8-3 Types of Controls 8-7 Procedures for Testing Controls 8-13 Selecting and Designing Tests of Controls 8-15 Results of the Auditor''s Testing 8-26 Documenting Conclusions 8-29 9 Risk Response: Performing Substantive Procedures 9-1 Audit Risk and Substantive Procedures 9-3 Risk Response at the Financial Statement Level 9-5 Nature of Substantive Procedures 9-7 Timing of Substantive Procedures 9-14 Extent of Substantive Procedures 9-16 Auditing Accounting Estimates 9-19 Documenting Results of Substantive Procedures 9-26 10 Risk Response: Evaluating Audit Data Analytics and Audit Sampling for Substantive Tests 10-1 Using Audit Data Analytics versus Audit Sampling 10-3 Audit Sampling Defined 10-5 Sampling Risk and Nonsampling Risk 10-6 Statistical and Nonstatistical Sampling 10-8 Sampling Methods 10-9 Factors That Influence the Sample Size--Substantive Testing 10-11 A Basic Framework for Audit Sampling 10-14 Applying Probability-Proportionate-to-Size Sampling for Substantive Testing 10-16 Applying Nonstatistical Sampling for Substantive Testing 10-28 Appendix 10A: Applying Classical Variables Sampling for Substantive Testing 10-33 11 Auditing the Revenue Process 11-1 Nature of the Revenue Process 11-3 Understanding the Entity and Its Environment 11-4 Inherent Risks in the Revenue Process 11-9 Control Activities for Credit Sales 11-12 Control Activities for Cash Receipts 11-18 Control Activities for Sales Adjustments and Revenue Process Disclosures 11-23 Tests of Controls in the Revenue Process and Audit Strategy 11-25 Substantive Tests for the Revenue Process 11-28 12 Auditing the Purchasing and Payroll Processes 12-1 Nature of Purchase Transactions and Balances 12-3 Understanding the Entity and Its Environment 12-4 Inherent Risks in the Purchasing Process 12-8 Control Activities for Purchases 12-11 Control Activities for Cash Disbursements 12-18 Evaluated Receipt Settlement (ERS) 12-21 Control Activities for Purchase Adjustments and Purchasing Process Disclosures 12-24 Tests of Controls in the Purchasing Process and Audit Strategy 12-26 Substantive Procedures for the Purchasing Process 12-28 Appendix 12A: Auditing Payroll 12-34 Explain the Nature of Payroll Transactions and Balances 12-34 Understanding the Entity and Its Environment 12-35 Inherent Risks Related to Payroll 12-37 Control Activities for Payroll 12-38 Tests of Controls in the Payroll Process and Audit Strategy 12-42 Substantive Tests for the Payroll Process 12-45 13 Auditing Various Balance Sheet Accounts (and Related Income Statement Accounts) 13-1 Auditing Cash and Cash Equivalents 13-3 Auditing Inventory on the Balance Sheet 13-11 Auditing Property, Plant, and Equipment 13-28 Auditing Financing Activities 13-37 14 Completing the Audit 14-1 Audit Procedures for Loss Contingencies 14-3 Subsequent Events 14-7 Engagement Wrap-Up 14-10 Going Concern 14-18 Management Representation and Communication with Those Charged with Governance 14-21 15 Reporting on the Audit 15-1 Standard Unmodified/Unqualified Audit Report 15-3 Additional Paragraph for the Standard Unmodified Report 15-7 Opinion Based in Part on the Report of Another Auditor 15-12 Modifying the Audit Opinion 15-14 Subsequently Discovered Facts 15-22 Reports on the Audit of ICFR 15-26 Compilation and Review Engagements 15-30 Appendix A Cloud 9 Inc. Audit A-1 Cloud 9 Inc. Company Background A-1 Transcript of Meeting with David Collier A-4 Glossary G-1 Index I-1.