BUS 169A Auditing

Instructor: Ted Mock Office: Anderson Hall 209 Phone: (951) 827-2333 Fax: (951) 827-3970 E-mail: tmock@ucr.edu Quarter: Winter 2013 Lecture time: Tu-Th 8:10 9:30 PM Classroom: INTN 1002 Website: http://ilearn.ucr.edu/ Office Hours: Tues. and Thurs. 9:40 10:30 Near or inside of the Coffee Bean 10:30 12:00 Anderson Hall 209 Friday Mornings by appointment ONLY

Introduction to BUS 169A1

The provision of assurance services (including financial statement auditing) is a process that involves research, investigation, evidence gathering, risk assessment and evidential reasoning. Its objective is providing effective and economical assurance concerning financial information or other types of information of interest to business, government, or society in general. Types of information that may be audited include financial statements, environmental reports, carbon footprint reports, sustainability reports, and health quality or product quality reports. Because the term auditing often is used with respect to the auditing of financial statements, the more general term of assurance services is used to include the broad array of audit, attestation, and assurance services that are being provided world-wide. This course is an introduction to basic concepts and techniques that are used in the provision of assurance services. It focuses on one type of assurance service, the auditing of financial statements. The auditors role is to provide an independent, cost effective audits of financial or other information to insure that the information meets accepted standards such as being reliable and being a complete representation of the financial position and performance of an economic entity. BUS 169A is designed to provide an introductory framework for understanding how auditors plan and conduct an audit. In completing an audit, the audit team decides what to do, how much risk is appropriate and when to conclude the research, investigation, and evidence gathering processes. Auditing and general assurance services are essential for efficient capital markets and to the success of many enterprises manufacturing, service, government, or not-forprofit organizations. The course objectives are embedded in the context of two learning themes: 1. Learn Audlish, that is the Vocabulary of the Auditing and Assurance Services Profession: Students will learn the basic terms, definitions, and concepts in the discipline of Auditing and Assurance Services. Auditing has its own language audit risk, substantive audit procedures, forensic procedures, accounting controls, financial statement fraud, materiality and many others. You will learn what these and other terms mean from an auditing and assurance services perspective and why some terms have a variety of meanings.
For the school-wide context for this course, see the SoBA Mission Statement and the Undergraduate Program Learning Goals reproduced at the end of this syllabus.
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2. Develop Your Investigative, Evidential Reasoning, Ethical Reasoning, and Risk Assessment Skills in Assessing Risks, Designing Audit Programs, Collecting and Analyzing Audit Evidence, in Preparing Audit Opinions and in Communicating Audit Findings to Interested Parties: Students will have multiple opportunities for practice in developing these skills and obtaining feedback concerning these activities. These are selected to enhance students ability to prepare independent, useful and cost-effective reports and analyses that meet Professional Standards. This syllabus is an invitation to you as a student to engage in an interactive study of the core concepts of auditing and assurance services. It is my intention to provide a collaborative and supportive learning environment where students will learn both in and out of the classroom. To that end, modifications to this syllabus might be warranted as I assess and update the learning needs of this particular class.

Course description
BUS 169A. Auditing (4) Lecture, 3 hours; individual study, 3 hours. Covers the auditing environment, the auditors legal liability, audit responsibilities and objectives, audit evidence, audit planning and documentation, the auditors report, and management letters.

Course Format and Learning Strategy

BUS 169A Auditing is a one quarter, four-credit course. Your regular class meetings will involve a variety of activities including lecture; in-class preparation and discussion of problems; clicker quizzes; and group presentations. This class is designed to be part of a two quarter sequence and is followed by BUS 169B. Whereas 169A focuses on basic concepts and theory, 169B focuses on application of these concepts and theory in practice. Typical assignments and activities for each class session include: Background reading. Each chapter contains learning objectives, a list of relevant audit standards, readings and references about auditing concepts and issues, including 2

examples from the business and financial press illustrating these concepts and issues in real companies. Readings should be completed by the due date on the schedule. Review Assignments include review questions, multiple choice questions from CPA examinations, discussion & research problems, real world auditing problems and internet assignments. Each chapter ends with a set of possible assignments. You cannot learn auditing simply by reading; you need to grapple with the issues to really understand the concepts. Thus, you will be asked to review and sketch solutions to variety of assignments. While some assignments are reasonably straightforward, you can expect to struggle with some assignments, especially the discussion & research problems, real world auditing problems and internet assignments. Attempting all assignments is important for the class discussions, clicker quizzes, BlackBoard quizzes and, most importantly, the final exam. Assignments should be attempted by the due date on the schedule. As most assignments are not collected, attempting an assignment means sketching a solution so that you are prepared to provide your answer in-class, as part of a clicker quiz or as part of a BlackBoard Quiz. Course Materials and iLearn Website Required Text for BUS 169A is: Auditing and Assurance Services: An Applied Approach, Author: Iris C. Stuart, Publisher: McGraw-Hill Irwin.[2012]. ISBN 978-0-07-340400-4 Textbook summary: Stuarts Auditing and Assurance Services is a concise, easy-to-read auditing text that trains students of today for the business world that they will face tomorrow. Using a fresh approach that introduces auditing application prior to auditing theory, students will encounter auditing in practice first, become more engaged in the subject matter, and consequently feel more readily prepared to understand the more challenging theoretical concepts. Stuart further engages students by highlighting realworld accounting scandals and by including the most up-to-date standards, including international coverage.
UCR iLearn/Blackboard Website: http://ilearn.ucr.edu/webapps/login/

Required Technology: Each student must obtain and register a clicker The address for the clicker registration site is http://clickers.ucr.edu. You must register your clicker on this site in order to receive credit for using your clicker in class.

Prerequisite BUS 165B

Performance Assessment (Course Grading System) Your performance in BUS 169A will be evaluated based on frequent in-class Clicker Quizzes, weekly Blackboard quizzes, graded group assignments; and ONE examination as shown below: Blackboard Quizzes Participation (attendance) and Clicker Quizzes Group activities including presentations and project reports: Group assignment peer evaluations Final examination Total 100 points 100 points 100 points 50 points 150 points 500 points 20% 20% 20% 10% 30% 100%

After each graded assignment is returned or quiz score posted, you will have one week to challenge your grade in writing. After this time, grades become final. Letter grades for the course are determined based on a curve with an average G.P.A. consistent with the School of Business Administration grading guidelines. Final letter grades will be determined based on individual student performance. ILearn Blackboard Quizzes [100 points]: Weekly quizzes will be posted on Blackboard and must be completed by 5:10 p..m. of the day they are assigned, usually Mondays before classs [see Blackboard and class lecture notes for deadlines for each quiz]. They will focus on the assigned chapter reading for the week, assignments for the day that the quiz is given and assignments & in-class materials covered during prior classes. Additional details will be provided in class and on Blackboard. There will be no make-up or excused Blackboard quizzes; however your lowest quiz score will not be counted. Participation (Attendance) and in-class Clicker Quizzes [100 points]: Many classes will include one or more clicker quizzes that will be based on current readings, assignments, class discussions, etc. In the cases where the questions are based on review assignments, if you have prepared a solution to the assignments, you should be able to respond to the quiz questions. These quizzes will track participation in classes and preparation of assigned review problems as follows: The credits for each question will be 0 (no answer), 1 (incorrect answer) or 3 (correct answer). There will be no make-up or excused Clicker quizzes. It is your responsibility to insure you have a working clicker at each class. Graded group assignments [100 points]. Graded assignments involve both technical and judgment elements, therefore, the grading of these assignments have both objective and subjective components. This quarter there will be 4 graded group assignments, usually due on a Thursday. Project #1 is worth 10 points, project #2 20 points; project #3 [which replaces a midterm] is worth 30 points and project #4 is worth 40 points. Each group assignment will involve preparation and submission of a written report and a PowerPoint summary presentation. By random selection or volunteering, groups will be asked to present their solutions during class. These presentations will be part of the assessment if your group presents.

Details about each group assignment will be provided during the course, usually including a posted GRADING TEMPLATE. However, the following general rules apply to all group assignments. 1. All group reports must be legible, typed and of professional quality. 2. A maximum length usually will be provided [usually 10 pages of text plus a table of contents, a executive summary, references and supporting appendices including copies of your prepared PowerPoint slides... 3. Late group assignments will be accepted, but with a late penalty of 20% for each day the assignment is late. No exceptions. 4. An individual who does not contribute to the groups solution may be separated from the group for one assignment only at the request of either the individual or the remaining group members. The separated person may hand in one group assignment done as an individual at no penalty. Separation may be invoked due to unavoidable schedule conflicts or due to tension within the group, but it may be used only once during the quarter for any individual. 5. An individual may be divorced from the group by a written request to the instructor from all other group members. While divorce should be rare, it is justifiable if an individual is not carrying his or her load as a group member. The divorced individual can obtain credit for the remaining graded assignments only by doing them as an individual. Peer Evaluations (50 points). Your groups grade depends on each members efforts. Fifty points (10% of the total course points) of your course grade will be based on your individual contribution to your group. A confidential peer evaluation will be solicited asking each member of your group to evaluate the contribution of other members to the groups efforts. Final Examination [150 points]. The final examination accounts for 30% of the course points. The primary content of this exam is from the course text, Clicker Quizzes, Blackboard quizzes, lectures and assignments including the group assignments. The exam will be a mix of multiple choice questions and short cases (short problems) more details about the format will be announced in class near the exam date. The final exam will be open book, open notes and open computer in that each student is allowed to bring the textbook, a computer and notes that they have prepared. Should you have any questions about your exam grades, request an appointment to review your final exam in the first month of the following quarter. Make-up Final Exam Policy. It is to your advantage to take all quizzes and the final exam at their scheduled times. Only in the case of a well-documented, true emergency should the final exam be missed. All students must take the final exam as scheduled unless an incomplete contract has previously been approved according to School of Business regulations. A conflict with your travel plans is not sufficient reason for an incomplete or a request to take an exam at another time.

Statement on Technology Use Communication devices such as cell phones, Blackberries, etc. capable of sending and or receiving electronic communication and all entertainment devices such as iPods or other MP3 players are to be turned off and kept off throughout the class session. Receiving or sending communication or entertainment during class disrupts the learning environment and is rude to those around you. Laptops can be used only for the purpose of taking notes or to accomplish in-class assignments that require internet access. When you are permitted to use your laptop for note-taking purposes, Internet connections are usually prohibited unless otherwise stated by the professor. Students with Disabilities The mission of the UCR Services for Students with Disabilities is to assist in creating an accessible University environment where students with disabilities have equal access to educational programs and opportunity to participate fully in all aspects of campus life. Please contact http://specialservices.ucr.edu/Students+with+Disabilities/Prospective.htm for additional
information.

Academic and Professional Integrity Ethics and values are very important in auditing, accounting, business in general and in education. We will consider ethical issues in auditing throughout this course. As an instructor, I will assume, unless there is evidence to the contrary, that you are an ethical student. To help you fulfill your ethical responsibilities as a student, the ethical standards for BUS 169A are listed below. Graded group assignments: All work is to be performed exclusively by the members of the group and all group members must contribute their fair share to each assignment. When outside research is performed, sources are to be cited and information discovered via outside research is to be clearly referenced as such. The products of your research are not to be shared with any student who is not a member of the group prior to the time when the assignments are turned in. Final examination: The final exam must be the exclusive work of the individual student and no outside materials may be utilized without the prior approval of the instructor. No student may share the exam contents or possible solutions with another student during the exam. If you know that another student is violating these standards: Allowing another student to obtain course points by deceit contributes to a general lowering of the ethical standards of the University and contributes to deception of potential employers and other academic institutions. Thus, you have an obligation to take some action when you know another student is violating the courses academic integrity standards. This is a difficult personal trial to face, but it is an important part of your ethical obligation as a student. If you know that another student is violating the standards, it is your responsibility to inform the students instructor. In this 6

course, academic integrity violations generally will be penalized with a grade of F for the course. Drops and Adds Group assignments begin early in the course. Therefore, adds cannot be accepted after the first week of classes. Are you thinking about dropping the course? If so, be sure to note the drop dates published in the UCR Catalog. If you do decide to drop the course, please let your instructor and your group members know immediately. This is particularly important if you decide to drop during the first week of classes when groups are being formed for graded assignments.

Important Dates --- WINTER Quarter 2013

First Day of Bus 169A Class Last day to Withdraw from a course ($4 fee). Last day to Change grading basis ($4 fee). Instruction Ends Final Exam [SATURDAY] JAN 8. 2013 FEB 15, 2013 MAR 1, 2013 MAR 14, 2013 MARCH 16 7:00 PM 10:00 PM

Integrity statement:
At the University of California, Riverside (UCR) honesty and integrity are fundamental values that guide and inform us as individuals and as a community. The academic culture requires that each student take responsibility for learning and for producing work that reflect their intellectual potential, curiosity, and capability. Students must represent themselves truthfully, claim only work that is their own, acknowledge their use of others words, research results, and ideas, using the methods accepted by the appropriate academic disciplines and engage honestly in all academic assignments. Misunderstanding of the appropriate academic conduct will not be accepted as an excuse for academic misconduct. If a student is in doubt about appropriate academic conduct in a particular situation, he or she should consult with the instructor in the course to avoid the serious charge of academic misconduct. To ensure the highest standard of academic integrity, all students should be familiar with the guidelines posted at: http://conduct.ucr.edu/SiteCollectionDocuments/DocumentsFromStudentConduct/AcademicIntegrity BrochureStudent.pdf

SoBA Mission Statement Our mission is to develop diverse leaders, propel research-based innovation and promote the sustainable growth of Inland Southern California within the global economy. We harness the powerful resources of UC and our location at the nexus of commerce to create a laboratory for education, research, and productive partnerships across economic enterprises. The strategic activities that propel our mission include: Conducting basic and applied research in management that explores and informs the creation, development and management of growth; Providing degree programs that prepare our students to be effective managers and responsible community leaders with a deep understanding of the dynamics of growth in both a regional and global context; Partnering with business and community leaders through a shared commitment to exemplary growth; and Delivering educational programs to executives and the public at large that respond to the needs of our local, state, national, and international communities. Undergraduate Program Learning Goals Problem Solving Skills Students will be able to use a variety of theoretical perspectives to identify and critically evaluate implications of business decisions for organizational stakeholders (e.g., customers, colleagues, employees, stockholders, suppliers, foreign governments, communities, cultures, regulatory agencies) and the natural environment. Professional Integrity / Ethical Reasoning Skills Students will be able to recognize ethical issues, demonstrate familiarity with alternative frameworks for ethical reasoning, and discern trade-offs and implications of employing different ethical frames of reference when making business decisions. Global Context Skills Students will be conversant with major economic, social, political, and technological trends and conditions influencing foreign investment and development of the global economy and demonstrate an understanding of the cultural, interpersonal and analytical competencies required for engaging in global business activities. Written Communication Skills Students will demonstrate proficiency in written communications by creating written document that are clearly written, with appropriate content and conclusions.

DRAFT SCHEDULE [Updated 1/6/13]

DATE Questions of the day and THE WORD Key Learning Objectives [LOs] READINGS References Assignments, Review problems & IN-CLASS Activities Class

What is Audlish? 1-1 JAN 8 LO1. Understanding the textbook authors approach, philosophy, features of the text and important knowledge and skills students should obtain. Introduction to resources available to conduct research into assurance services and auditing. Framing TMock Course Syllabus and Assignment Schedule [See iLearn] Ch. 14, pp 393-398. Ch. 1, Pp 1 12 1-2 JAN 10 Clicker Check Colbert The Word Taking Care of Business

LO2. LO3.

What is Assurance, Assurance Services & peek-aboo?

LO1. Understand key differences between knowledge & skills needed to solve auditing vs. accounting problems Understanding various types of assurance including (financial statement) auditing and attestation. Understanding the demands for assurance services.

Ch. 14, pp 393-398. Ch. 1, Pp 1 12

Blackboard Quiz # 1 [Deadline: 8:10 AM] View CAQ Video #1: The F/S/ Audit http://youtu.be/X0pWQkLj2gk View The Audit Process [ by Blair Cook ] http://youtu.be/1yo3GyvZi9Q [ 16 MIN] Clicker Quiz # 1

LO2.

LO3.

DATE

Questions of the day and THE WORD Key Learning Objectives [LOs]

READINGS References

Assignments, Review problems & IN-CLASS Activities

2-1

2-2

Class

What is audit evidence? JAN 15 LO1. Understand the basic objectives of a financial statement audit LO2. Introduce the audit risk model & the basic types of audit risks. LO3. Introduce the main activities/processes in a F/S Audit LO4. Understanding Major Types of other Assurance Engagements Ch. 1 What is Auditing? Pp 13 - 19

Blackboard Quiz # 2 [Deadline: 8:10 AM] If you wish to, form groups of 3 and submit names by 12:00 via email CAQ Video #2: The Audit Committee http://youtu.be/OhYez-f40Qg Ch. 1 Review problems 4 and 5

JAN 17 LO1. LO2.

What are Analytical Procedures [ARPs]? Introduce ARPs and their use in various steps in the audit process Describe the importance of developing auditor expectations and where to look for approaches to use to develop auditor expectations. Introduction to resources available to conduct research into assurance services and auditing.

AU Section 329

PCAOB Staff Audit Practice Alert No. 9, pp 1 7. Form Groups Stuart p. 12, 32-33 and 140-141 on ARPs AS No. 12 AS No. 14

Hand-out [post] Individual assignment #1 concerning developing auditor expectations

LO2.

Hand out [Post] Group Assignment 1:

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DATE

Questions of the day and THE WORD Key Learning Objectives [LOs]

READINGS References

Assignments, Review problems & IN-CLASS Activities

3-1 JAN 22

3-2

4-1

Class

What is materiality? [What is IAASB?} LO1. Understand the basics of Stuarts 3-Phase model of the audit planning process LO2. Introduce the concept of materiality

Ch. 2 The Audit Planning Process

Submit via iLearn Individual assignment #1 Blackboard Quiz # 3

Audit Materiality [IAASB Clarity Ch. 2 Review Problems # 4, 6 & 9 Project] http://youtu.be/5Lzu U0Iu9Bg Ch. 2 The Audit Planning Process Present & Submit Group Assignment #1: Hand out GA #2: Preconditions for Accepting an Audit Engagement

JAN 24

What is strategic analysis? LO1. Understand three basic types of risks important for strategic and process analysis [strategic, process and residual] LO2. Develop basic skills for conducting a strategic risk analysis. LO3. Develop basic skills needed to identify the audit implications of identified strategic risks. What is control, Management Control, Control Risk? What is a Risk Map? LO1. Understand three basic types of risks important for strategic and process analysis [strategic, process and residual] LO2. Develop basic skills for conducting a strategic risk analysis. LO3. Develop basic skills needed to identify the audit implications of identified strategic risks.

JAN 29

Ch. 3 Internal Controls

Blackboard Quiz # 4 Ch. 3 Review Problems # 1, 2, 28, 29 and 30.

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DATE

Questions of the day and THE WORD Key Learning Objectives [LOs]

READINGS References

Assignments, Review problems & IN-CLASS Activities

4-2

5-1

5-2

6-1

Class

What is (appropriate) System Documentation? JAN 31 LO1. Understand the nature of control and concepts of control that are relevant to F/S auditing. LO2. Be able to evaluate control responses to organizational risks LO3. Understand how controls affect risk map LO4. Understanding how to identify internal threats and business process risks FEB 5 What is a process map? What is an audit sensitive process? LO3. Develop the skills of deriving process maps and conducting a process analysis FEB 7 What is the revenue Cycle? What is a SAP vs. a CAP? What is NETS ? FEB 12 LO1. Describe types of audit evidence, their role in audit and how sufficiency & appropriateness is determined LO2. Explain role of assertions in organizing evidence LO3. Describe relationship between NETS and AR LO4. Explain Documentation requirement for evidence Ch. 3 Internal Controls

Present & Submit Group Assignment # 2: Hand out GA # 3

Blackboard Quiz # 5 Ch. 4 Auditing the Revenue Business Process [Cycle] Ch. 4 Auditing the Revenue Business Process [Cycle] Ch. 5, Part I: Audit Evidence Ch. 4 Review Problems: # 1, 10, 12

Ch. 4 Review Problems: # 32, 36, & 42. Blackboard Quiz # 6 Ch. 5 Review Problems: #3, #6, #8

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DATE

Questions of the day and THE WORD Key Learning Objectives [LOs]

READINGS References

Assignments, Review problems & IN-CLASS Activities

6-2

7-1

7-2

Class

FEB 14

What is a Going Concern? What is Fraud Risk? What is Inquiry? LO1. Develop your skills in obtaining and using Inquiry Evidence LO2. Enhance your skills in obtaining and using Basic Analytical Evidence

Ch 5, part 2: fraud detection.

Ch. 5 review problems: # 9, 20, 23, # 25, and # 40 parts a and c. Present & turn in Group Assignment # 3:

FEB 19

What are the primary financial reporting risks in auditing inventory? What are the primary other risk areas in auditing inventory?

Ch. 7 Auditing the Inventory Business Process [Cycle]

Blackboard Quiz # 7 Ch. 7 review problems: 13, 15, 18, 20. 23 [parts a and b].

FEB 21

What are the SAPs in auditing inventory?

Ch. 7 Auditing the Inventory Business Process [Cycle]

Handout GA #4 [40 points]: Auditing the Inventory Business Process: Conducting Analytical Review; Assessing Going Concern & Fraud Risk; and Specifying an Audit Strategy and a CAP

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DATE

Questions of the day and THE WORD Key Learning Objectives [LOs]

READINGS References

Assignments, Review problems & IN-CLASS Activities

8-1

8-2 9-1

9-2

Class

Blackboard Quiz # 8 FEB 26 LO1:. Understand the key audit considerations in completing an audit [e.g. contingent liabilities, attorney's letters; subsequent events evaluation; & related parties] LO2: Going Concern evaluation responsibilities LO3: Final documentation requirements LO4: Other Completion activities LO1: Completing the Completing the Audit Chapter What types of AUDIT REPORTS are produced? MAR 5 LO1. Introduce the Bottom Line of an audit [the audit report(s). LO2. Introduce the main steps in the F/S/ Audit LO3. Understanding Major Types of other Assurance Engagements Ch. 13 Audit Reports
Reference: IAASB Invitation to Comment [2012] [see iLearn]

Ch. 12 Completing the Audit Ch. 12 Assignment # 2, 3, 15

FEB 28

Ch. 12 Completing the Audit

Tba Blackboard Quiz #9 Ch. 13 Assignments: #4, 5, & # 29 [www assignment] Present and turn in GA #4 [40 points]: Auditing the Inventory Business Process

MAR 7

What are the Building Blocks of F/S Auditing? What are the main steps in a F/S Audit? LO1. Develop an understanding of some of the key concepts [building blocks] of F/S/ auditing: Assertions, Errors, Fraudulent Misstatements, ICOFR, risk, and materiality, and audit evidence, LO2. Understand the different types of audit evidence that can be collected

Ch. 13 Audit Reports

Complete Presentations of Group Assignment # 4,

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DATE

Questions of the day and THE WORD Key Learning Objectives [LOs]

READINGS References

Assignments, Review problems & IN-CLASS Activities

101

102

Class

MAR 12

What are the auditors responsibilities when auditing financial statements LO1. Describe the auditors responsibilities when auditing financial statements LO2. Discuss the key elements of the AICPA Professional Code of Conduct What will the final exam look like? How are peer evaluations submitted? Is there a class consensus on pizzas? LO1. Provide a Class synopsis LO2. Review Key Audlish LO3. Review Final Exam Structure and Peer Evaluation

Ch. 14 The Auditing Profession, pp. 398 411

Blackboard Quiz # 10 Ch. 14 Assignment: #14, #15 & #16

MAR 14

Stuart: All assigned chapters All Assigned professional standards and guides.

MAR 16

FINAL EXAM [150 points] Saturday, MARCH 6 7:00 p.m. 10:00 p.m.

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