Audit and Assurance

Introduction

We are all aware of the corporate accounting scandals, which plagued Wall Street in 2000 and 2001. Faulty practices accounting and dishonest business procedures robbed the public of its trust in corporate America and cost the economy thousands of jobs. The creation of Sarbanes Oxley Act of 2002 (SOX) attempted to bring in improved principles and accountability in the operations of companies in the U.S in order to eradicate giant accounting scandals. We will discuss how SOX and the Public Companies Accounting Oversight Board (PCAOB) have regulated the auditors who provide independent audit reports for publicly traded companies. We present the elements of the Generally Accepted Auditing Standards and different types of audit with examples across Nasdaq OMX.

Auditing standards

The AICPA (American Institute of certified Public Accountant) established 10 standards to guide auditors in their effort. These standards are organized into 3 categories: General, Field Work and Reporting. Firstly, the General Standards state that the auditors must have technical training, maintain independence from the company audited and must exercise due professional care in the preparation and performance of the audit.

Secondly, the Field Work Standards require the auditor to prepare an audit plan and follow it with understanding of the entity, its internal controls and risk management. The auditor must also obtain appropriate evidence before forming an opinion on the financial statements.

Thirdly, the Reporting Standards require the auditors to state that the financial statements are prepared in accordance with GAAP, to identify any changes in principles from one year to the other and to determine if information disclosures are informative or not. The auditor must express an opinion regarding the financial statements or the reasons if he can't express an opinion along with a description of the character of the work.

Nature of audits

Financial

A financial audit is the certification of the financial statements with a view to express an opinion. The auditor forms an opinion based on evidence collected on the entity financial information, cash flows, business operations and internal control structure. The audit opinion is intended to provide reasonable assurance that the financial statements are presented fairly and are in conformity with GAAP.

A public accounting firm (registered with the PCAOB) must audit each company listed on Nasdaq. Deloitte also audits Nasdaq financial statements.

Operational

An operational audit is a form of internal audit or performance audit. The auditor's objective is to appraise the effectiveness and efficiency of a division or activity by collecting information on the business operation of the company. The internal auditors follow the Field Work standards, by setting up an audit plan and assessing the internal controls and risk management before reporting an opinion to the board of directors.

For example, Nasdaq internal auditors assess the risks inherent to the products