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Understanding an Audit. Texas Tech University - ALC January 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. - PowerPoint PPT Presentation
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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
• Universal Respect for firm policies and each other, guaranteeing a unified direction
• Fierce commitment to Integrity
• 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
connected and appreciated
The Grant Thornton Experience for Our People
The Grant ThorntonExperience
for Our People
Grant Thornton Experience Leadership CouncilGrant Thornton Experience Leadership Council
Sr. Associate Sr. Associate Advisory Advisory CouncilCouncil
Women @ Grant ThorntonWomen @ Grant Thornton Career DevelopmentCareer Development
Work Life IntegrationWork Life Integration
5
Grant Thornton initiatives
Career development and professional growth
Coa
chin
g an
d M
ento
ring
Mastering the First Year
Mastering the Associate Role
Senior Development Programs
Bridges - Experienced Hire Development*
New Manager Development*
Program Leader Certifications*
Industry and Service Line Conferences
Partner Candidate Development Program*
Partner Leadership Program*
Specialized Academies
*Internal and External Client Service partners and employees participate in these programs
Welcome to Your Grant Thornton Experience*
Senior Manager Development Program*
Footsteps and Intern Programs
Leadership Development and Technical Development
Programs
SM
Leadership... from the Campus to Partner
FY '03 = $458M
FY '04 = $565M
FY '06 = $886M
TIME
GR
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
GR
OW
TH
FY '03 = 320 Partners, 2943 Employees
FY '04 = 360 Partners, 3293 Employees
FY '05 = 407 Partners, 3956 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
Albuquerque District of Columbia New York – Downtown San Antonio
Alexandria Edison New York – Melville San Francisco
Appleton Fond du Lac New York – Midtown San Jose
Atlanta Greensboro North Palm Beach Seattle
Baltimore Honolulu Oakbrook Terrace Southfield (Detroit)
Boston Houston Oklahoma City Tampa
Charlotte Irvine Orlando Tulsa
Chicago Kansas City (Missouri) Philadelphia Vienna
Cincinnati Los Angeles Phoenix Weston
Cleveland Madison Portland Wichita
Columbia Miami Raleigh Woodland Hills
Dallas Milwaukee Reno
Denver Minneapolis Salt Lake City
Our service lines
Audit & Assurance Services Tax Services
• traditional audit and accounting services
• business advisory services (BAS)
• economic advisory services (EAS)
• federal tax services• state and local tax services• international tax services• family wealth planning • compensation and benefit
plan design
Our service lines
Global Public Sector Internal Client Services
• creation and delivery of financial, performance manager and system solutions to governments and international organizations
• GPS is located in Alexandria and recently added an office in San Antonio
• finance and accounting• human resources• information technology• marketing• strategic learning/training
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
• Grant Thornton overview• Breakout #1• Changes in the audit profession• Criteria for accepting new clients• Breakout #2 • Audit process• Breakout #3
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
• Grant Thornton overview• Breakout #1• Changes in the audit profession• Criteria for accepting new clients• Breakout #2 • Audit process• Breakout #3
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
30
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
31
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
32
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