Introduction to Auditing and Attestation

Learning Objectives

• Understand the purpose and scope of the AUD section of the CPA exam
• Identify the key areas covered in auditing and attestation
• Distinguish between different types of audit engagements
• Recognize the role of professional standards in auditing

What is Auditing?

Auditing is the systematic examination of financial statements and related assertions to determine whether they are presented fairly in accordance with applicable accounting standards. As a CPA, you will be expected to understand not just the mechanics of an audit, but the professional judgment required at every stage.

The AUD section of the CPA exam tests your knowledge of the entire audit lifecycle — from engagement acceptance through reporting — along with your understanding of professional ethics and responsibilities.

Key Areas of the AUD Section

The AUD section covers four major content areas:

1. Ethics, Professional Responsibilities, and General Principles — The foundation of audit practice, including the AICPA Code of Professional Conduct, independence requirements, and quality management standards.

2. Assessing Risk and Developing a Planned Response — How auditors identify and assess the risks of material misstatement, and design audit procedures to address those risks.

3. Performing Further Procedures and Obtaining Evidence — The execution phase of the audit, including tests of controls, substantive procedures, and evaluating the sufficiency of audit evidence.

4. Forming Conclusions and Reporting — How auditors evaluate findings, form an opinion, and communicate results through the audit report.

Types of Engagements

Not all assurance work is the same. The CPA exam expects you to distinguish between:

• Audit engagements — The highest level of assurance, where the auditor expresses an opinion on financial statements.
• Review engagements — Limited assurance through analytical procedures and inquiries, resulting in a conclusion rather than an opinion.
• Compilation engagements — No assurance provided; the CPA assists in preparing financial statements.
• Attestation engagements — Examination, review, or agreed-upon procedures applied to subject matter other than financial statements.

The Standards Framework

Auditing standards govern how CPAs conduct their work. The key standard-setting bodies include:

• AICPA — Issues Statements on Auditing Standards (SAS) for non-public company audits
• PCAOB — Sets auditing standards for public company audits
• GAO — Issues Government Auditing Standards (Yellow Book) for governmental audits

Understanding which standards apply to which engagement type is a common exam topic. The exam frequently tests your ability to identify the correct standard for a given scenario.

Key Terms

• Material misstatement — An error or omission in financial statements significant enough to influence the decisions of users
• Reasonable assurance — A high, but not absolute, level of assurance that financial statements are free of material misstatement
• Professional skepticism — An attitude of questioning and critical assessment of audit evidence
• Audit risk — The risk that an auditor expresses an inappropriate opinion on materially misstated financial statements