Today we're going to be talking about auditing.

And I realize some of you have seen this in college.

Some of you may have never seen it, but that's fine because I'm going to teach you what you need to know to get you through the CPA exam.

My name is Roger Phillip.

Also make sure you watch the intro, because in the intro I'll introduce myself, but also talk about the course, the exam itself, and a good study program and study schedule to enable you to get through the CPA exam.

So very important, make sure you watch that.

What are we starting out with?

We're starting out with audit standards and engagement planning.

So what we're looking at here is we're going out and we're going to perform an audit on a client.

Now we're going to talk about different types of audits in a moment, about a compliance audit, an operational audit, a financial statement audit, for example.

But what we're looking at here is mainly the financial statement audit.

Now in this type of audit, which I'll come back to, we're looking at these financial statements.

What I want you to realize for auditing, I don't want you to memorize stuff, but I want you to understand it.

And as you'll see in the next 25, 30 hours, I'm going to walk you through it step by step by step to make sure you understand auditing.

With auditing, we're looking at these financial statements.

These are management's financial statements.

Management is responsible for the preparation.

Management is responsible for the fair presentation of the statements, the preparation and presentation.

Our job as an auditor, should we decide to accept it, is to obtain sufficient appropriate audit evidence in order to afford us a reasonable basis for giving an opinion on these financial statements.

So our job is to give an opinion on these statements.

In our opinion, the statements referred to above presents fairly in all material respects.

So what we're saying is, in my opinion, the numbers are presented fairly.

So what we're doing here in auditing, there's a lot of overlap from, for example, your favorite intermediate accounting class.

Because in intermediate accounting, we talk about things like cash, receivables, inventory, accounts payable, notes payable, and so on.

Here in auditing, we're talking about not necessarily how to prepare the valuation in the FAR exam, but here what we're looking at is how do you audit that?

How do I obtain enough good evidence so I can give an opinion on these numbers?

Because investors rely on these numbers, creditors rely on these numbers.

People look at these statements.

They rely on our opinion in order to make a financial investment in the company.

Therefore, it's imperative that we're objective, unbiased, independent, clear mental attitude.

All of this stuff that we'll talk about in just a few minutes.

But the big picture of auditing is that, for example, we'll talk down the road, but when we're looking at these statements, there are certain assertions.

For example, P, E, R, C, V, perceive.

These are some of the assertions management makes in the form of financial statements.

For example, management is asserting that all these numbers are properly presented, adequately disclosed.

They exist.

Rights, they own them.

Completeness, cutoff, valuation, allocation, accuracy, classification.

So these are some of the things that they're asserting.

So management is saying, hey, in these statements, in these numbers, and for the next 25 hours, when I say, whose statements are these, to stay awake, I want you to go, management.

Old air out, fresh oxygen in, brain cells start cranking, stay awake, you learn, you learn, you pass the exam, become a CPA, find out what true happiness really is.

All right, I'm so excited.

So this is what management is asserting.

And I'll actually teach you, you perceive.

So understandability and classification, presentation and disclosure, existence and occurrence, rights and obligations, completeness, cutoff, allocation, valuation, accuracy.

These are the assertions.

So for example, when you think back on your intermediate accounting, accounts receivable should be valued in the balance sheet at how much?

Their NRV, which stands for net realizable value.

Net realizable value is the amount you expect to receive within one year, or the accounting cycle, whichever is longer.

Inventory should be at the lower of cost or market, LCM.

So what we have to do as an auditor is in the financial exam, in FAR, you're going through and calculating the valuation.

You've got to value receivables at their NRV, you've got to go through and come up with bad debt expense, percentage of credit sales, aging of AR, and so on.

So we're looking at the dollars.

Here in audit, we're looking at making sure that receivables exist.

It's the company's receivable.

They're the proper amount at the NRV.

They're complete, they're classified properly.

If you factor, discount, pledge these receivables as collateral for a loan, that has to be disclosed here in the statements.

So again, in financial accounting, we care about the dollars.

Here in auditing, we care about giving an opinion that in my opinion, the numbers are presented fairly in all material respects.

That's what we're trying to do here.