Office Hours: 1:00 – 3:00 TuTh; 12:00 – 1:00 Mon.; additional hours before exams; and by appt. (also feel free to email me at any time).
Course Description This is a graduate course that provides an overview of independent professional auditing services by accountants. Because this is a graduate course, there is a fair amount of reading from the textbook, the professional standards, and the popular business press. This information is meant to serve as background for our class discussions, which will center on the reality of auditing to the extent possible. The reality of auditing for auditors and audit firms on a day-to-day basis is shaped by compliance with lengthy and detailed standards, firm policy, and regulations, as well as by various pressures from clients and other constituents and individual auditors’ experiences (anecdotal evidence). In class, we will cover these issues, but I also will inform you about research findings related to the day’s topics. Researchers can take a step back and examine reality from the perspective of actual auditor behavior and outcomes related to financial statement audits. For example, partner rotation is required on audits, but we will discuss the research evidence that suggests that there are some costs as well as benefits. Overall, then, our class discussions will center on both the practical need to comply with standards, etc., but also on what research (empirical) evidence tells us so that you can be a better informed practitioner of auditing as well as a better informed participant in the profession.
The course is divided into four sections. The first provides a big picture view of auditing in our economy and society, including the role of the auditors’ professional judgment and skepticism. The second part of the course covers basic auditing concepts. These basic concepts include assessing and responding to risk. The third and fourth parts of the course go into more detail on these two basic concepts, and the fourth part of the course also covers how auditors report their findings.
Learning Outcomes The overall goal of this course, as mentioned above is to introduce you to auditing. Subsumed under this goal are several specific learning objectives and desired outcomes, arranged by the common outcomes developed by the Leventhal School specifically for the M.Acc. and MBT programs. As you can see below, this course will focus primarily on Outcome 1 – Technical, Conceptual, and Problem-Solving and Outcome 4 – Ethical Principles and Professional Standards. To a lesser extent, this course will help you meet Learning Outcomes 2 and 3 – Professional Development and Research/Life-Long Learning.
Category of Learning Outcomes
Emphasis in this Class
1. Technical, Conceptual, Problem-Solving
You should gain factual knowledge of key auditing concepts, including, for example: audit risk, control risk, inherent risk, detection risk, independence, professional skepticism, materiality, misstatement, substantive test, analytical procedures, fraud, errors, earnings management, etc.
You should learn fundamental auditing principles. For example, you should understand how the choices of audit risk and materiality and assessed risks affect audit testing.
You should learn to apply factual knowledge and auditing principles to novel situations. That is, you should be able to apply the definitions and descriptions of important terms and fundamental auditing principles.
You should begin to learn higher order auditing skills. For example, you should begin to learn how to conduct analytical procedures and combine evidence to determine whether there are material misstatements.
2. Professional Development
You should demonstrate the ability to communicate effectively, precisely, and quickly, both orally and in writing. While I will not be grading you on your speaking or writing per se, you will not receive full points on exam and case answers that are written vaguely and incompletely, or on class participation that is vague and incomplete. Much of the auditor’s daily life is about verbal communication with teammates and clients. Also, much of the auditor’s daily life is about compliance with lengthy and detailed standards. Demonstration of such compliance is through written documentation, and poor documentation often is cited in PCAOB inspections.
3. Research/Life-Long Learning
You should learn fundamental auditing principles. Having a solid basis in principles allows you to learn more and faster later.
You should learn to apply factual knowledge and auditing principles to novel situations.
4. Ethical Principles and Professional Standards
You should learn the key points of most of the important auditing standards.
5. Globalization and Diversity
To achieve the above learning objectives, I will employ a combination of background reading, interactive lecture, homework problems with solutions covered in class, in-class problems and short cases, longer, out-of-class cases, prompt feedback on cases and the midterms, and required class participation. With regard to class participation, I expect questions from you during class, and you should expect questions from me. As above, in the real world, you will be expected to respond promptly to queries, so it is important to incorporate this element of an auditor’s life into the classroom setting. However, if on a particular day, you don’t wish to be queried, please notify me by email prior to class.
Required Materials, Readings, and Other Tools
The following texts are required for this course:
Rittenberg, L.E., Johnstone, K.M., and Gramling, A.A., Auditing: A Business Risk Approach (10th edition). Cengage Learning, 2015. ISBN 1305080572. YOU MUST PURCHASE THIS TEXT. FEEL FREE TO BUY A USED VERSION.
Beasley, J.S., Buckless, F.A., Glover, S.M., and Prawitt, D.F., Auditing Cases: An Interactive Learning Approach (6th edition). Pearson Education, 105. I WILL BE PROVIDING YOU WITH A COPY OF THIS BOOK FOR USE DURING THE CLASS. YOU WILL RETURN THE COPY TO ME AT THE END OF THE TERM.
All other materials, such as auditing standards and supplemental articles, can be found online or on Blackboard, or will be provided to you. In particular, auditing, ethics and independence, and quality control standards can be found on the PCAOB’s website at pcaobus.org.
Prerequisites and/or Recommended Preparation The course has no prerequisites other than your participation in the summer intensive program (or approval by the M.Acc. program administrators) and requires no special skills. The quantitative aspects of the course require only elementary math or Excel skills, and you are allowed to use a calculator. Templates will be provided for assignments that require the use of Excel. If they are needed, I will provide you with calculators for exams.
Course Notes and Communication I will bring copies of slides and other handouts to class each day, so you do not have to download them ahead of time. After class is over, slides and other handouts will be posted to Blackboard. Make sure that you are able to access Blackboard after the first class meeting.
I will communicate with you through Blackboard (which is connected to your USC email account). Please make sure that you have your USC email forwarded to another account if you do not check your USC email account frequently.
Grading Policies Grade Composition and Grading Expectations Total points for this course are 1000. Your letter grade will be determined based on your relative performance. We adhere to the USC Leventhal School of Accounting and Marshall School of Business grading standards for graduate programs. In general, final course grades at the graduate level in a core course average approximately B+ (3.3), but may vary based on class performance. For elective courses, the class average is usually higher--approximating 3.5, which is between a B+ and an A-. You must receive a C or better to pass a required class, and you must have an overall B average (3.0 minimum) in order to graduate from USC. The graded elements of this course are listed and information about how they will be evaluated are listed below.
The 1000 points for the course are divided as follows: