 At the end of this, we will be able to explain the need for audits, understand what independence means in the context of an audit, define assurance services and explain what financial reporting framework is and how it is used as well as list and defined types of test engagements. All right, so why do we need audits? So why do we need an audit? Basically for trust. Trust is going to be the main service that we're going to have for the audit. For example, if we think about a company and who they're going to do business with, they're going to have transactions with could be end users, end users like investors. Investors if you're talking about a publicly traded company, more and more that's going to be just normal people are investing and they're putting their money into the company. The company wants those investments. Of course, if we talk about banks, we can think about banks in terms of a company possibly could need a loan and they're going to want the transaction. The bank of course wants to provide the loan because they're going to make interest on that. The government, government, the company may not want to do business, but they have to do business in terms of taxes in some way. And the government of course is going to have a need for that as well. So when we, we want to have these transactions happen, but notice what, what happens often is that what will limit a transaction is if there's no trust. If the investor wants to invest in the company, but they don't know if the company is going to be profitable, then the investor doesn't, doesn't know if they're going to put the money in there. If the banks don't think that the company will be able to pay back the loan plus the interest, which is the way they're, why they're given the loan in the first place, then they're less likely to give the loan. So what can the company do to give more trust? Well, the investors, the bank, the government are going to ask for, of course, financial statements. They're going to say, Hey, why don't you give us some financial statements, tell us what your profitability is, tell us how you're doing. And then we're more likely to give you what we, what we want. We can do business then the investors can then put in money and invest. The banks could give the loan, the government can process their taxes. And but still, we still might have a problem because the investors, the users might be saying, Hey, the company has an incentive to maybe not provide financial statements that are correct, or they might provide financial statements that are not correct in terms of what the end users are thinking in terms of the procedures or how it was created, was it made in accordance to some standards that could be errors on it. So the end users still may not fully trust the financial statements. And that's of course where the CPA firm comes in with the audit. And the audit then should give some level of assurance that the financial statements which are created and the responsibility of the company are correct in accordance with some agreed upon standards. So that's going to be the idea. The financial statements are then go to the CPA firm, which then could go to the end users with some more type of verification as to the reliability of the financial statements in some way. Now, of course, there's pros and cons to this type of transaction because that CPA firm, that trust that added trust is the benefit. That's hopefully going to say, OK, now we can have more transactions happening because there's more transparency. The end users are more confident in what the company is providing. And therefore that's going to facilitate more transactions. That's huge. We want to have openness and transparency in order to have more transactions. Of course, the downside of that is that it's going to cost more money in order to do this in order to have the CPA firm go in. If you're talking about audits of publicly traded companies, that's a lot of money to process those audits. So there's a pro and a con of that. But the idea of it is to facilitate the transactions to provide the trust needed for people to do business. And that's going to be the concept of the audits. So why would we trust the audit? You might ask, what is it about an audit that makes the audit process a more trustworthy process? Well, the idea of independence and a third party, independent third party is a key component of why we would trust an audit. For example, if we have the company and the end users, they're doing business, they want to do business, A and B are doing business. C over here is not involved in the immediate transaction between A and B. So if we were to do business, if you had two people doing business and you had a third party, possibly someone who's a friend of both of you or someone that both of you do not even know, then you might say, hey, this person has no relation to the transaction we're doing. Therefore, their opinion is objective. And let's rely on their opinion then. And of course, in this case, we're relying on a third party who is a professional in one that they should have the knowledge in terms of whether something is correct or not. And they should have the standards, in this case, being a CPA regulated by the regulations to act independently. So that's kind of the reason we would trust the third party. So independence becomes a huge thing. Now note, you might be thinking, well, how does the CPA firm get paid by the company? So you might be thinking, well, there's kind of a problem. That is a problem. That's why independence becomes so important, because we need to have some regulations, some standards to regulate the CPA firm profession in order to remain independent. So if we had other problems, if the people that were doing the audit were also part of the board of directors or were part of management of the company, then clearly they would not be independent. And we'll take a look at a lot more kind of rules in terms of what makes someone independent, what makes someone not independent. And we want to be independent both in appearance and in actuality so that we can be someone that both parties can rely on in this transaction. What are assurance services? So categories could include provide reliability, or we can have organizing information into certain form or context. We're going to be focusing on the providing of reliability. That's the most common idea of the assurance when we think about the financial statements we're usually having the confidence in the financial statements. What does it mean to provide reliability? So a test services are subset of assurance services. So we're going to talk about a test engagements. We want to provide assurance as to something's reliability. So that's going to be the basic idea from the broad sense. We're providing assurance as to something's reliability, usually financial statements is what most people think of. Some kind of review of subject matter that is the responsibility of another is another way to put it. So again, we usually think about the financial statements. The financial statements being a responsibility of the company and the assurance, the reliability, the assurance, the attestation engagement is to give some type of reliability on those financial statements which are the responsibility of another. We could give some kind of assurance on another stuff like internal controls and other types of things as well. What type of subject matter can be reviewed? So it could include financial forecast. It could include internal controls which is a huge one these days. It could control compliance with laws and regulations. So there's a lot of things that, besides the financial statements that we could actually have