AUDIT 2.txt

• H - Human resources
• E - Engagement/client acceptance and continuance
• L - Leadership responsibilities
• P - Performance of the engagement
• M - Monitoring
• E - Ethical requirements

Policies and procedures designed, implemented and maintained to ensure the firm complies with professional standards and appropriate legal and regulatory requirements

• - Reasonable assurance that those hired have appropriate characteristics
• - Engagement partners possess competencies necessary
• - Personnel have degree of technical training/proficiency, and participate in continuing professional education
• - Qualifications necessary to advance

• - Minimize likelihood of association w/ client whose mgmt lacks integrity (reputation, attitude, nature of operations)
• - Undertakes job we can complete professionally (consider deadlines, personnel)
• - Need to document issues and have policies/procedures for withdrawal
• - Obtain understanding with client about services

• - Firm leadership bears responsibility for creating culture of quality
• - Resources should be devoted to quality control

• - Ensure staff is supervised and there's a high level of performance
• - Sufficient engagement documentation and maintaining it
• - Ask for help when you need it (outside consultant)
• - Follow guidelines for quality control (reviewer, procedures, etc)

• - Ongoing consideration and evaluation of design and effectiveness of quality control system
• - A partner should bear responsibility for this
• - Procedures include reviews, inspections, and make sure these are documented and action's taken
• - "Wrap up" review by second partner focuses on compliance with GAAP

CPA firm reviews another CPA firm's compliance with quality control system. If a firm's a member of the AICPA, then it's required every 3 years. Report's issued after it's done

• - Goal: to maintain public confidence in profession
• - Independence means impartiality and freedom from any obligation (should be communicated)
• - Annually all firm personnel should confirm independence in writing
• - SOX prohibits other services for audit clients, while tax prep for corp. audit client is ok (except aggressive/confidential or corp officers/family members)
• - 1 year cooling off period between CFO/CEO going to CPA
• - Partner rotation every 5 years
• - No: contingent fees, commissions or referral fees

• GAAS: conduct of each individual audit engagement
• Quality control standards: conduct of all professional activities of the firm's practice as a whole

• - OCBOA - other comprehensive basis of accounting financial statements
• - Specified elements, accounts, or items in an F/S
• - Compliance w/ contractual or regulatory requirements related to audited F/S
• - Financial presentations to comply with contractual agreements or regulatory provisions
• - Financial information presented in prescribed forms/schedules that require a prescribed form of auditor's report

• - Cash basis
• - Income tax basis
• - Governmental requirements of a governmental regulatory agency
• - Price-level adjusted F/S (definite set of criteria applied to all material items)

• - Non-GAAP titles
• - Scope paragraph is the SAME
• - Explanatory paragraph states about OCBOA basis (refer to describing footnote), and that it's non-GAAP
• - OCBOA opinion paragraph if it's fair on the "OCBOA basis"

Restrictive paragraph included that's limiting use of report to management, directors and regulatory agency - even if the report may be public record

The GAAS with the possible exception of the first (that F/S are presented in conformity with GAAP) if items aren't meant to be in conformity

When element/account/item is far-reaching or pervasive (e.g. net income, stockholder's equity or any item based thereon), the auditor must audit complete set of F/S

• Not allowed: major item, and adverse/disclaim opinion
• Allowed: minor item, and not accompanying adverse/disclaimer

If presented separately from disclaimer of opinion of the F/S

If the specified item is meant to comply with contract/agreement than GAAP or OCBOA, then use of report must be restricted to only involved parties

Auditor must have audited the client's F/S and can only issue a negative assurance (if opinion was not adverse or disclaimed on F/S as a whole)

• - Negative assurance in a separate report (state connection to audit and compliance with GAAS) , or included as addt'l paragraph following opinion in audit report
• - Reference to specific agreement
• - Restriction on use of report

• US: negative assurance
• Int'l: opinion is expressed

• - Incomplete financial presentation that is prepared in conformity with GAAP or an OCBOA
• - Special-purpose financial presentation that isn't in conformity with GAAP or OCBOA

Restricted use, except when presentation and report are filed with regulatory agency and included in a document distributed to the general public (e.g. registration statement)

Auditor should pay special attention to type/wording. It may be necessary to reword the form or attach a separate report

• - Lack of consistency
• - Going concern uncertainties
• - Other auditors
• - Change of prior opinion on comparative F/S
• - Emphasis of a matter

• - Compilation (no assurance given) - just presenting information (an attest)
• - Review (limited assurance) - make sure no material modifications need to be made (assurance and attestation)

SSARS (statements on standards for accounting and review services)

• Apply to: engagements to compile/issue compilation report on specified elements/accounts/items, or proforma financial information of nonissuer
• Doesn't apply to: other accounting services (consulting, tax returns, bookkeeping, financial data processing, etc). But if many entries are adjusted -> prep of F/S -> SSARS apply
• Doesn't apply to: SAS (reviews of interim financial information)

• 1) Three-party relationship (management, accountant, intended users)
• 2) Financial reporting framework (FASB, GASB, IFRS, OCBA (must have description/disclosures))
• 3) Financial statements or financial information (complete or individual)
• 4) Sufficient appropriate evidence (review only, need inquiry and analytical procedures to accumulate evidence)
• 5) Written communication or report (written review report req. for review)

Professional judgement, influence on economic decisions, and circumstances that are impacted by size/nature

• - Objectives
• - Management's responsibilitys and accountant's responsibilities
• - Limitations of engagement and description of any other acct services performed
• - If F/S aren't used by a third party, issue plain paper report

• - Knowledge of industry accounting principles and practices
• - Understanding of client's business
• - Reading financial statements (don't associate w/ fraud/false)

• S - staff qualifications
• T - transaction types and frequency
• A - accounting basis used to prepare F/S
• F - form of the acct records
• F - F/S's form and content

• - No audit work, so don't need to look for info
• - But if incorrect, then should get addt'l or revised info from client
• - If client refuses, then withdraw

• - Engagement letter
• - Any significant findings/issues (results of procedures that indicate material misstatement and actions taken, and resolution of questions/concerns from compilation procedures)
• - Oral or written communications with mgmt regarding fraud/illegal acts

• - Title, Addressee
• - Introduction (state (identified entity/date) F/S have been Compiled, and accountant hasn't Audited or Reviewed F/S)
• - Management's Responsibility paragraph
• - Accountant's Responsibility paragraph (in accordance with SSARS by AICPA, and Objective of compilation was to assist Management in presenting F/S)
• - Signature, date (of compilation completion)

• - F/S are otherwise in conformity with GAAP
• - Reason for omission was not to deceive user
• - Compilation report warns user of missing disclosures in separate paragraph

Accountant should disclosure this lack of independence in the last paragraph of the report (and can include reasons)

Disclosure in separate paragraph and the effects of it (and modify report w/ paragraph at end), but if disclosure's not sufficient, then withdraw from engagement (since can't issue 'adverse' or 'except for' opinion since we didn't audit them)

If personal F/S aren't going to be used to obtain credit (if client agrees, accountant states, and nothing indicates)

• - May use engagement letter rather than compilation report
• - Restrict use on each page of F/S
• - Written communication is still required

• U - Understanding with client established (engagement letter)
• L - Learn and/or obtain sufficient knowledge of entity's business
• I - Inquiries should be addressed appropriately
• A - Analytical procedures should be performed
• R - Review (other procedures should be performed)
• C - Client representation letter should be obtained
• P - Professional judgement should be used to evaluate results
• A - Accountant (CPA) should communicate results

• - Testing internal controls
• - Performing audit tests
• - Assessing fraut risk
• - Communicating with predecessor accountant (can, up to judgement)

• - Made within client's organization
• - Assure that adequate responses are obtained
• - Accountant doesn't need to corroborate mgmt's responses w/ other evidence

• - Compare recorded amounts/ratios with expectations
• - Designed to detect relationships and unusual/materially misstated individual items
• - Ratios/comparisons with prior periods, budgets, relevant nonfinancial information, to others in industry)

• - Read F/S for conformity with framework
• - Obtain reports of other accountants who have been engaged to audit/review significant components of the reporting entity
• - Consider effects of going concern uncertainties
• - Consider effects of incorrect/incomplete/unsatisfactory information

• - Dated as of accountant's report, addressed to them and for all F/S and periods covered by review
• - Management's responsibility, acknowledgement of responsibility for internal control
• - Management's full/truthful responses to all inquiries
• - Knowledge of any material fraud or suspected fraud and management's responsibility to detect/prevent fraud
• - Representations about the completeness of information
• - Information concerning subsequent events
• - Addt'l representations related to matters specific to entity's business/industry

• - Significant amount of time has passed
• - Material subsequent event between procedure completion and report issuance
• - Former client requests accountant to reissue and prior period report
• - Updated letter should state if any reps should be modified or if any subsequent events have occurred

• - If review's incomplete, then issuance is presented (maybe do compilation)
• - Documentation should support and provide clear understanding (include engagement letter and significant findings/actions taken/basis for conclusions reached, communications, management representation letter, important/unusal matters, inquiries and analytical procedures)
• - Remember, no tests of internal control or audit work

• - Title, Addressee
• - Introduction (AM I SAD): Analytical procedures to Management's F/S and Inquiries of mgmt. Substantially less in scope than an Audit, and accountant Doesn't express an opinion
• - Management's Responsibility (MR. FI-) is fair presentation of Financial statements and maintaining Internal control
• - (-RSALA) - accountant's Responsibility is accordance with SSARS by the AICPA, and obtain Limited Assurance of no material modifications, and reasonable basis for report by procedures
• - Engagement results, Signature, and Date

• - Communicate matters to appropriate level of management and how effects are on F/S
• - Accountant should consider impact on report and ask for addt'l/revised info (if not given, withdraw)

• Accountant should:
• - If it's material and people rely on it, advise client to disclose new info and its impact (revised F/S, necessary disclosures to imminent F/S, or notify people they shouldn't be relied on)

• - Notify manager, board of directors, etc
• - Diassociate, notify regulatory agencies, and relying parties
• - If client doesn't cooperate and accountant can't investigate, disclosure tells "if it's true"

• - Compilation report should refer to supplementary (or separate report) if both F/S and supplementary info was compiled.
• - Review - explanation should be included or separately that supplementary info's only there for purpose of additional analysis (has been subjected to inquiry/analytical procedures, or hasn't been but compiled from info and there's no opinion)

• - Acceptable reasons (change in requirements, misunderstanding as to nature of rendered services)
• - Consider withdrawing if: unacceptable reasons (engagement would uncover fraud, client's trying to create misleading F/S), scope limitations (client refuses correspondence with legal counsel or providing a signed representation letter)

Update report on prior period and issue it as part of the current period

Report on prior period(s) should be updated and issued as the last paragraph of the current period's

• Issue compilation report and add paragraph to report on current period statements (describe responsibility assumed, date of original report and state that no review procedures were performed after that day)
• OR reissue prior period review report combined with current period compilation report (disclaim review procedures after date), or presented separately

• - Previous modification made to disclose GAAP departure may no longer be necessary, or need a new modification to disclose
• - Separate paragraph that states date of original report, that statements of prior period have been changed (if applicable), and reason for change in original report

Decide if report is still appropriate, and the Old CPA should read statements/report of current period, compare statements, and obtain a letter from successor accountants stating they aren't aware of any relevant info that might have a material effect on prior periods

• Successor should either make reference to report of predecessor in current report (add paragraph mentioning that prior period reports were done by other accountants, any modifications and description of what happened)
• OR perform level of service themselves if easier.

Predecessor or successor accountant may report on changed prior period F/S as restated, or successor accountant may report only on restatement adjustment (and indicate predecessor accountant reported on before-restatement)

• - Unaudited financial statements should be clearly marked
• - Accountant should either reissue the prior period report
• OR, include addt'l paragraph in current report describing responsibility assumed for prior period's statements

Addt'l paragraph should indicate that prior period statements were audited, its date, opinions expressed and why, and no auditing procedures have been performed since the previous report date

Addt'l paragraph should state service performed in prior period, date, any material modifications, and statement that the service was less in scope than an audit and did not provide the basis of an opinion. For issuer, disclaimer/description of review (interim), for non-issuer, description of compilation/review

• - Follow SAS
• - May be done if latest F/S were audited and uses same basis
• - Continuing accountant expects to audit C/Y's F/S

• - SEC requires certain entities to file quarterly reports and review them
• - SEC requires certain entities to include selected quarterly financial data in annual report or other SEC filings, and a review is required
• - Accountant should review selected quarterly data if included in F/S for initial audit

• U - Understanding with client established (engagement letter)
• L - Learn and/or obtain sufficient knowledge of entity's business
• I - Inquiries should be addressed appropriately
• A - Analytical procedures should be performed
• R - Review (other procedures should be performed)
• C - Client representation letter should be obtained
• P - Professional judgement should be used to evaluate results
• A - Accountant (CPA) should communicate results

• - Read documentation of prior audits/reviews to identify affecting matters
• - Read most recent annual financial information and from recent comparable periods
• - Inquire of mgmt regarding changes in business activities or internal controls
• - If not the continuing accountant, should try to know components of internal control
• - Significant deficiencies in internal control (scope restriction) may make review impractible

• - Use "but" judgement to decide
• - Inquiry of client's lawyer
• - Going concern (really don't need to corroborate mitigating factors)

• - Read minutes of stockholder meetings, etc.
• - Obtain reports from other accountants engaged to review interims of subsidiaries/investees
• - Obtain evidence that interims agrees/reconciles w/ acct records (inquire about reliability)
• - Read interms for conformity with applicable financial reporting framework
• - Read other info in documents containing interims for material inconsistencies/misstatements of fact
• - Extend review procedures to resolve outstanding questions

- Should be related to financial information, completeness, recognition, measurement, disclosure, subsequent events

• - mgmt's acknowledge of responsibility to controls
• - disclosure of significant deficiencies in internal controls
• - mgmt's responsibility for design/implementation of controls to prevent/detect fraud
• - knowledge of fraud or allegations of fraud

• Likely misstatement is the best estimate of the total misstatement in an account balance or class of transactions. Accountant should:
• - Accumulate all estimates for further evaluation
• - Consider aggregated effect of several immaterial misstatements may in fact be material
• - Evaluate likely misstatements in terms of nature/cause/amount/timing/potential effect on current/future periods

If there's a problem -> go to management -> go to audit committee if mgmt doesn't respond --> don't respond, consider withdrawing and consulting legal counsel

• - Each page should clearly be marked "unaudited"
• - Statement that interim financial info is responsibility of entity's management
• - Statement that review was conducted in accordance with standards of AICPA (NOT SSARS), only inquiries/analytical procedures done

• - Disclosure in F/S is okay (no report modification needed)
• - If not, modify review report

• - Should be marked "unaudited" and no need to refer to review since not required. But modifications necessary if interum financials aren't marked "unaudited", quarterly info isn't reviewed or is omitted (required by the SEC for issuers)
• - Prospectus should clarify that independent's accountant's involvement that report isn't considered part of the registration statement in this context

Letter from CPA to named underwriter or other requesting parties just before registration of client's securities that covers period from date of last auditor's report to registration "effective date". Done as due diligence by underwriters who could be held liable for material omissions/misstatements in a registration statement. Requires CPA to perform review, and must give CPA an attorney's opinion or representation letter (prove "due diligence" if other than underwriter)

• - Financial information expressed in dollars
• - Financial information derived from accounting records
• - No comment on MD&A

• - A CPA's independence
• - Compliance (as to form) of F/S with the SEC act, assuming they're audited
• What is negative assurance?

• - Changes in selected F/S items during period subsequent to date/period of latest F/S included in registration statement, assuming an audit/review has recently been performed
• - Whether certain non-financial statement information included in the registration statement complies as to form in all material respects with regulation S-K

List is provided with respect to pro forma financial information and forecasts included in registration statement, or tables/statistics/other financial information included in reg. stmt

• - Market risk sensitive instruments
• - Qualitative disclosures

• - Compliance w/ laws/regulations
• - Compliance w/ contracts
• - Internal control
• - Computer systems and software (security, availability, processing integrity, online privacy, confidentiality for Webtrust engagements (e-commerce) and SysTrust engagements (reliability of any))
• - Information supplemental to F/S
• - Prospective information
• - Performance/physical characteristics, historical events, analyses, etc.

• - Agreed-upon procedures
• - Financial forecasts and projections
• - Pro forma F/S
• - Internal control over financial reporting
• - Compliance
• - MD&A

• - Audits
• - Compilations and reviews of F/S of nonissuers under SSARS
• - Return preparation (income tax, franchise, other)
• - Advocating for the client (litigation services)
• - Providing consulting/advisory services
• - Operational audits (normally internal auditors)

Provide levels of assurance below that provided by GAAS audit (are broader in scope), and should be tailored to needs of user.

• T - training and proficiency
• I - independence
• P - performance/due professional care in planning/performance
• P - professional, adequate knowledge of subject matter
• Y - your belief that subject matter is capable of evaluation against criteria that are suitable and available to others (professional judgement)

• P - planning and supervision
• A - appropriate, sufficient evidence to provide reasonable basis for conclusion

• S - subject matter identified or assertion reported on (character of engagement, nature/scope)
• S - significant reservations about engagement disclosed
• E - Express conclusions about subject matter/assertion in relation to established/stated criteria
• R - restrict use of report to specified parties when needed to

• - Report can be on assertion itself OR on subject matter
• - If on assertion, it should accompany practitioners report OR assertion should be clearly stated in report
• - Scope restrictions on examination and review
• - Concerns about assertion, conformity w/ criteria, adequacy of disclosure = qualified or adverse opinion, or modified conclusion

Positive assurance based on search, verification, inquiry and analysis

Negative assurance, based on inquiry and analytical procedures

No assurance, but procedures and findings are listed (report of findings)

• Obtained in examination/review engagements and usually provided by management
• - If client is responsible: failure to provide written assertion is scope limitation and should withdraw in review and modify report in examination
• - If client is not responsible, report may be issued as long as appropriate procedures performed and sufficient evidence is obtains (use should still be restricted)

• I - Independence of practitioner
• A - Agreement of the parties
• M - Measurability and consistency
• S - Sufficiency of the procedures
• U - Use of the report is restricted to specified parties
• R - Responsibility for the subject matter
• E - Engagements to perform agreed upon procedures on prospective F/S (include summary of significant assumptions)

• - Statement that the procedures performed were those agreed to by the specified parties identified in the report and a description of any agreed-upon materiality limits
• - Statement of restrictions of use
• - Certain additional items (assumptions) for prospective financial information

• Financial forecast = general & limited use (expected conditions/courses of action)
• Financial projection = limited use only (hypothetical)

• Allowed: compilation, examination and agreed-upon
• Not allowed: review

• - Summary of significant assumptions is needed first. For projection, limited use.
• - Statement that practitioner compiled in accordance with CPA (not that the F/S were)
• - Statement that compilation is limited in scope, doesn't enable to express an opinion or other forms of assurance
• - Prospectives results may not be achieved
• - Practitioner assumes no responsibility to update report

• Purpose is to express opinion on if statements are presented in conformity w/ AICPA and underlying assumptions provide reasonable basis for prospective statements
• - Independence required
• - Evidence required

• - Must include summary of significant assumptions
• - Disclaimer on AICPA conformity and whether underlying assumptions provide reasonable basis for statements

• - AICPA presentation guidelines are not followed (qualified "except for" or adverse opinion)
• - Significant assumptions are not disclosed (adverse opinion)
• - Basis not reasonable
• - Scope limitation (disclaimer)

Generally not considered appropriate for general use (limited use) because they omit an essential element, unusual/infrequent items, income tax expense, etc etc.

• - Not GAAP literature, but demonstrate effect of hypothetical/future event by showing past F/S what might've been
• - May be examined/reviewed (don't reevaluate internal control but determine if math is correct)
• - Written repesentations from management and reference to historical F/S from derived (and if they were audited or reviewed)

No review, but generally perform agreed-upon procedure (statement that meant to assist w/ compliance) or examination (statement that it doesn't provide legal determination)

• - Requirements established by SEC (CPA must understand them)
• - CPA may examine or review