Chapter 2

  1. Assurance
    • Making something certain
    • or overcoming doubt
  2. Attest
    • Confirm something
    • To state that something is true, especially in a formal written statement
  3. Audit
    A Methodical examination and review
  4. PCAOB Authority
    • Auditing
    • Attestation
    • Quality Control
    • Independence
    • Ethical Standards for audits of public companies
  5. AICPA Authority
    • auditing
    • attestation
    • quality control
    • independence ethical
    • accounting and review standards for engagements involving non public companies
  6. State Boards of Accountancy
    License CPA's and CPA firms to practice in jurisdictions
  7. Regulation of the Public Accounting Profession
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  8. GAAS- General Settings
    • Adequate Technical training and proficency
    • Independence in mental attitude is to be maintained
    • Due professional care
  9. GAAS-Standards of Field Work
    • Auditor must adequately plan and properly supervise work
    • Auditor must obtain a sufficient understanding of entity, including assess risk of material misstatement
    • Auditor must obtain audit evidence to afford a reasonable basis for the opinion
  10. GAAS-Standards of Reporting
    • State whether the FS are presented in accordance with GAAP
    • ID circumstances were principles have not been consistently applied
    • Informative Disclosures are adequate unless otherwise stated in report
    • Report should clearly state the responsibility being assumed by the auditors, by expressing an opinion or stating that one can not be expressed
  11. Terminology in Auditing Standards
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  12. GAAS Hierarchy
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  13. Auditors Responsibility for detecting Fraud and Error-Part 1
    Asses the risk of errors and fraud that may cause the FS to contain a material misstatement.

    • Obtain information to assess the inherent risks and fraud risks:
    • Information about the company and its environment
    • Discussion among audit team members
    • Inquires of Management and others
    • Planning Analytical procedures
  14. Auditors Responsibility for detecting Fraud and Error-Part 2
    • Based on Assesment plan and perform the audit
    • Exercise Due care and the proper degree of professional skepticism
    • to achieve reasonable assurance that material misstatement due to error or fraud will be detected.
  15. Auditors Responsibility For the Detection of Illegal Acts
    • Those that can have a direct and material effect on FS amounts
    • an audit obtains reasonable assurance of detecting these types of illegal acts.
    • Those with an Indirect Effect on FS
    • audit doesn't provide assurance indirect illegal acts will be uncovered
  16. The Standard Auditors Report for Non Public Companies
    • Title
    • Addressee
    • Content
    • Introductory Paragraph
    • Scope Paragraph
    • Opinion Paragraph
    • Signature
    • Date
  17. The Standard Auditors Report- Introductory Paragraph
    • We have audited the accompanying BS of XYZ Co....
    • These financial statements are the responsibility of the companies management.
    • Our Responsibility is to express an opinion...
  18. The Standard Auditors Report- Scope Paragraph
    • Should say things Like:
    • in accordance with auditing standards
    • obtain reasonable assurance
    • free from material misstatement
    • examining on test basis
    • assessing the accounting principles
    • significant estimates
    • audit provides a reasonable basis for our opinion
  19. The Standar Auditors Report- Opinion Paragraph
    • In our opinion, the financial statements referred to above present fairly, in all material respects....
    • results ended in conformity with accounting principles generally accepted in the USA.
  20. Unqualified Report
    FS follow GAAP and the auditor does not add explanatory language
  21. Qualified Opinion
    Scope limitation or departure from GAAP
  22. Adverse Opinion
    Ex: departure from GAAP so significant that the FS as a whole are misleading
  23. Disclaimer of Opinion
    Ex: Unable to determine an opinion due to a very significant scope limitation
  24. Public Company Audit Report
    • Refers to standards of the PCAOB rather than GAAS
    • Includes a fourth paragraph that reports internal control
    • City and State of audit firm must be incuded
  25. Applicability of SSAE's
    • Standards for Attestation Services
    • Establish the auditing standards for other audit/attest services
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  26. Quality Control In the Public Accounting Firm
    • Leadership responsibility for quality within the firm Tone at the top
    • Monitoring
  27. QC Element 1: Leadership Responsibilities for quality within the firm
    • Firms Internal culture recognizes that quality is essential in performing engagemnts and recognizes the need to
    • Perform work that complies with professional standards and regulatory and legal requriements
    • Issue reports that are appropriate in circumstances.
  28. QC Element 2: Relevant Ethical Requirements
    Ex: At least annually, the firm should obtain written confirmation of compliance with its indpendence poices from all firm personnel who are required to be independent.
  29. QC Element 3: Acceptance and Continuance
    • Firm will continue relationships where the firm
    • has considered client integrity
    • Is competent to perform the engagement
    • Can Comply with Legal and ethical requirements.

    Ex: firm will get background before taking on a client.
  30. QC Element 4: Human Resources
    Firm has personal with capabilities and commitment to ethical Principles to perform engagements in accordance to professional standards, regs and legal requirements.
  31. QC Element 5: Engagement Performance
    Design plicies and procedures that address the tracking of progress of each engagement.
  32. QC Element 6: Monitoring
    Working papers, reports and client financial statements are reviewed to assess compliance with firms quality control policy and procedures.
  33. Quality Control Procedures
    • Not specifired by AICPA
    • Depend on firm size
    • Establish Controls to provide assurance that the CPA firm meets its responsibilities.
  34. Regulation of Public Companies
    • PCAOB
    • registration of public accounting firms that audit public companies
    • conduct inspections of practice of registerd pub. Acctg frims.
  35. Regulations of Non-Public Companies
    • AICPA&State Boards of Accountancy
    • Peer review of nonpublic practice segments
  36. PCAOB
    • 5 members-only two may be CPA's
    • Members Appointed by the SEC and may serve no more that two five-year terms
    • All accounting firms that audit SEC registrants must register with PCAOB
    • PCAOB can impose monetary damages, suspend firms or make referrals to Justice Department
  37. PCAOB Inspections
    • Conducted by PCAOB staff
    • Focus
    • Evaluate performance of sample audit and review engagments
    • Report
    • Wirtten report to SEC, part of which is made public
  38. Peer Reviews
    • Members of AICPA
    • Conducted by CPA's or other CPA Firms
    • Two types of peer reviews
    • 1. System Review-study of CPA firms system of quality control, by sampling
    • 2. Engagement Review-Less in scope than system review.
    • Report: pass, pass with deficiencies, or fail
  39. International Audit Report
    • Expanded description of managements responsibility
    • Enhanced Explanation of the Audit process
    • Report may indicate that the financial statements comply with the provisions of the country's relevant statues or laws
    • Must include city of auditors office
    • Signed by auditor or the audit firm or both.
Card Set
Chapter 2
Midterm 1