1
Q
What does GAAS stand for?
A
Generally Accepted Auditing Standards
GAAS guides auditors in the performance of a properly planned and executed audit and measures audit quality.
2
Q
Who sets the Statements on Auditing Standards (SAS)?
A
AICPA Auditing Standards Board (ASB)
SAS is used for non-issuers.
3
Q
What is the purpose of PCAOB Standards?
A
Used for issuers
Set by the Public Company Accounting Oversight Board (PCAOB).
4
Q
What do Generally Accepted Government Auditing Standards (GAGAS) apply to?
A
Government organizations
Set by the Governmental Accountability Office (GAO).
5
Q
What are Statements on Standards for Accounting and Review Services (SSARS) used for?
A
Provide guidance for review and compilation, preparation of historical financial statements for non-issuers
Set by AICPA Accounting and Review Services Committee (ARSC).
6
Q
What do Statements on Standards for Attestation Engagements (SSAE) guide?
A
Attestation engagements other than those applied by SAS and SSARS
Includes AUP of historical financial statements, prospective financial statements, and internal control reports.
7
Q
What is the AICPA Code of Professional Conduct?
A
Provides guidelines to members for behavior in their business conduct
It assures the public that the profession maintains high standards.
8
Q
What does Statements on Quality Control Standards (SQCS) provide guidance on?
A
Policies and procedures for CPA firms to comply with professional standards and regulatory requirements
9
Q
What is the highest authority in the GAAS hierarchy?
A
Auditing Standards: SAS and PCAOB
10
Q
What does ‘must’ or ‘required’ indicate in auditing standards?
A
Unconditional statement; auditor MUST do this.
11
Q
What does ‘should’ indicate in auditing standards?
A
Presumptively mandatory requirement; must justify departure in writing.
12
Q
What are Interpretive Publications?
A
Recommendations for how auditing standards should be applied, not considered auditing standards.
13
Q
What is the primary purpose of an audit?
A
To provide an opinion on whether the financial statements are presented fairly in accordance with GAAP.
14
Q
What is an auditor’s responsibility regarding professional skepticism?
A
Maintaining a critical assessment and questioning mind.
15
Q
What does obtaining sufficient and appropriate evidence mean for auditors?
A
Audit risk has been limited to a ‘low level’.
16
Q
What are inherent limitations of an audit?
A
Auditors obtain reasonable assurance, not absolute assurance due to several factors.
17
Q
What constitutes an unmodified opinion?
A
Financial statements are presented fairly in all material respects.
18
Q
What is a modified opinion due to financial statement issues?
A
Auditor finds a material misstatement after obtaining sufficient appropriate audit evidence.
19
Q
What does a qualified opinion indicate?
A
Financial statements contain misstatements that are material but not pervasive.
20
Q
What does an adverse opinion indicate?
A
Financial statements contain misstatements that are both material and pervasive.
21
Q
What is a disclaimer of opinion?
A
Auditors are unable to gather sufficient appropriate audit evidence.
22
Q
What is the significance of the term ‘pervasive’ in auditing?
A
It indicates effects that have far-reaching impacts across several accounts or are fundamental to users’ understanding.
23
Q
What is required in the Opinion section for non-issuers?
A
Opinion states that financial statements have been audited and presented fairly in accordance with applicable framework.
24
Q
What is included in the Basis for Opinion section for unmodified opinions?
A
Audit was conducted with GAAS and the auditor is independent.
25
What is the purpose of Key Audit Matters (KAMs)?
To highlight areas with higher assessed risk or significant judgment required.
26
What is an Emphasis-of-Matter paragraph?
Used to refer to a matter fundamental to users' understanding of the financials.
27
What are audit issues that may lead to a modified opinion?
Inability to gather sufficient appropriate audit evidence due to time constraints or management-imposed limitations.
28
What happens when an accountant is associated with but not auditing financial statements?
Results in a disclaimer of opinion.
29
What is the definition of Emphasis-of-Matter paragraphs?
Used when referring to a matter that is appropriately presented or disclosed in the financial statements and is fundamental to the users’ understanding of the financials
## Footnote
Emphasis-of-Matter paragraphs indicate that the auditor's opinion is not modified with respect to the matter.
30
What reporting requirements must be met for Emphasis-of-Matter paragraphs?
Use the heading 'Emphasis-of-Matter' or other appropriate heading, describe the matter being emphasized, and indicate that the auditor’s opinion is not modified
## Footnote
Example: As discussed in note 5…. there was a fire in ABC company…
31
When is an Emphasis-of-Matter required?
When there is a justified change in accounting principle with material effects, or when subsequently discovered facts lead to a change in audit opinion
## Footnote
Changes involving accounting principles, error corrections, and investee principle changes are included.
32
What is the definition of Other-Matter paragraphs?
Used when referring to matters other than those that are presented or disclosed in the financials, relevant to users’ understanding of the audit and auditor’s responsibilities
## Footnote
Other-Matter paragraphs are not appropriate for matters identified as key audit matters.
33
When is Other-Matter required?
When financial statements are prepared using a contractual or regulatory basis of accounting, or when there are subsequently discovered facts that lead to a change in audit opinion
## Footnote
Other reports attached, such as supplementary information or compliance reporting, also necessitate Other-Matter.
34
What should an auditor do when prior year financial statements were audited by another auditor?
The predecessor auditor should read the current period statements, compare with audited statements, and obtain letters of representation from both current auditor and management
## Footnote
The current auditor must express an opinion on the current period financials only.
35
What are the auditor's responsibilities regarding subsequent events?
Evaluate subsequent events through the date of the auditor's report and inquire about any events that may require adjustment or disclosure
## Footnote
This includes reviewing minutes of meetings and comparing interim financial statements.
36
What are the types of subsequent events?
Type 1: Conditions present before B/S date (Accrual & disclosure); Type 2: Conditions after B/S date (Only disclosed)
## Footnote
Examples include litigation for Type 1 and issuance of stock for Type 2.
37
What is the auditor's action when there is a material inconsistency in Other Information?
Discuss the inconsistency with management, modify the F/S opinion if necessary, and report the issue in an 'other matter' paragraph
## Footnote
If management refuses to revise the financials, the auditor may withdraw from the engagement.
38
What is the auditor's responsibility for supplementary information?
Evaluate the presentation of the supplementary information and provide an opinion on whether it is fairly stated in relation to the financial statements
## Footnote
This requires the auditor to have audited the financial statements from which the supplementary information is derived.
39
What is a piecemeal opinion?
An opinion expressed on one or more specific elements, accounts, or items of financial statements
## Footnote
It should not be expressed when the audit has an adverse or disclaimer opinion.
40
What are the auditor's responsibilities when financial statements are prepared using a special purpose framework?
Understand the accounting principles, perform audit procedures following U.S. GAAS, and obtain management representation regarding the purpose and use of financial statements
## Footnote
Special purpose frameworks include cash-basis, tax-basis, regulatory-basis, and contractual basis.
41
What is required from management in an engagement letter?
Management is responsible for preparing financial statements, designing and maintaining internal control, and complying with laws
## Footnote
The engagement letter also outlines the auditor's responsibilities and limitations.
42
What should a successor auditor do before accepting an engagement?
Contact the predecessor auditor to inquire about management integrity, disagreements, and communication with the Board of Directors regarding fraud
## Footnote
This ensures the successor auditor assesses auditability and compliance with quality control policies.
43
What are Type 1 supplementary information and its auditor's requirements?
Required by GASB/FASB with limited procedures performed; if issues arise, an other-matter paragraph is added
## Footnote
Type 2 supplementary information is separately engaged for audit.
44
What should be included in an Emphasis-of-Matter paragraph for special purpose frameworks?
Indicate that financial statements were prepared according to the applicable framework, refer to the relevant note, and state that they may not be suitable for any other purpose
## Footnote
This includes a description of the accounting principle.
45
What should an auditor do after accepting the engagement?
Contact predecessor auditor to gain their audit documentation through the permission of the client
## Footnote
If not permitted, try alternative procedures.
46
Who selects and appoints the engagement?
The audit committee.
47
What are the six elements of quality control?
* Human Resources
* Engagement
* Leadership Responsibilities
* Performance of the Engagement
* Monitoring
* Ethical Requirements
48
What is the purpose of audit documentation?
Serves as primary support of audit procedures and auditor’s report.
49
What types of files are used in audit documentation?
* P-File (used for multiple years)
* C-File (used only for the current year)
50
What are the objectives of internal control according to the COSO framework?
* Effectiveness and efficiency of Operations
* Reliability of Financial Reporting
* Compliance with laws and regulations
51
What are the five components of internal control?
* Control Environment
* Risk Assessment
* Information and Communication
* Monitoring Activities
* Control Activities
52
What is overall materiality in auditing?
Magnitude of misstatement that makes a reasonable user change his/her decision.
53
What is the formula for Audit Risk?
Audit Risk = Inherent Risk x Control Risk x Detection Risk.
54
What are the three conditions that contribute to fraud risk?
* Incentives/Pressures
* Opportunity
* Rationalization and Attitude
55
What should an auditor do if they suspect fraud?
Examine unusual journal entries and transactions.
56
What is the auditor's responsibility regarding illegal acts that have a direct effect on financial statements?
Same audit procedure applies (RMM assessment, audit program, etc.).
57
What is the evaluation period for going concern?
Evaluate for up to 1 year after the financial statements date based on existing conditions.
58
What is a combined report in an integrated audit?
Issued containing an opinion on both financial statements and internal controls over financial reporting.
59
What is required in a management report for issuers under Section 404a of SOX 2002?
Management should present a written assertion that includes a self-evaluation of the effectiveness of internal control.
60
What should be done if management refuses to supply a report in an integrated audit?
Withdraw from the engagement.
61
What is the auditor's opinion if one or more material weaknesses exist?
Adverse opinion.
62
What happens if a scope limitation prevents the auditor from expressing an opinion?
Management should be informed in writing.
63
What indicators signify a material weakness?
* Fraud by senior management
* Restatement of previously issued financial statements
* Identification of material misstatement by auditor
* Ineffective oversight of financial reporting
64
What are the two ways to issue a report on internal controls for nonissuers?
* Separate reports
* Combined report
65
What should be done if material weaknesses are subsequently eliminated?
Management may wish to communicate this to the investing public.
66
What is the role of specialists in the audit process?
Possess special skills and knowledge in fields other than accounting or auditing.
67
What is the definition of performance materiality?
Used at the audit planning stage to determine nature, timing, and extent of audit.
68
What are the types of analytical procedures?
* Ratio analysis
* Trend analysis
* Plausible relationship analysis
69
What should be included in the content of audit documentation?
* Company name
* Subject
* Date
* Preparer
* Reviewer
* Index
* Tickmark legends
70
What should management and those charged with governance be informed in writing about?
All cases of CD/SD/MW
71
When can an auditor issue a report disclaiming an opinion on internal controls?
When there is a scope limitation preventing evidence from being obtained
72
What are Statements on Standards for Attestation Engagements (SSAE)?
Guidelines for different types of attestation services
73
What is the role of the client in Agreed-Upon Procedures Engagements?
Responsible for assessing the sufficiency of the procedures performed
74
What are the conditions required to accept an Agreed-Upon Engagement?
* Independence of the practitioner
* Agreement of the parties
* Measurability and consistency
* Sufficiency of the procedures
* Use of the report can be general or restricted
* Responsibility for the subject matter
75
What are the two types of Prospective Financial Statements?
* Financial Forecast
* Financial Projection
76
What is the purpose of the Examination of Prospective Financial Statements?
To express an opinion on conformity with AICPA guidelines and reasonableness of assumptions
77
What differentiates a Type 1 Report from a Type 2 Report?
Type 1 reports on design and implementation at a point-in-time; Type 2 reports on operating effectiveness over a period
78
Who are SOC 1 reports restricted to?
Management of the service organization, the user entity, and the user auditor
79
What is the primary objective of a Service Auditor?
To obtain reasonable assurance about the fair presentation of the service organization's system
80
What is the requirement for compliance reports?
The auditor must have audited the client’s financial statements
81
What is the difference between compliance audit and compliance attestation?
Compliance audit gives positive assurance, while compliance attestation gives negative assurance
82
What does the Single Audit Act aim to improve?
The effectiveness of audits of federal awards and reduce the burden of federal audit requirements
83
What do SSARS provide guidance for?
Unaudited financial statements of information of non-issuers
84
What is the lowest level of engagement in financial statement preparation?
Preparation Engagement
85
What must be included on each page of prepared financial statements?
A 'no assurance' statement or a disclaimer of opinion
86
What is a Compilation Engagement?
An engagement to assist management in preparing financial statements without verifying information
87
What must an accountant do if they discover errors or fraud in financial statements during a Compilation Engagement?
Obtain additional information or withdraw if the client refuses
88
What is the primary focus of Review Engagements?
Limited assurance through inquiries and analytical procedures
89
What are the key components of the review report?
* Introductory paragraph
* Management responsibility
* Accountant's responsibility
* Basis for conclusion
* Conclusion
90
What must the accountant do if management does not provide written representations in a Review Engagement?
Discuss the matter with management and consider withdrawal
91
What type of assurance does a review engagement provide?
Limited assurance
92
What is required from management in a Review Engagement?
Client representation letter
93
What does the review report conclude if no material modifications are necessary?
Nothing has come to the accountant’s attention that the financial statements are not prepared in accordance with the applicable framework
94
What is the basis for a conclusion in an accountant's report?
Not included for unmodified report; included in case of modification.
95
What is stated in an unmodified conclusion?
Nothing has come to the accountant’s attention to believe that the financial statements are not prepared in accordance with the applicable framework - GAAP.
96
What does a qualified conclusion state?
Except for the effect of matter described in the Basis for Qualified Conclusion paragraph, we are not aware of ~.
97
What does an adverse conclusion indicate?
Due to the significance of matter described in Basis for Adverse Conclusion paragraph ~.
98
What happens in case of a scope limitation?
No report issued (WITHDRAW).
99
What are emphasis-of-matter and other-matter paragraphs?
Same as audit.
100
What is the procedure for updating reports for all periods compiled or reviewed?
Update the report on the prior period and issue together as part of the current report.
101
What should be done if the current period is reviewed and the prior period was compiled?
Update the report on the prior period(s) and issue as the last paragraph of the current period’s report.
102
What are the options when the current period is compiled and the prior period reviewed?
* Issue a compilation report and add a paragraph that no review procedures were performed after the date of the review report.
* Reissue the prior period review report, which may be combined or separate with current report.
103
What is the requirement when the current period is prepared and the prior period compiled or reviewed?
There is no requirement to reference the prior period - no report.
104
When should an accountant not issue a report on comparative financial statements?
When the statements for one or more, but not all, of the periods presented omit substantially all of the disclosures required by GAAP.
105
What must a predecessor accountant do before reissuing a compilation or review report?
Decide if their report is still appropriate, read the statements and report of the current period, and compare prior period statements.
106
What should be included when making reference to the predecessor accountant's report?
* The statements were audited by a predecessor auditor.
* The type of opinion expressed by the predecessor auditor.
* The nature of any emphasis-of-matter, other-matter, or explanatory paragraph.
* The date of the predecessor auditor's report.
107
What options are available for reporting on restated prior period financial statements?
* Predecessor or successor accountant may report on changed prior period financial statements, as restated.
* The successor accountant may report only on the restatement adjustment.
108
What should be included in the report when the current period is unaudited and the prior period audited?
Add an other-matter paragraph indicating that prior period statements were audited and other details.
109
What should be included in the report when the current period is audited and the prior period unaudited?
Include an other-matter paragraph detailing the service performed in the prior period.
110
What does an interim review not include?
Year-end.
111
What is the difference between issuer and non-issuer interim reviews?
* Issuer: Mandatory for filing with the SEC under PCAOB standards.
* Non-issuer: Required by lenders.
112
What does 'U LIAR CPA' stand for in interim review procedures?
* U: Understanding with the client established.
* L: Learn and/or obtain sufficient understanding of the entity.
* I: Inquiries should be addressed to appropriate individuals.
* A: Analytical procedures should be performed.
* R: Review - other procedures should be performed.
* C: Client representation letter should be obtained.
* P: Professional judgment should be used to evaluate results.
* A: Auditor (CPA) should communicate results.
113
What are the three sections of the code of professional conduct?
* Members in public practice.
* Members in business.
* Other members.
114
What is the general rule regarding independence for members in public practice?
Members shall be independent in fact and in appearance.
115
What is the definition of a covered member?
Engagement Team, Firm, Partners and equivalents in the same office, CEO, Non-Attest partner, Sub.
116
Who is considered immediate family in the context of independence?
Spouse, Spouse Equivalent, Dependent.
117
What can impair independence related to financial interests?
A covered member and immediate family should not have a direct or 'material' indirect interest in the client.
118
What are the conditions under which a partner/CEO's independence is impaired?
Impaired when both conditions of material interest to client and material to relative's net worth are met.
119
What is the treatment of indirect investments related to independence?
Impaired when material, such as more than 5% of shares in a mutual fund that holds investment in client.
120
What is the requirement for loans regarding independence?
Loans to and from client impair independence, with exceptions, such as grandfathered loans.
121
What is the cooling-off period for former partners of a firm?
1 year time to work for a client.
122
What are the exceptions for non-audit services under PCAOB rules?
* Tax services with pre-approval.
* Financial Information System Design and Implementation.
* Valuation and Appraisal Services.
* Actuarial Services.
* Human Resource-Related Services.
123
What is the requirement for communicating independence matters?
Communicate matters of independence with the audit committee annually and before engagement.
124
What is the role of the audit committee?
Must be a member of BOD, independent, and oversee auditor's work.
AUD
flashcards
Decks in class (10)
# Cards
-
1.01 AICPA Code of Professional Conduct31
-
1.02 Requirements of the SEC and PCAOB6
-
1.03 Requirements of the GAO and DOL5
-
3.01 Audit Engagements17
-
9.01 External Factors (Marcoeconomics)1
-
Study Guide Import124
-
10.01 COSO Internal Control - Integrated Framework17
-
10.03 Business Process and the Design of Internal Controls7
-
12.01 IMPORTANT14
-
13 Work of Others5
