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1 Engagement Responsibilities Flashcards

1
Q

What are Statements on Auditing Standards (SAS)?

A

Issued by t he Auditing Standards Board, apply to audits of nonissuer’s financial statements.

Codified using the AU-C prefix.

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2
Q

What are Statements for Accounting and Review Services (SSARS)?

A

Issued by the AICPA’s Accounting and Review Services Committee (ARSC), they apply to preparations, compilations, and reviews of nonissuers’ financial statements.

AR-C 60, 70, 80, 90 & 120

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3
Q

What are Statements on Standards for Attestation Engagements (SSAE)?

A

Issued by the AICPA’s Auditing Standards Board (ASB) or another AICPA designated body, they apply to examinations, reviews, and agreed-upon procedures engagements for subject matter other than traditional financial statements.

AT-C 105, 205, 210, & 215

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4
Q

What is the Public Company Accounting Oversight Board (PCAOB)?

A

Created by the Sarbanes-Oxley Act of 2002, creates standards that apply to audits of issuers by public accounting firms. Issuers and certain other entities are required to file with the SEC.

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5
Q

What are the Statements on Quality Control Standards (SQCS)?

A

They address the responsibilities of a CPA firm for its accounting and auditing practice. They identify six specifdic quality control elements.

Codified in QC Section 10

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6
Q

What are Government Auditing Standards?

The Yellow Book issued by the Government Accountability Office (GAO)

A

They apply to:
1. audits of the federal government’s entities, programs, activities and functions
2. federal awards to nonfederal entities.

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7
Q

What standards does the Government Accountability Office require governmental auditors to follow?

A

ASB standards, except as otherwise provided in the Yellow Book.

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8
Q

What standards do audits under the Single Audit Act follow?

A

ASB standards, except as otherwise provided in the Yellow Book, also the Office of Management and Budget (OMB) Audit Requirements for Federal Awards (2 CFR 200).

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9
Q

When is an auditor deemed to be associated with financial information?

A

When the procedures applied suffice to report in accordance with GAAS (AU-C200).

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10
Q

When is an auditor deemed to be associated with financial information?

A

When the procedures applied suffice to report in accordance with GAAS (AU-C200).

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11
Q

What is the purpose of an audit?

A

To provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

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12
Q

What does “presented fairly” mean?

A

The financial statements as a whole are free from material misstatement, whether due to fraud or error.

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13
Q

What is reasonable assurance?

A

A high but not absolute level. It is obtained when the auditor has gathered sufficient appropriate ecidence to reduce audit risk to an acceptably low level.

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14
Q

What are the overall objective of an auditor in conducting an audit of financial statements?

A
  1. obtain reasonable assurance
  2. report on the financial statements and communicate as required by GAAS, in accordance with the auditor’s findings
  3. be independent (in most cases) and comply with other relevant ethics rules.
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15
Q

What does it mean when an auditor is performing an audit with professional skepticis?

A

They exercise professional judgment, recognizing that circumstances may exist that cause the financial statements to be materially misstated.

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16
Q

Professional skepticism is an attitude that includes?

A
  1. questioning mind
  2. alertness to conditions that may indicate material misstatement
  3. critical assessment of audit evidence
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17
Q

Professional skepticism and professional j udgment may be subject to unconscious or conscious auditor biases. What are examples of potential unconscious auditor biases?

A
  1. availability bias
  2. confirmation bias
  3. overconfidence bias
  4. anchoring bias
  5. automation bias
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18
Q

What is availability bias?

A

A tendency to place more weight on events or experiences that immediately come to mind or are readily available

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19
Q

What is confirmation bias?

A

A tendency to place more weight on information that corroborates an existing belief than information that contradicts or casts doubt on that belief.

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20
Q

What is overconfidence bias?

A

A tendency to overestimate one’s own ability to make accurate assessments of risk or other judgments or decisions.

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21
Q

What is anchoring bias?

A

A tendency to use an initial piece of information as an anchor against which subsequent information is inadequately assessed.

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22
Q

What is automation bias?

A

A tendency to favor output generated from automated systems over human reasoning.

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23
Q

What is the purpose of an auditor’s opinion?

A

It enhances the degree of confidence that intended users can place in the financial statements.

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24
Q

What are the options of an auditor’s opinion?

A
  1. unmodified (unqualified)
  2. qualified
  3. adverse
  4. disclaimer
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25
Q

What is an unmodified (unqualified) opinion?

A

The conclusion that the financial statements are presented fairly, in all material respects, in accordance with framework.

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26
Q

What is a qualified opinion?

A

The conclusion that, except for the matter(s) described in the audit report, the financial statements are presented fairly, in all material respects, in accordance with the framework.

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27
Q

What is an adverse opinion?

A

The conclusion that, because of the significance of the matter(s) described in the audit report, the financial statements are not presented fairly.

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28
Q

What is a disclaimeer opinion?

A

The conclusion that, because of the significance of the matter(s) described in the audit report, the auditor has not been able to obtain sufficient appropriate evidence. Thus, the auditor should not express an opinion.

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29
Q

What are assertions?

A

Management represents that the statements are in accordance with the applicable framework. Thus, it implicitly or explicitly makes assertions (representations) about the recognition, measurement, and presentation of classes of transactions and events, account balances, and disclosures in the financial statements.

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29
Q

What are assertions?

A

Management represents that the statements are in accordance with the applicable framework. Thus, it implicitly or explicitly makes assertions (representations) about the recognition, measurement, and presentation of classes of transactions and events, account balances, and disclosures in the financial statements.

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30
Q

What should the auditor do to assess the risks of material misstatement (RMM)?

A

Use relevant assertions in sufficient detail and design and perform further audit procedures.

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31
Q

How do procedures relate to assertions?

A

Some procedures may relate to more than one assertion. But a combination of procedures may be needed to test a relevant assertion because audit evidence from different sources or of a different nature may be relevant to the same assertions.

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32
Q

How are assertions used by auditors to consider the types of potential misstatements classified?

A
  1. assertions about classes of transactions and events, and related disclosures (income statement and statement of cash flows)
  2. assertions about account balances and related disclosures, at period end (balance sheet)
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32
Q

How are assertions used by auditors to consider the types of potential misstatements classified?

A
  1. assertions about classes of transactions and events, and related disclosures (income statement and statement of cash flows)
  2. assertions about account balances and related disclosures, at period end (balance sheet)
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33
Q

What are the assertions about classes of transactions and events, and related disclosures?

A
  1. occurence
  2. completeness
  3. accuracy
  4. cutoff
  5. classification
  6. presentation
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34
Q

What is the occurence assertion?

A

Transactions and events that have been recorded or disclosed have occurred.

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35
Q

What is the completeness assertion?

A

All transactions and events that should have been recorded were recorded, and all related disclosures that should be in cluded in the financial statements were included.

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36
Q

What is the accuracy assertion?

A

Amounts and other data were recorded appropriately, and related disclosures were appropriately measured and described.

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37
Q

What is the cutoff assertion?

A

Transactions and events were recorded in the correct accounting period.

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38
Q

What is the classification assertion?

A

Transactions and events were recorded in the proper accounts.

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39
Q

What is the presentation assertion?

A

Transactions and events are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable.

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40
Q

What are the assertions about account balances, and related disclosures, at period end?

A
  1. existence
  2. rights and obligations
  3. completeness
  4. accuracy, valuation, and allocation
  5. classification
  6. presentation
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41
Q

What is the existence assertion?

A

Assets, liabilities, and equity interests exist.

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42
Q

What is the rights and obligations assertion?

A

The entity holds or controls the rights to assets, and liabilities are its obligations.

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43
Q

What is the completeness assertion for period end?

A

All assets, liabilities, and equity interests that should be recorded were recorded, and all related disclosures that should be included in the financial statements were included.

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44
Q

What is the accuracy, valuation, and allocation assertion?

A

Assets, liabilities, and equity interests were included in the financial statements at appropriate amounts, any resulting valuation or allocation adjustments were appropriately recorded, and related disclosures were appropriately measured and described.

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45
Q

What is the classification assertion for period end?

A

Assets, liabilities, and equity interests were recorded in the proper accounts.

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46
Q

What is the presentation assertion for period end?

A

Assets, liabilities, and equity interests are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable.

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47
Q

What is the presentation assertion for period end?

A

Assets, liabilities, and equity interests are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable.

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48
Q

What are the five assertions the PCAOB’s, AS 1105 Audit Evidence, describes to be applied selectively to the financial statement transactions, balances, and disclosures?

A
  1. existence or occurrence
  2. completeness
  3. valuation or allocatoin
  4. rights and obligations
  5. presentation and disclosure
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48
Q

What are the five assertions the PCAOB’s, AS 1105 Audit Evidence, describes to be applied selectively to the financial statement transactions, balances, and disclosures?

A
  1. existence or occurrence
  2. completeness
  3. valuation or allocatoin
  4. rights and obligations
  5. presentation and disclosure
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49
Q

What is the PCAOB’s existence or occurence assertion?

A

Assets or liabilities of the company exist at a given date, and recordedc transactions have occurred during a given period.

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50
Q

What is the PCAOB’s completeness assertion?

A

All transactions and accounts that should be presented in the financial statements are so included.

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51
Q

What is the PCAOB’s completeness assertion?

A

All transactions and accounts that should be presented in the financial statements are so included.

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52
Q

What is the PCAOB’s valuation or allocation assertion?

A

Asset, liability, equity, revenue, and expense components have been included in the financial statements at appropriate amounts.

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53
Q

What is the PCAOB’s rights and obigations assertion?

A

The company holds or controls rights to the assets, and liabilities are obligations of the company at a given date.

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54
Q

What is the PCAOB’s presentation and disclosure assertion?

A

The components of the financial statements are properly classified, described and disclosed.

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55
Q

What is the auditor’s responsibility for the financial statements confied to?

A

The expression of an opinion. The auditor may make suggestions about the form or content of the financial statements or draft them based on management’s information.

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56
Q

What are the categories of professional requirements used by the GAAS and PCAOB standards?

A
  1. unconditional responsibility
  2. presumptively manadatory responsibility
  3. should consider
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57
Q

What is unconditional responsibility?

A

The auditor must comply with an unconditional requirement whenever it is relevant. The word “must” indicates an unconditional requirement. For example, an auditor must be indenpendent.

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58
Q

What is a presumptively mandatory responsibility?

A

The auditor must comply with a presumptively mandatory requirement whenever it is relevant except in rare circumstances. The word “should” indicates a presumptively mandatory requirement. For example, an auditor should obtain an engagement letter.

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59
Q

What is a should consider responsibility?

A

Consideration of a procedure or action is presumptively required. Performance of the procedure or action depends on the outcome of the consideration and the auditor’s professional judgment.

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60
Q

What is an audit report?

A

In an audit report, the auditor makes a judgment about the appropriate opinion to be expressed based on the evidence collected.

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61
Q

What are the actions for an auditor if it is concluded that the satatements are materially mistated, or the evidence to support an unmodified opinion is not available?

A

Financial statements are materially mistated:
1. material but not pervasive - qualified opinion
2. material and pervasive - adverse opinion

Inability to obtain sufficient appropriate audit evidence:
1. material but not pervasive - qualified opinion
2. material and pervasive - disclaimer of opinion

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62
Q

What does the AICPA Accounting and Review Services Committee?

A

It’s a senior technical committee authorized to issue pronouncements in connection with the unaudited financial statements or other unaudited financial information of a nonissuer (nonpublic entity).

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63
Q

What is a preparation engagement?

A

A nonattest service that does not require the accountant to be, or determine whether they are, independent of the entity. Allows accountants to use software to generate client financial statements and release them to the client or third parties without attaching a report.

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64
Q

In a preparation engagement, what is not required of the accountant?

A
  1. Verify the accuracy or completeness of management’s information
  2. Obtain evidence to express an opinion or a conclusion
  3. Report on the financial statements.
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64
Q

In a preparation engagement, what is not required of the accountant?

A
  1. Verify the accuracy or completeness of management’s information
  2. Obtain evidence to express an opinion or a conclusion
  3. Report on the financial statements.
65
Q

In a preparation engagement, what cannot be relied upon to identify or disclose?

A
  1. Misstatements, including those caused by fraud or error
  2. Wrongdoing or noncompliance with laws and regulations
66
Q

What is the objective of a compilation?

A

To apply accounting and financial reporting expertise to assist management in the presentation of financial statements without undertaking to obtain or provide any assurance onthem.

An accountant also may compile prospective, pro forma, and other historical information.

67
Q

What is required of an accountant in a compilation service?

A
  1. Determine whether they are independent
  2. Report on the statements
  3. Disclaim any assurance
  4. Disclose any lack of independence
  5. Associate his or her name with the statement (it is included in the report)
68
Q

What is the objective of a review?

A

A review of financial statements is to obtain limited assurance as a basis for reporting whether the accountant is aware of any material modifications that should be made to the statements for them to be in accordance with the reporting framework (GAAP).

An accountant may also review other historical financial information excluding pro forma financial information.

69
Q

In a review must the accountant be independence?

A

Yes

70
Q

In a review must the accountant be independence?

A

Yes

71
Q

What is the assurance in a review?

q

A

A review is performed primarily thorugh inquiry and analytical procedures. Limited assurance is known as negative assurance, in contrast with the positive assurance provided by an audit.

72
Q

In preparations, compilations and reviews, how should the accountant reference financial statements?

A

References to financial statements should be read to include other information within the scope of a given service.

73
Q

What is the nature of attest engatements?

A

Attestation standards apply when the CPA is engaged to issue or issues a practitioner’s examination, review or agreed-upon procedures report on subject matter that is the responsibility of another party.

The subject matter of an attestation engagement may take many forms in contrast with an audit of financial statements

73
Q

What is the nature of attest engatements?

A

Attestation standards apply when the CPA is engaged to issue or issues a practitioner’s examination, review or agreed-upon procedures report on subject matter that is the responsibility of another party.

The subject matter of an attestation engagement may take many forms in contrast with an audit of financial statements

74
Q

What is the nature of attest engatements?

A

Attestation standards apply when the CPA is engaged to issue or issues a practitioner’s examination, review or agreed-upon procedures report on subject matter that is the responsibility of another party.

The subject matter of an attestation engagement may take many forms in contrast with an audit of financial statements

75
Q

What are examples of attestation engagements?

A
  1. Historical or prospective performance - achievement of cost reduction of 10%
  2. Physical characteristics - confirmation of square footage of facilities
  3. Historical events - validation of the price of a group of goods at a certain date.
76
Q

What are the three types of attestion engagements?

A
  1. Examinations (assertion-based and direct)
  2. Reviews
  3. Agreed-upon procedures
77
Q

What are the three types of attestion engagements?

A
  1. Examinations (assertion-based and direct)
  2. Reviews
  3. Agreed-upon procedures
78
Q

What is an assertion-based examination or review engagement?

A

The practitioner must request a written assertion. A party, not the practitioner makes an assertion about whether the underlying subject matter or subject-matter information is measured or evaluated in accordance with suitable criteria.

79
Q

What is a direct examination review or engagement?

A

In a direct examination, the practitioner is not required to request an assertion. The practitioner gathers evidence and resports on the subject matter.

80
Q

Who is the engaging party?

A

The party who engages the practitioner

81
Q

Who is the responsible party?

A

The party responsible for the subject matter (and ordinarily the assertion).

Most often the engaging party is also the responsible party. - EX. management as the responsible party engages the practitioner to report on subject matter

81
Q

Who is the responsible party?

A

The party responsible for the subject matter (and ordinarily the assertion).

Most often the engaging party is also the responsible party. - EX. management as the responsible party engages the practitioner to report on subject matter

82
Q

Who is the responsible party?

A

The party responsible for the subject matter (and ordinarily the assertion).

Most often the engaging party is also the responsible party. - EX. management as the responsible party engages the practitioner to report on subject matter

83
Q

What is an agreed-upon procedures engagement?

A

The practitioner applies procedures to subject matter or subject-matter information and resports the results of those procedures without an opinion or conclusion.

84
Q

What is an agreed-upon procedures engagement?

A

The practitioner applies procedures to subject matter or subject-matter information and resports the results of those procedures without an opinion or conclusion.

85
Q

Is independence required in an attestation engagment?

A

Yes

86
Q

What is the difference between an examination attestation service and an audit of historical financial statements?

A

They are almost identical, the difference is that the focus of service is not on financial statement data.

87
Q

What is the difference between a review attestation service and a review of historical financial statements?

A

The focus of service is not on financial statement data.

88
Q

What are assurance and advisory services?

A

Practitioner-provided engagements that enhance the quality, relevance, and usefulness of information or its context for decision makers.

88
Q

What are assurance and advisory services?

A

Practitioner-provided engagements that enhance the quality, relevance, and usefulness of information or its context for decision makers.

89
Q

What is the mission of the AICPA Assurance Services Executive Committee (ASEC)?

A

To anticipate, identify, assess, and address significant developments and opportunities relating to emerging assurance and advisory needs.

90
Q

What are included in the ASEC initiatives?

A
  1. System organization and control (SOC)
  2. Blockchain
  3. Digital assets
  4. Sustainability assurance and advisory
  5. Artificial intelligence/algorithms
  6. Data privacy
  7. Audit data analytics
  8. XBRL Assurance and advisory
91
Q

Do assurance services include consulting services?

A

No. They have similarities because they are delivered using a common body of knowledge and skills.

92
Q

How are assurance services different from consulting services?

A
  1. Focus on improving information rather than providing advice.
  2. Usually involve one party’s intention to monitor another (often within the same entity), not the two-party arrangement common in consulting engagements.
92
Q

How are assurance services different from consulting services?

A
  1. Focus on improving information rather than providing advice.
  2. Usually involve one party’s intention to monitor another (often within the same entity), not the two-party arrangement common in consulting engagements.
93
Q

What are the Statement on Standards for Consulting Services (SSCS)?

A

They are issued by AICPA Management Consulting Services Executive Committee, the senior technical committee designated to issue pronouncements for consulting services.

94
Q

What are consulting services?

A

Professional services that use the practitioner’s technical skills, education, observations, experiences, and knowledge of the consulting process. They typical engagement has two parties: the practitioner and the client.

95
Q

What are consulting services?

A

Professional services that use the practitioner’s technical skills, education, observations, experiences, and knowledge of the consulting process. They typical engagement has two parties: the practitioner and the client.

96
Q

Is it required for a practitioner to be independent for consulting services?

A

No

97
Q

What are the three general ethics standards for consulting services?

A
  1. Client interest
  2. Understanding with the client
  3. Communication with the client
98
Q

What is client interest?

A

The practitioner serves the client interest by seeking to accomplish the objectives established by understanding with the client while maintaining integrity and objectivity.

99
Q

What is client interest?

A

The practitioner serves the client interest by seeking to accomplish the objectives established by understanding with the client while maintaining integrity and objectivity.

100
Q

What is understanding with the client?

A

Establish with the client a written or oral understanding about the responsibilities of the parties and the nature, scope, and limitations of services to be performed.

101
Q

What is communication with the client?

A

Inform the client of:
1. Conflicts of interest that may occur
2. Significant reservations about the scope or benefits of the engagement
3. Significant engagement findings or events

102
Q

What is communication with the client?

A

Inform the client of:
1. Conflicts of interest that may occur
2. Significant reservations about the scope or benefits of the engagement
3. Significant engagement findings or events

103
Q

What may be included in consulting services?

A
  1. Consultations
  2. Advisory services
  3. Implementation Services
  4. Transaction Services
  5. Staff and other support services
  6. Product Services
104
Q

What are consultations?

A

Consultations in which the practitioner provides counsel in a short time frame using the practitioner’s exising knowledge.

EX - Reviewing and commenting on a client-prepared business plan

105
Q

What are advisory services?

A

The practitioner develops findings, conclusions, and recommendations for client consideration and decision making.

EX - An analysis of an accounting system with recmmendations for improvement

106
Q

What are advisory services?

A

The practitioner develops findings, conclusions, and recommendations for client consideration and decision making.

EX - An analysis of an accounting system with recmmendations for improvement

107
Q

What are implementation services?

A

The practitioner puts an action plan into effect.

EX - A computer system installation

108
Q

What are transaction services?

A

The practitioner provides services related to a specific client transaction, generally with a third party.

EX - Preparation of information for obtaining financing

109
Q

What are staff and other support services?

A

The practitioner provides appropriate staff and possibly other support to perform tasks specified by the client.

EX - computer programming staff support

109
Q

What are staff and other support services?

A

The practitioner provides appropriate staff and possibly other support to perform tasks specified by the client.

EX - computer programming staff support

110
Q

What are staff and other support services?

A

The practitioner provides appropriate staff and possibly other support to perform tasks specified by the client.

EX - computer programming staff support

111
Q

What are product services?

A

Services in which the practitioner provides the client with a product and associated professional services in support of the installation, use, or maintenance of the product.

EX - The sale and delivery of a packaged training program.

111
Q

What are product services?

A

Services in which the practitioner provides the client with a product and associated professional services in support of the installation, use, or maintenance of the product.

EX - The sale and delivery of a packaged training program.

112
Q

What is required by the AICPA of practitioners who are engaged in the practice of public accounting?

A

To be admitted or retain membership in the AICPA, they are required to practice in firms enrolled in an AICPA-approved practice-monitoring program.

112
Q

What is required by the AICPA of practitioners who are engaged in the practice of public accounting?

A

To be admitted or retain membership in the AICPA, they are required to practice in firms enrolled in an AICPA-approved practice-monitoring program.

113
Q

When does the practice-monitoring program requirement apply?

A
  1. Services performed by the firm or individual are within the scope of the AICPA’s practice-monitoring standards
  2. The firm or individual issues reports purporting to be in accordance with AICPA professional standards
114
Q

What is the goal of practice monitoring and the program itself?

A

To promote and enhance quality in the accounting and auditing services provided by the CPA firms (and individuals) subject to these standards.

This goal serves the public and enhances the significance of AICPA membership

115
Q

What is the Center for Public Company Audit Firms Peer Review Program or the AICPA Peer Review Program (CPCAF PRP)?

A

It is deemed an approved practice-monitoring program.

116
Q

When does the CPCAF PRP review and evaluate quality control?

A

When the PCAOB doesn’t inspect the quality control of the firm’s accounting and auditing practice

The PCAOB periodically evaluates and instpects quality control over the audits of public companies.

117
Q

When does the CPCAF PRP review and evaluate quality control?

A

When the PCAOB doesn’t inspect the quality control of the firm’s accounting and auditing practice

The PCAOB periodically evaluates and instpects quality control over the audits of public companies.

118
Q

When should a public accounting firm enroll in the AICPA PRP?

A
  1. If they are without public clients
  2. Required to maintain a monitoring program

Most state boards of accountancy requie licensees to undergo peer review (compliance assurance) to practice in their states.

118
Q

When should a public accounting firm enroll in the AICPA PRP?

A
  1. If they are without public clients
  2. Required to maintain a monitoring program

Most state boards of accountancy requie licensees to undergo peer review (compliance assurance) to practice in their states.

119
Q

When should a public accounting firm enroll in the AICPA PRP?

A
  1. If they are without public clients
  2. Required to maintain a monitoring program

Most state boards of accountancy requie licensees to undergo peer review (compliance assurance) to practice in their states.

120
Q

Does a peer review substitute for all monitoring procedures?

A

NO

It is a necessary part of the practice-monitoring reqirement for AICPA membership.

121
Q

What portion of a firm’s accounting and auditing practice is covered by the peer review standards?

A

Engagements under SAS, SSARS, SSAE, Government Auditing Standards, and PCAOB Standards

121
Q

What portion of a firm’s accounting and auditing practice is covered by the peer review standards?

A

Engagements under SAS, SSARS, SSAE, Government Auditing Standards, and PCAOB Standards

122
Q

What is a system review?

A

An on-site review required for a firm that performs the highest level of services.

123
Q

What is a system review intended to do?

A

Provide the reviewer a reasonable basis for expressing an opinion on whether, during the year under review:

  1. The reviewed firm’s system of quality control is designed in accordance with quality control standards,
  2. The firm is complying with quality control policies and procedures
124
Q

What is an engagement review?

A

It is to evaluate whether engagements submitted for review are performed and reported on in conformity with applicable professional standards in all material respects.

Engagement reviews are for firms that are not required to have a system review.

125
Q

What is an engagement review?

A

It is to evaluate whether engagements submitted for review are performed and reported on in conformity with applicable professional standards in all material respects.

Engagement reviews are for firms that are not required to have a system review.

126
Q

What is the scope of an engagement review?

A

It only covers accounting engagements, it does not include tax or consulting services.

127
Q

CPA firms have a responsibility to establish and maintain a system of quality control, what should the firm do?

A

Establish policies and procedures to provide reasonable assurance that:

  1. the firm and its personnel comply with professional standards and applicable legal and regulatory requirements
  2. the firm issues appropriate reports
128
Q

How do quality control standards apply to a firm?

A

It applies to the firm’s practice as a whole

Quality control may affect audits

129
Q

What shoudl the policies and procedures of a quality control system include?

A
  1. Leadership responsibilities
  2. Ethical requirements
  3. Client relationships
  4. Human resources
  5. Engagement performance
  6. Monitoring
130
Q

What do quality control system deficiencies not necessarily indicate?

A
  1. A specific audit was not performed in accordance with professional, legal, and regulatory requirements
  2. The auditor’s report was inappropriate
131
Q

What do Statements on Quality Control Standards (SQCS) apply to?

A

All CPA firms with regard to their accounting and auditing practice. This practice includes:

  1. Engagements to provide audit
  2. Attestation
  3. Compilation
  4. Review
  5. Other services for which standards have been promulgated by the Auditing Standards Board or the Accounting and Review Services Committee
132
Q

How is firm defined?

A

A form of organization permitted by law or regulation whose characteristics conform to resolutions of Council of the AICPA that is engaged int he practice of public accounting.

Includes proprietorships, partnerships, and professional corporations

133
Q

What are leadership responsibilities in a system of quality control?

A

Tone at the top - the firm should promote an internal culture recognizing that quaity is essential in performing engagements. This requires clear, consistent, and frequent actions and messages from all levels of management that emphasize quality control policies and procedures.

134
Q

What should leadership responsibilities emphasize besides quality control policies and procedures?

A
  1. Performing work that complies with all professional standards and applicable legal and regulatory requirements
  2. Issuing appropriate reports.
135
Q

What is leadership responsibilities in a system of quality control?

A
136
Q

What are relevant ethical requirements in a system of quality control?

A

They include the following principles:

  1. responsibilities
  2. the public interest
  3. integrity
  4. objectivity and independence
  5. due care
  6. scope and nature of services
137
Q

What is acceptance and continuance of client relationships in a system of quality control?

A
  1. The firm has considered the client’s integrity and has no information leading to a conclusion that the client lacks integrity
  2. The firm has personnel with competence, capabilities, and resources to perform the engagement
  3. The firm can comply with legal, regulatory, and ethical requirements
138
Q

What is human resources in a system of quality control?

A

Policies and procedures should be established to provide reasonable assurance that the firm has sufficient personnel with capabilities, competence, and commitment to ethical principles to:

  1. perform engagements in accordance with professional standards and applicable legal and regulatory requirements
  2. issue appropriate reports
139
Q

Who should be responsible for each engagement?

A

A partner with the appropriate competence, capabilities, and authority.

140
Q

What matters are included in human resources?

A
  1. recruitment
  2. hiring
  3. determining competencies and capabilities
  4. assignment of personnel
  5. professional development
  6. performance evaluation
  7. compensation
  8. advancement
141
Q

What is engagement performance in a system of quality control?

A

Policies and procedures should be established to provide reasonable assurance that engagements are performed in accordance with professional standards and legal requirements and that the firm issues appropriate reports.

142
Q

What matters are addressed in engagement performance?

A
  1. promoting consistency in the quality of engagement performance
  2. supervision responsibility
  3. review responsibility
143
Q

What matters are addressed in engagement performance?

A
  1. promoting consistency in the quality of engagement performance
  2. supervision responsibility
  3. review responsibility
144
Q

What is monitoring in a system of quality control?

A

Policies and procedures should be established to provide reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate, operating effectively, and complied with in practice.

Monitoring is an ongoing procesa dn includes inspection and evaluation of prior engagements

144
Q

What is monitoring in a system of quality control?

A

Policies and procedures should be established to provide reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate, operating effectively, and complied with in practice.

Monitoring is an ongoing procesa dn includes inspection and evaluation of prior engagements

144
Q

What is monitoring in a system of quality control?

A

Policies and procedures should be established to provide reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate, operating effectively, and complied with in practice.

Monitoring is an ongoing procesa dn includes inspection and evaluation of prior engagements

145
Q

How should a system of quality control be administered?

A
  1. Appropriate individuals should be responsible for establishing and maintaining policies and procedures
  2. Those policies and procedures should be communicated to the firm’s personnel so as to provide reasonable assurance that they are understood and complied with
  3. Consideration should be given to whether and to what extent policies and procedures must be documented for effective communication
  4. The firm should appropriately document quality control policies and procedures as well as compliance with them
  5. AU-C 220 assigns responsibility for the administration of quality control standards at the engagement level to the engagement partner
146
Q

What does the Sarbanes-Oxley Act of 2002 require of a registered accounting firm?

A
  1. Any firm having one or more public audit clients must adopt quality control standards.
  2. A second partner review and approval is required of autid reports
  3. The lead auditor and the reviewing partner must be rotated off the audit every 5 years
  4. The accounting firm must supervise any associated person with respect to auditing or quality control standards
  5. Independence rules have been expanded by prohibiting the auditor from providing a variety of nonaudit services.
  6. The client’s CEO and CFO must certify the appropriateness of the financial statements and disclosures
  7. Penalties for destroying documents to impede an investigation have been expanded
  8. Management must assess the effectiveness of internal control and issue a report on its effectiveness
  9. The auditor must audit internal control and express an opinion on its effectiveness
147
Q

The PCAOB AS 1220, Engagement Quality Review requires?

A

An engagement quality (EQR) and concurring approval of issuance are required for each audit of an issuer. The finaly analysis of quality control is evaluated by PCAOB inspections every 3 years (or every year for CPA firms with 100 or more issuer audits in the prior calendar year)

148
Q

What is the objective of the engagement quality reviewer?

A

To evaluate the significant judgments made and the related conclusions reached.

The reviewer must be an associated person of a registered public accounting firm, the reviewer may be from outisde the firm

149
Q

What is the objective of the engagement quality reviewer?

A

To evaluate the significant judgments made and the related conclusions reached.

The reviewer must be an associated person of a registered public accounting firm, the reviewer may be from outisde the firm

150
Q

What is the objective of the engagement quality reviewer?

A

To evaluate the significant judgments made and the related conclusions reached.

The reviewer must be an associated person of a registered public accounting firm, the reviewer may be from outisde the firm

151
Q

What is required of an engagement quality reviewer?

A
  1. They must have the competence to serve as a partner on the engagement
  2. They must have independence, integrity, and objectivity
  3. The engagement partner during either of the two preceding audits may not be the reviewer for the current audit subject to review
152
Q

What is involved in the evaluation of significant judgments in an audit?

A
  1. discussions with the engagement partner and other team members
  2. the review should consider whether the documentation supports the conclusins reached by the engagement team
  3. the review should consider whether the responses to significant risks were appropriate
153
Q

What should the engagement quality reviewer evaluate?

A
  1. Significant judgments about planning matters
  2. The assessment of, and responses to, significant risks, including those identified by the reviewer
  3. Corrected and uncorrected identified misstatements and control deficiencies and the significant judgments made
  4. The audit firm’s independence
  5. The engagement completion document and whether unresolved matters are significant
  6. The financial statements, management’s internal control report, and the related engagement report
  7. Other information filed with the SEC
  8. Whether consultations have addressed difficult matters
  9. Whether matters have been communicated to the audit committee, management, and other parties
154
Q

What should the documentation of an EQR identify?

A
  1. The reviewer and any assistants
  2. Documents reviewed
  3. The date of concurring approval of issuance or the reasons for nonapproval

AUD (11 decks)

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