1.4 Flashcards
Assurance and advisory services are best described as
Independent professional services that improve the quality of information, or its context, for decision makers.
The AICPA defines assurance services as independent professional services that improve the quality of information, or its context, for decision makers. Assurance services encompass audit and other attestation services but also include nonstandard services. Assurance services do not encompass consulting services.
A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be dissociated from the resolution of the matter. The audit documentation would probably be
Expanded to detail the assistant auditor’s position and how the difference of opinion was resolved.
A public accounting firm should have policies and procedures that address differences of opinion. They should enable an engagement team member to document his or her disagreement with the conclusions reached after proper consultation. The policies and procedures should require that (1) conclusions be documented and implemented and (2) the report not be released until the matter is resolved (QC 10). For an audit of an issuer, AS 1215, Audit Documentation, requires working papers to document significant findings issues. They include “disagreements among members of the engagement team or with others consulted on the engagement about final conclusions reached on significant accounting or auditing matters.”
Which of the following actions should a CPA firm take to comply with the AICPA’s quality control standards?
Establish policies to ensure that the audit work meets applicable professional standards.
One of the elements of a system of quality control is engagement performance. Thus, policies and procedures should be established to provide reasonable assurance that (1) engagements are consistently performed in accordance with professional standards and legal and regulatory requirements and (2) the firm issues appropriate reports. Matters addressed include responsibilities for performance, supervision, and review.
Which of the following best characterizes an auditor’s exercise of professional skepticism?
Having an attitude that includes a questioning mind.
Professional skepticism is an attitude that includes (1) a questioning mind, (2) alertness to conditions that may indicate material misstatement, and (3) critical assessment of audit evidence.
A CPA in public practice is required to comply with the provisions of the Statements on Standards for Accounting and Review Services when
Advising a client regarding the selection of computer software:
Advocating a client’s position before the IRS:
No
No
SSARSs apply to services in connection with the unaudited statements or other unaudited information of a nonpublic entity. Advising a client regarding the selection of computer software is a consulting service (CS 100) and is outside the scope of SSARSs. Advocating a client’s position before the IRS is subject to ethics requirements but also is a service outside the scope of SSARSs.
The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter’s resolution, the CPA firm’s procedures should enable the assistant to
Document the details of the disagreement with the conclusion reached.
According to AU-C 220 and QC 10, differences of opinion (1) within the engagement team, (2) with a consultant, or (3) between the engagement partner and the quality control reviewer should be resolved by following the firm’s related policies and procedures. A member of the engagement team should be able to document his or her disagreement with the conclusions reached after appropriate consultation. Moreover, (1) conclusions should be documented and implemented, and (2) the report should be released only after resolution of the matter. According to AS 1201, in applying due professional care, each engagement team member has a responsibility to bring to the attention of appropriate persons any disagreements or concerns about accounting and auditing issues that (s)he believes are significant to the statements or the report regardless of how they may have arisen. The PCAOB’s AS 1215 requires documentation of disagreements among members of the engagement team or with consultants about final conclusions on significant accounting or auditing matters.
For which of the SSARS services will the practitioner issue a report?
Preparation:
Compilation:
Review:
No
Yes
Yes
The practitioner does not issue a report for a preparation service for a nonissuer. This service does not (1) provide assurance or (2) require a determination of whether the practitioner is independent. However, reports are issued for a compilation and a review service. A compilation provides no assurance but requires a determination of independence. A review requires independence.
All of the following are audit quality control requirements contained in the Sarbanes-Oxley Act of 2002 except
The audit report must be submitted to the Public Company Accounting Oversight Board prior to issuance.
Audit reports must be determined appropriate for issuance by the CPA firm but need not be approved by the PCAOB.
The objective of assurance services is to
Enhance decision making.
The main objective of assurance services, as stated by the AICPA, is to provide information that assists in better decision making. Assurance services encompass audit and other attestation services but also include nonstandard services. Assurance services do not encompass consulting services.
Assurance services differ from consulting services in that assurance services
Focus on providing advice:
Involve monitoring of one party by another:
No
Yes
Assurance services encompass attestation services but not consulting services. Assurance services differ from consulting services in two ways: (1) they focus on improving information rather than providing advice, and (2) they usually involve situations in which one party wants to monitor another rather than the two-party arrangements common in consulting engagements.
The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the
Results are consistent with the conclusions to be presented in the auditor’s report.
According to AU-C 220, QC 10, and AS 1201, a review considers whether, for example, (1) the work supports the conclusions and is properly documented, (2) the evidence is sufficient and appropriate to support the auditor’s report, and (3) the objectives of the procedures have been achieved.
Which of the following services, if any, may an accountant who is not independent provide?
Preparations and compilations but not reviews.
A compilation provides no assurance. Thus, the accountant need not be independent. The report describes the compilation service and disclaims an opinion or conclusion or any other form of assurance on the financial statements. The accountant discloses a lack of independence in the report. An accountant who prepares financial statements need not be, or determine whether (s)he is, independent. Also, no report is required.
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by
Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.
A CPA firm must have a system of quality control to provide reasonable assurance that the firm and its personnel (1) comply with professional standards, (2) comply with applicable legal and regulatory requirements, and (3) issue appropriate reports. The nature and extent of the quality control system developed by an individual firm depends on factors such as the size and operating characteristics of the firm.
Which of the following best describes the reason an independent auditor reports on financial statements?
The company preparing the statements and the persons using the statements may have different interests.
Management and financial statement users may have an adversary relationship because their interests in the firm are different. The independent auditor provides assurance that the financial statements are not biased for or against any interest.
One of a CPA firm’s basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through
A system of quality control.
A CPA firm must have a system of quality control that ensures that its personnel comply with professional standards applicable to its audit and accounting practice. However, a deficiency in an engagement, by itself, does not necessarily indicate that the firm’s system of quality control is not sufficient. GAAS apply to individual engagements, and Statements on Quality Control Standards (SQCSs) apply to the firm’s practice as a whole.
