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AUD > 20 - IV: Other professional services 1 > Flashcards

20 - IV: Other professional services 1 Flashcards

1
Q

What is integrated audit?

A

The auditor is engaged to report on FS and ICFR (internal control over financial reporting).

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2
Q

Who is required for integrated audit? Who is this AICPA stds for? Why did AICPA create this stds?

A

Public companies (PCAOB).
Non-issuer.
So that there is something applicable to PCAOB.

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3
Q

ACIPA integrated audit: what is basic responsibility? what does it focus on?

A

Achieve objectives of both engagements simultaneously.

Material weaknesses.

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4
Q

ACIPA integrated audit: Is the auditor required to detect insignificant weaknesses?

A

No.

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5
Q

ACIPA integrated audit: acceptance: what are management’s 4 preconditions that they must meet before acceptance?

A

Management;

  1. accepts responsibility for ICFR.
  2. makes assessment of ICFR.
  3. supports assessment w/ doc.
  4. provides written assessment in a report.
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6
Q

ACIPA integrated audit: planning: should the auditor use the same risk assessment process for FS and ICFR both? What are 3 things to keep in mind?

A

Yes.

Scaling the audit, fraud risk, using the work of others.

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7
Q

ACIPA integrated audit: planning: should the auditor use the same materiality for both? Which approach should he use?

A

Yes.

Top-down approach.

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8
Q

ACIPA integrated audit: testing controls: is the relationship between the amount of evidence required and control risk inverse or direct? what are 2 things should be tested on IC?

A

Direct. Higher the risk, more evidence needed.

  • Design effectiveness (“placed in operation”).
  • Operating effectiveness”
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9
Q

ACIPA integrated audit: evaluating identified deficiencies: what are 2 things the severity of deficiency depends on?

A
  1. Magnitude of potential misstatements.

2. Likelihood of failure.

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10
Q

ACIPA integrated audit: Concluding procedures?

A

Review applicable reports of others.

Obtain written representations.

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11
Q

ACIPA integrated audit: communication: what must be communicated? What are time frame for non-govenermental entities and governmental entities?

A

Identified material weakness and sig deficiencies.
NG: Before the report release date in writing.
G: within 60days of the report release date.

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12
Q

ACIPA integrated audit: communication: who should the auditor communicate re: lesser deficiencies? Time frame?

A

To management. (those charged w/governance should be informed the communication occurred).
Within 60 days of report release date.

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13
Q

ACIPA integrated audit: reporting: should it be separate or combined? If separate, whats the date should be used?

A

Either.
Separate: must cross reference each other (character and date).
The same date.

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14
Q

ACIPA integrated audit: what are 5 reasons to modify the auditor’s report on ICFR?

A
  1. Adverse opinion issued: if there is at least one material weakness, the report should include definition and reference management report, point out it did not identify the matter. The report also should determine the effect on FS and if FS opinion was impacted by the weakness.
  2. Elements of management report incomplete/improper.: if not revised, add other-matter paragraph.
  3. Scope limitation: withdraw or declaim opinion - consider the impact on FS.
  4. Reference made to a component auditor: component auditor audited ICFR on component unit, which is not restricted.
  5. Management report includes additional info - add other matter to disclaim opinion on the additional info.
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15
Q

PCAOB: integrated audit: objective?

A

Obtain reasonable assurance that no material weaknesses exist in ICFR.

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16
Q

PCAOB: integrated audit: material weakness definition?

A

There is a reasonable possibility that material misstatement will not be prevented or detected on a timely basis.

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17
Q

PCAOB: integrated audit: sig deficiency definition?

A

less severe than a material weakness, yet important enough to merit attention.

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18
Q

PCAOB: integrated audit: what are 4 key points on current stds?

A

Cost-benefit considerations.
Risk assessment.
Using the work of others.
Using top-down approach.

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19
Q

PCAOB: integrated audit: performance: what are 2 types of deficiencies to focus?

A

Design.

Effectiveness in operation.

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20
Q

PCAOB: integrated audit: planning: objective?

A

Design to obtain reasonable assurance to detect material weaknesses.

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21
Q

PCAOB: integrated audit: Is test of control required? What does it test? what are test of control procedures?

A

Yes.
Design effectiveness: inquiry, observation, walk-through, inspecting doc.
Operating effectiveness: above plus reperformance.

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22
Q

PCAOB: integrated audit: what are 4 indicators of a material weakness?

A
  1. Fraud involving senior management.
  2. Restatement of prior FS.
  3. Detection of material misstatements in FS.
  4. Ineffective oversight by audit committee.
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23
Q

PCAOB: integrated audit: communication? What must be communicated and to who?

A

Material weaknesses: audit committee and management.
Sig deficiencies: audit committee.
Lesser deficiencies: management (communicate to audit committee such communication occurred).

24
Q

PCAOB: integrated audit: communication: what must the auditor do if audit committee determined to be ineffective?

A

Communicate in writing the fact to the board of directors.

25
Q

PCAOB: integrated audit: reporting: combined or separate? If separate, whats the date?

A

Either.
If separate, add a paragraph to reference each other.
The same date.

26
Q

PCAOB: integrated audit: reporting: what opinion must the auditor express when there is at least one material weakness? what are changes to the report?

A

Adverse.

  • Include the definition of material weakness and refer to any assessment of those identified weaknesses in the management assessments
  • Determine the effects on FS - may revise the report “this report has considered material weaknesses identified…”
27
Q

PCAOB: integrated audit: reporting: what must the auditor do when there is scope limitation?

A

Withdraw or disclaim opinion.

28
Q

PCAOB: is reporting on whether previously reported material weakness exist required?

A

No.

29
Q

PCAOB: is reporting on whether previously reported material weakness exist: which opinion is allowed in such report?

A

Disclaimer of opinion or unqualified opinion.

30
Q

Employee Benefit Plans: what is the stds must be followed?

A

Employee Retirement Income Security Act of 1974 (ERISA).

31
Q

Employee Benefit Plans by ERISA: what are 2 basic types of plans?

A

Welfare plans: healthcare, disability, vacation, life ins, etc.
Pension plans: retirement income or deferral of income.

32
Q

Employee Benefit Plans by ERISA: what are 3 eligibilities?

A
  1. Minimum age can’t be set above 21.
  2. Minimum employment to enter is normally 12 months.
  3. At least 1,000 hrs of work to count toward plan eligibility.
33
Q

Employee Benefit Plans by ERISA: does welfare plans have eligibility?

A

No.

34
Q

What are ERISA requirements?

A
  • Nondiscrimination.
  • Vesting: establish minimum vesting stds.
  • Funding requirement for qualified plans (tax exempt), but not for welfare plans.
35
Q

Employee Benefit Plans: who is responsible to comply with ERISA? Auditor?

A

No.

Sponsor and legal counsels.

36
Q

Employee Benefit Plans: does defined benefit have separate accounts for individual participants? Defined contribution?

A

DB: No.
DC: Yes - benefits limited to the balance in each account.

37
Q

Employee Benefit Plans: welfare plans: what is it and what is ERISA treatment of unfunded plans?

A

Benefits are pd from the employer’s assets or by ins. ERISA exempts unfunded plans from audit requirements.

38
Q

Employee Benefit Plans: welfare plans: what is ERISA treatment of funded plans?

A

The plan assets are required to be held in trust.

All plan activities are subject to ERISA audit requirements.

39
Q

Employee Benefit Plans: defined benefit plans: what’s the traditional plans?

A

Benefits are based on the plan’s benefit formulas.

40
Q

Employee Benefit Plans: defined benefit plans: what’s the cash balance plans?

A

Participant may choose a lump-sum cash distribution or an annuity over time.

41
Q

Employee Benefit Plans: defined contribution plans: what’s the 401(k) plans?

A

Permit employees to defer some income to the pension plan; taxes are deferred until the distribution occurs.

42
Q

Employee Benefit Plans: defined contribution plans: what’s the Roth 401(k) plans?

A

Contributions are made with after-tax dollars without taxes on the future contribution.

43
Q

Employee Benefit Plans: defined contribution plans: what’s the 403(b) plans?

A

Similar to 401(k), but for charities and public schools.
Requirements: universal availability.
Plan assets maybe held in a custodial account instead of in trust.

44
Q

Employee Benefit Plans: defined contribution plans: what’s the ESOPs?

A

Employee Stock Ownership Plans.

Incentive plans in employer’s securities.

45
Q

Employee Benefit Plans: Welfare: What are ERISA audit requirements (which plans must be audited)?

A
  1. Large plans; having at least ACTUAL 100 participants at the start of the plan year.
  2. Funded; assets are held in trust or a separate account.
46
Q

Employee Benefit Plans: Pension Plans: What are ERISA audit requirements (which plans must be audited)?

A
  1. Large plans; having at least ELIGIBLE 100 participants at the start of the plan year.
47
Q

Employee Benefit Plans: welfare/pension plans: when are they exempt from ERISA audit requirements?

A

When benefits are pd by ins contracts and premiums are paid from employer’s general assets or benefits paid from assets.

48
Q

Employee Benefit Plans: DOL: what is the required form for plan financial stmts?

A

Form 5500 “annual return/report of employee benefit plan”

49
Q

Employee Benefit Plans: DOL: what basis of FS reporting are allowed?

A

GAAP, cash basis, or modified cash basis.

50
Q

Employee Benefit Plans: DOL: what’s auditor’s responsibility?

A

Report on whether FS and supplemental scheduled comply with DOL requirements.

51
Q

Employee Benefit Plans: what must the auditor inquire about? Procedures?

A

Plan’s tax status: whether plan complies w/ laws and regulations affecting the plan’s qualified tax status.
Obtain written representations.
Read correspondences with IRS.

52
Q

Employee Benefit Plans: Full Scope Audit: what must be examined? (8)

A
  1. Plan investments/investment income.
  2. Employee and employer contributions.
  3. Pmts of benefits.
  4. Participant demographic and payroll data.
  5. Loans to participants.
  6. Allocation of investment income to individual participants.
  7. Liabilities and plan obligations.
  8. Administrative expenses.
53
Q

Employee Benefit Plans: Who is eligible for limited-scope audit? What is requirement?

A

Specific plans’ assets are held by a qualified, regulated financial institutions such as bank, trust, etc that are subject to periodic State or Federal examinations.

The qualified financial institution must provide a certification that investment and investment activity are complete and accurate.

54
Q

Employee Benefit Plans: Limited-Scope Audit: what does auditor not have to audit? Responsibilities re: certification?

A

Investment and investment activities.

  1. Read for appropriateness.
  2. Agree the certified info with the plan’s FS.
  3. Verify that disclosures about the certified info comply w/ DOL and GAAP.
55
Q

Employee Benefit Plans: Limited-Scope Audit: Reporting: what must be included?

A

Disclaimer of opinion.

Other-matter paragraph, commenting on supplemental schedules required by DOL w/ a disclaimer of opinion on those.

56
Q

Employee Benefit Plans: Limited-Scope Audit: what is the opinion on?

A

that the form and content of the info comply w/ DOL rules and regulations under ERISA.

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