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AUD > 7 - II: Financial stmt audit > Flashcards

7 - II: Financial stmt audit Flashcards

1
Q

What’s the primary focus on financial accounting (language of business)?

A

Preparation and distribution of general purpose, historical financial stmts.

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2
Q

What does financial accounting present?

A

Representation of management.

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3
Q

Who is the sender of the message for accounting? Who are the receivers? What’s the message?

A

Management. Users. F/S.

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4
Q

Where does auditing fit?

A

Users want to evaluate the performance, but info was prepared by management and there is credibility gap, which is filled by auditing.

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5
Q

What’s the definition of auditing?

A

A systematic process (Fieldwork stage) of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users (reporting stage).

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6
Q

What are accounting std-setting bodies?

A

GAAP or other applicable financial reporting framework.

FASB (businesses/others), GASB (state/local government), FASAB (federal government), IASB (IFRSs).

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7
Q

What are audit std-setting bodies?

A

ASB:auditing stds board (non-issuers: private) [GAAS:generally accepted auditing stds], PCAOB (public company accounting oversight board) (issuers:public), GAO (government accountability office), IFAC’s (international federation of accountants) IAASB (international auditing and assurance stds board) issues ISA (international stds of auditing).

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8
Q

What does GAAS refer to?

A

The body of authoritative professional stds issued in the form of Stmt on Auditing Stds.

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9
Q

What are the 4 categories of the 7 underlying principles of GAAS? Are the principles authoritative?

A

Purpose/premise, responsibilities, performance, reporting. PR-PR.

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10
Q

What is the purpose of an audit?

A

Provide F/S users with an opinion by the auditor on whether the F/S are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. An auditor’s opinion enhances the degree of confidence that intended users can place in the F/S.

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11
Q

What is the premise?

A

Management or those charged w/ governance have responsibility for the preparation and fair presentation of the F/S and to provide the auditor with all info relevance to the preparation and fair presentation of the F/S.

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12
Q

What are responsibilities (used to be characteristics)?

A

Appropriate competence/capabilities, comply w/ relevant ethical requirements, maintain professional skepticism, exercise professional judgment.

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13
Q

What are performance (used to be fieldwork stds)?

A

To express an opinion - obtain reasonable assurance about whether the F/S as a whole are free from material misstatement (due from fraud or error).
To obtain reasonable assurance (high, but not absolute) - plan/properly supervise, appropriate materiality level, identify/assess risks of material misstatements based on an understanding of the entity, environment, internal control.
(The auditor is unable to obtain absolute assurance because of the nature of financial reporting, nature of audit procedures, the need for the audit to be conducted within a reasonable period of time.)

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14
Q

What is reporting?

A

Based on the evaluation of the audit evidence obtained, an opinion is expressed or state that it can’t be expressed. Opinion states that the F/S are presented fairly in all material respects, in accordance w/ applicable financial reporting framework.

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15
Q

What does Stmt of Auditing Stds (SASs) cover?

A

Sufficient knowledge of the SASs to identify those applicable to the audit.
Prepare to justify any departure from the SASs.
Materiality and audit risk.

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16
Q

What does Interpretive Publications include?

A

Appendics to the SASs, auditing interpretations of the Sass, auditing guidance included in AICPA Audit and Accounting Guides, AICPA auditing stmts of position.

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17
Q

Do auditors need to apply the guidance?

A

Yes, if not, be prepare to explain.

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18
Q

What are Other Auditing Publications? are they authoritative?

A

Articles in Journal of Accountancy, ACIPA’s CPA letter, etc.

No.

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19
Q

What are two categories of Professional Requirement? What are key words for each?

A

Unconditional (no exception) - must.

Presumptively mandatory requirements (rare exception allowed, but must explain/document) - should.

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20
Q

Are Application & Other Explanatory Material requirement? Key words?

A

No. May, might or could

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21
Q

Who issues Stmts on Quality Control Stds (SQCS)? To what SQCS apply to?

A

AICPA’s Auditing Stds Board.

The whole portfolio of accounting & auditing engagements which involves the public interest.

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22
Q

What governs individual audit engagement?

A

GAAS.

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23
Q

Does SQCS apply to tax or consulting services?

A

No.

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24
Q

SQCS involve reasonable (not absolute) assurance regarding what?

A

Compliance w/ professional stds/ legal and regulatory requirements.
That report issued are appropriate.

25
Q

What are 6 elements of Quality Control System?

A
  1. Leadership responsibilities (tone @ the top).
  2. Relevant ethical requirements (especially independence issues).
  3. Acceptance/continuance of clients/specific engagements.
  4. HR
  5. Engagement performance (consultation/compliance).
  6. Monitoring.
26
Q

Who is responsible for over all quality of audit?

A

The engagement partner.

27
Q

What’s the definition of engagement quality control review under SQCS?

A

A process designed to provide an objective evaluation, before the report is released, of the significant judgments the engagement team made and the conclusions it reached in formulation the auditor’s report.

28
Q

Is engagement quality control review necessary every tome?

A

No. Only when the firm determined necessary.

29
Q

What must the auditor document?

A

Issues/resolution relating to ethical requirement, conclusion about the acceptance/continuance of clients relationships, issues/conclusions related to consultations.

30
Q

What must the quality control reviewer should document?

A

That the required procedures have been performed, he date, that the reviewer is not aware of any unresolved matters about the engagement team’s significant judgments/conclusions.

31
Q

How should a CPA firm communicate quality control policies/procedures to its personnel?

A

Orally or written.

32
Q

What is the first step of audit? What’s involved?

A

Engagement planning.
Decide whether to accept or continue the engagement.
Perform risk assessment procedures to address the risks of material misstatement.
Evaluate requirements for staffing/supervision.
Prepare the required written audit plan (audit program) - nature, timing, extent.

33
Q

What is the second step of audit? What’s involved?

A

Internal control considerations.
Obtain an understanding of internal control for planning purpose.
If contemplating reliance on certain identified internal control strengths as a basis for reducing substantive testing, the auditor must perform appropriate test of controls to determine those controls are operating effectively.

34
Q

What is the third step of audit? What’s involved?

A

Substantive audit procedures (evidence gathering to detect material misstatements).

Analytical procedures -evidence-gathering procedures that suggest reasonableness (or unreasonableness) based upon a comparison to appropriate expectations or benchmarks to prior year’s financial statements, comparability to industry data (including ratios) or other interrelationships involving financial and/or nonfinancial data.

Test of details: Tests of ending balance. Test of transactions

35
Q

What is the fourth step?

A

Reporting in writing, using standardized language and avoid miscommunication.

36
Q

What’s the first section of the auditor’s report? What’s involved?

A

No label.

Nature of the engagement, F/S involved (1 sentence)

37
Q

What’s the second section of the auditor’s report? What’s involved?

A

Management’s responsibility for the financial stmts (1 sentence).
States that management is responsible for the fair presentation of the F/S and implementation of internal control.

38
Q

What’s the third section of the auditor’s report? What’s involved?

A

Auditor’s Responsibility.

1st paragraph w/ 3 sentences:
Responsibility to express an opinion.
Conducted the audit in accordance w/ GAAS.
Plan/perform the audit to provide reasonable assurance.

2nd w/ 5 sentences:
Perform procedures to obtain audit evidence about the amounts and disclosures
The procedure depend on the auditor’s judgment, auditor considered internal control in making risk assessment.
The auditor expresses no such opinion.
An audit includes evaluating the appropriateness of accounting policies used/reasonableness of significant accounting estimates.

3rd w/ 1 sentence:
Expressing the auditor’s belief that the audit evidence is sufficient/appropriate to provide a basis for the opinion.

39
Q

What’s the 4th section of the auditor’s report? What’s involved?

A

Opinion.

40
Q

What is SSARSs? Two types?

A

Stmts on Standards for Accounting & Review services: non-audit F/S services for non-issuers.
Preparation engagement.
Compilation engagement.
Review engagement w/ limited procedures for limited assurance.

41
Q

What is SSAEs? Three types?

A

Stmts on Standards for Attestation Engagements: assurance on management representations or subject matter other than F/S.
Examination engagement (high level of assurance).
Review engagement (mild).
Agreed-upon procedures engagement.

42
Q

When is the positive assurance (highest level) required?

A

Audit under the SASs. Examination under the SSAE.

43
Q

When is the negative assurance (moderate, limited) required?

A

Review under SSARs or SSAEs.

44
Q

When is “procedures/finding” required?

A

Agreed-upon procedures engagement.

45
Q

When is no assurance used?

A

For preparation or compilation engagement under SSARSs.

46
Q

What are 5 responsibilities of PCAOB?

A
  1. Registration of public accounting firms (include nonUS w/substantial role).
  2. Inspection of registered public accounting firms (annually for firms w/at least 100 issuers. every 3 yrs for less than 100).
  3. Standard setting.
  4. Enforcement (firms must provide necessary documents/testimony, sanctions).
  5. Funding (from registration/annual fees, annual accounting support fee).
47
Q

What are 4 categories of Sarbanes-Oxley Act of 2002?

A

Title I: Established PCAOB and gave standard-setting authority.
Title II:Established independence requirements for external auditors the PCAOB.
Title III: Established corporate responsibility - executives responsible for the accuracy of the F/S.
Title IV: Address a variety of enhanced financial disclosures (most well-known: deals w/ internal control reporting).

48
Q

Major differences between PCAOB and AICPA?

A

Risk assessment stds: 5 vs 13 new assertions.
Engagement quality review: required vs not.
Document completion date: 45 days vs 60 days.
Document retention: 7 yrs vs 5 yrs.
Report format.
Concurring approval required. Yes. No.
Quality review cooling off: 2 yrs. No.

49
Q

How many members in PCAOB? How many members must be CPA?

A

5.

2.

50
Q

What is the appropriate treatment if the auditor and associate disagree?

A

Document that member’s disagreement w/conclusion were reached after appropriate consultation.

51
Q

What is the term for an engagement focuses on sufficiency of a firm’s internal control?

A

Inspection.

52
Q

Is quality review required under PCAOB? Under AICPA?

A

Yes. No.

53
Q

To which types of engagements quality review applied to?

A

Audit, review of interim F/S, attestation services.

54
Q

What is the purpose of quality review?

A

To perform an evaluation of the significant judgments made by the engagement team and the related conclusions reached and in preparing any engagement report.

55
Q

What are 4 qualification of an engagement quality reviewer?

A
  1. Associated person of a registered public accounting firms: must be a partner or equivalent (if outside of the firm, can be an associate if compensated and performs a review.
  2. Competence.
  3. Objectivity (should not make any decisions or assumes responsibility for the engagement team).
  4. Cool off restriction: can’t be the partner on either 2 audits preceding the engagement under review.
56
Q

What are engagement quality review activities?

A

Discussion with the team.

Review of documentation.

57
Q

What happens if the quality reviewer deems that there was a significant deficiency in the engagement?

A

The firm can’t give permission to the client to use the engagement report until the reviewer provides concurring approval of issuance.

58
Q

What must be documented?

A

Sufficient information that allows an experienced auditor not associated w/ the engagement to understand.

59
Q

Where should the documentation of quality review be included?

A

In the engagement documentation.

AUD (24 decks)

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