AUD 1.04 - RESPONSIBILITIES OF AUDITOR UNDER CLARITY (AUC)

Question 1

1.04 - Responsibilities of the Auditor Under Clarity Standards

Which of the following is a conceptual similarity between generally accepted auditing standards and the attestation standards?

A) Both sets of standards are applicable to engagements regarding financial forecasts and projections

B) All of the elements of reporting in GAAS are included in attestation standards

C) The requirements that the CPA be independent in mental attitude is included in both sets of standards

D) Both sets of standards require the CPA to report on the adequacy of disclosure in the financial statements

Answer 1

C) The requirements that the CPA be independent in mental attitude is included in both sets of standards

Since engagements performed under GAAS and under the attestation standards both result in the accountant providing some form of assurance, engagements performed under both sets of standards require independence.

GAAS requires the CPA to report on financial statement disclosure but whether or not they are addressed by attestation standards depends upon the nature of the engagement.

Reports under the different sets of standards differ significantly due to differing purposes. Attestation standards, not GAAS, apply to engagements regarding financial forecasts and projections.

Question 2

1.04 - Responsibilities of the Auditor Under Clarity Standards

QUALIFICATIONS OF AUDITOR/QUALITY OF WORK (1-5):

- INDEPENDENCE: 
C
A
R
E
S

Which attest services require assurance and which don’t (nonassurance)?

Answer 2

1) Competence/Capabilities - education, training, CPEs, experience
2) Relevant ethical requirements:

- Independence (CARES/ERAS) for attest:
C - Compilations - (unless disclosed) non assure
A - Agreed upon procedures - non assure
R - Review - positive/neg assure
E -Exams - positive/neg assure
S - Special - positive/neg assure

• Need not be independent: Compilations, Taxes, Consults, F/S preps, Other non-attest services

Question 3

1.04 - Responsibilities of the Auditor Under Clarity Standards

To exercise due professional care an auditor should

A) Design the audit to detect all instances of noncompliance (illegal acts)

B) Examine all available corroborating evidence supporting management’s assertions.

C) Attain the proper balance of professional experience and formal education.

D) Critically review the judgment exercised by those assisting in the audit.

Answer 3

D) Critically review the judgment exercised by those assisting in the audit.

In exercising due professional care, the auditor exercises judgment and reviews the judgments of assistants.

An auditor examines samples of, rather than all, evidence corroborating financial statement assertions and designs the audit to detect instances of noncompliance (illegal acts) that have the potential of resulting in a material misstatement, not all instances.

The auditor is required to attain the proper balance of professional experience in achieving the standard related to competence, not due professional care.