AUD 6 - Professional Responsibiliites, Aud Documentation, Effect of IT, Government Auditing, and Quality Control Standards Flashcards
Objectivity applies to all services but independence applies to attestation services only (audits, special reports which are like examining financial forecasts and reviews)
Objectivity applies to all services but independence applies to attestation services only (audits, special reports which are like examining financial forecasts and reviews)
Covered Members =
all partners in the office connected w/the attest engagement, partners or managers who provide nonattest services to the attest client, all members of the attest engagement team, the firm itself, and any parties who can influence the attest engagement
Who is considered immediate family?
spouse and dependents
Who is considered close relatives?
parents, siblings, and adult kids
Observing the principle of the code of conduct in determining the scope and nature of services to be provided, this requires members to=
- have adeq internal quality control
- determine if there are any conflicts of interest
- assess if firm activities are consistent w/professionalism
independ isnt impaired for a bank client in ordinary course of business for what things?
collateralized car loans
cash advance/credit cards less than $10k
bank acct that is fully insured by govt
passbook loan
Examples of business relationships w/an attestation client that impair independence include:
- Director, officer, employee or position where member acts in mgt capacity
- promoter, uwriter, broker-dealer, voting trustee
- stock transfer or escrow agent
- general counsel
- Trustee for a client’s pension or profit-sharing trust
Examples of activities w/attestation client that impair independence w/include:
- bookkeeping acitivites including: auth, executing, consummating a trans or preping source docs or originating data
- having custody of client assets
- supervising client emps in perofmance of normal acts
- fin. info systems design and imp
- appraisal, valuation, or actuarial services when results are mat to the FS and subject to sig. degree of subjectivity
- mgt of IA activities
- Litigation services where firm serves as trier of fact, special master, court-appointed expert or arbit.
- extert witness services.
What are the noted unusual circumstance/exceptions to following GAAP?
- new legislation and new forms of business transaction
- unusual degree of materiality or existence of conflicting industry practices dont justify departure
- departure m/be described and explained
contingent fee =
they are not allowed for audits/reviews/or examinations of prosp. FI
no fee unless result/finding obtained
fee amount is dependent on finding/result
conting fees are allowed for:
when fixed by court = tax/bk court.
allowed for compliations of FS expected to be used by 3rd parties only if member includes statement that member is not indep
PCAOB subject to SEC oversight and has duty to :
- register pub acctg firms that prep aud reports for issuers
- establish rules relating to prep of aud reports for issuers
- conduct inspections/investigations/disciplinary proceedings
PCAOB m/conduct annual inspections of registered acctg firms that regularly provide audit reports for more than 100 issuers
if less than 100 audit reports that firm is every three year inspection
A registered pub acctg firm that performs SEC audits cant provide which services to the audit client?
Bookkeeping
Financial information systems design/implementation
Appraisal and valuation services
Actuarial services
Management functions or human resources services
IA outsourcing srvcs
broker/dealer/investment advisor or investment banker services
legal services
expert services unrelated to the audit
Form 8-K. In addition to filing annual reports on Form 10-K and quarterly reports on Form 10-Q, public companies must report certain material corporate events on a more current basis. Form 8-K is the “current report” companies must file with the SEC to announce major events that shareholders should know about.
Form 8-K. In addition to filing annual reports on Form 10-K and quarterly reports on Form 10-Q, public companies must report certain material corporate events on a more current basis. Form 8-K is the “current report” companies must file with the SEC to announce major events that shareholders should know about.
SEC rules for what a covered member is:
includes audit eng. team, aud chain of command (supervise or direct mgt of aud), persons who eval the performance/recommend compensation of aud partner and all peeps who provide QC or oversight, and any other partner, principal , shareholder or mgrial emp of firm who did more than ten hours of non aud services to the aud client or expects to provide more than 10 on recurring basis, and any part/princ/sholder from officer of acctg firm where lead aud eng partner primarily practices
partner rotation for SEC rules
lead aud partner and concur partner need to rotate off after five years, and other audit partners need to rotate off after seven years or independence is impaired
lead/concurr partners must stay off for 5 year time out and other partners are 2 years
small firms are excempt
Aud committee admin of eng – aud indep impaired when aud comitt fails to administer eng. Aud comm required to approve services. However, pre-approval is not needed for non-audit services that don’t exceed five percent of total revenue form audit client during the FY services are provided as long as non aud services promptly brought to attention of aud committee and approved before completion of aud
Aud committee admin of eng – aud indep impaired when aud comitt fails to administer eng. Aud comm required to approve services. However, pre-approval is not needed for non-audit services that don’t exceed five percent of total revenue form audit client during the FY services are provided as long as non aud services promptly brought to attention of aud committee and approved before completion of aud
PCAOB additional independence rules:
can’t knowingly or recklessly contribute to violations
can’t provide aud client wany tax services related to certain confidential or aggressive tax trans
cant provide any tax service to corp. officers of aud clients or immediate family members of corp. officers
DOL and independence for opinion on emp benefit plan under Emp retirement security act of 1974 (Erisa)
Independence is required when financial info is submitted to the Employee Benefits Security Admin of the DOL
Fundamental principles of the IFAC code of ethics
- Integrity
- Objectivity
- Professional competence and Due Care
- Confidentiality
- Professional behavior
The categories of threats to compliance with the fundamental principles of the IFAC code of Ethics
Self-interest threat
self-review threat
advocacy threat
familiarity threat
intimidation threat
Self interest threat – financial or other interest w/inapprop. Influence acct’s judgment/behavior
Self-review threat – acct w/not aprop. Eval results of previous judgment made or service performed by himself or by another in his own accounting firm
Advocacy threat – accountant will advocate client’s position to point where objectivity is compromised
Familiarity threat – acct w/become too sympathetic to client or client interest or too accepting of their work because of working with them for too long or close relationship
Intimidation threat – accountant w/not act objectively because of actual/perceived pressures including attempts to exercise undue influence over accountant
independence of mind allows acct to express opinion w/out being influenced to compromise judgment so they act w/integrity and objectivity and professional skepticism
independence in appearance is achieved by avoiding facts and circums. that w/cause a reasonable and informed third party w/knowledge of relev. info to concl that the integ/object/profess skept has been compromised
Aud Doc s/indicate that acctg records = FS, and =
a. Assist in planning, conducting and supervising aud (compliance w/stds)
b. Show that acctg records reconcile w/the FS
c. Be prepared enough detailed so experienced aud who has no previous connect to aud can ustand:
- i. NET of aud procedes
- ii. Results of procedes performed and evid obtained
- iii. Sig. findings/issues arising during aud
- iv. Conclusions reached and sig. judgments made to reach those conclusions
(1) the principal support for the auditor’s report; 2) assistance in the planning, conduct, and supervision of the audit; 3) accountability; and 4) useful information.)
Doc completion date/window to complete file
i. SAS / nonissuers = 60days from report release date
ii. PCAOB/issuers – 45 days from RRD and requires eng. Completion doc id’ing sig. finding/isues
Perm (continuous) file = carry forward y2y includes
Contracts, pension plans, leases, stock options, bylaws, articles of incorp , minutes of mtgs, bond indentures, and internal info
Current File – year under aud:
i. Aud plan/aud program
ii. FS and aud report
iii. Wrking TB, adjusting JEs, and reclass entries
iv. Letters of confirmation and rep letters
v. Analyses, worksheets, issues memoranda, schedule or commentaries
vi. Copies/abstracts of company docs used to eval acctg for sig trans
vii. Summaries of sig. aud finding/issues, actions taken and conclusions reached
viii. TOCs and subst. test records w/ID of specific items selected for testing
Sig. aud findings – Aud doc s/include sig aud findings, actions taken, and concl. Reached. Matters that:
i. Related to selection/applic. Of acctg princ.
ii. Related to matters that give rise to sig. risks
iii. Possible MMS in FS
iv. Suggest need to revise aud’s prev. RA
v. Cause sig. difficulty in applying necc. Aud procedes/need for sig. revision of planned aud procedes
vi. Result in mod of aud opinion or inclusion of EOM/OM pg.
Factors affecting the nature and extent of audit documentation include:
The risk of material misstatement;
The extent to which judgment was required in performing the work and evaluating the results;
The nature of the specific auditing procedure;
The significance of the evidence obtained;
The nature and extent of any problems identified; and
The need to document conclusions that may not be obvious.
The SODs of IT env:
COPAL Control Team Operators Programmer Analyst Librarian
whats it called w/auditor use manual aud procedures to verify IT system:
auditing around the computer.
an aud comes up with what it s/be and then compares it to what the comp came up with
whats it called when the auditor uses computer assisted aud techniques =
CAAT auditing through the computer
Auditing around the comp
aud doesnt directly test the app. aud tests the input data, processes data independently and compares his result to the program’s results. emp. is on input / output stages of trans processing
approp for simple batch systt w/good aud trail and will result in same level of confid as auditing through the comp
risks of aud around comp include insuffic, paper based evid and insuffic aud procedes
CAAT
comp assisted aud techniques - thru the computer = input/processing stages of trans.
Type of CAAT: Trans tagging
aud uses elect. mark/tags of specific trans and follow themt hrough the client system.
Tagging allows aud to test both the comp processing the manual handling of trans
Embedded aud modules type of CAAT
they are sections of the app program code that collect trans data for the aud: (being able to examine all trans affecting a cct code that are greater than 500)
-embed aud modules are built into applic prog when developed to ensure controls are oping effectviely
Test data / test deck CAAT type
technique that uses app program to process a set of test data where results are already known. the client’s system is used to process the aud’s data (offline) while still under the aud’s control.
Test data contains some invalid conditions the aud wants to test for but its not necc to test all combos of invalid conditions
an advantage of test data is that the live computer files arent affected in any way
Integrated Test Facility ITF =
CAAT
sim to test data but test data is put together with live data and the client system is used to process the auditor’s data online.
Parallel Simulation (reperformance test) =
CAAT
auditor reprocesses some/all client’s live data with software they developed/bought and then compares the result to the client files
parallel simulation - controlled processing -
aud observes actual processing run and compares actual results to the expected results based on aud’s program
parallel simulation - re-processing
the aud uses an archived copy of the program in question to re-process transactions and if there are any differences compared to the normal processing run than the aud knows there has been a change to the program
Gen. aud software packages (GASPs)
allow aud to perform TOCs and subst. tests directly on the client system.
