Audit-2 Flashcards
1- Name the elements of a CPA firm’s system of quality control for its auditing, attest, and accounting and review services, ( HELP ME)
- Human resources.
- Engagement/client acceptance and continuance.
- Leadership responsibilities.
- Performance of the engagement.
- Monitoring.
- Ethical requirements.
2-Under U.S auditing standards. When may an auditor issue a special report on a client’s compliance with contractual agremments or regulatory requirements, and what type of report may be issued? How does this differ from international auditing standard?
- If the item is based on net income of stockholders’ equity, the auditor may only report on it if he/she has audited the complete set of financial statements. —– If an adverse opinion or disclaimer of opinion was issued, the auditor may not report on items that constitute a major portion of the financial statements.( The auditor may report on nonmajor items, but such reports should not accompany the report on the financial statements.)
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- If the item is based on net income of stockholders’ equity, the auditor may only report on it if he/she has audited the complete set of financial statements. —– If an adverse opinion or disclaimer of opinion was issued, the auditor may not report on items that constitute a major portion of the financial statements.( The auditor may report on nonmajor items, but such reports should not accompany the report on the financial statements.)
4-Name five areas for which special reports are used.
- Reports on: 1.Financail statements prepared in conformity with a comprehensive basis of accounting other than GAAP. 2. Specific elements, accounts, or items of a financial statement. 3. Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements. 4. Financail presentations to comply with contractual agreements or regulatory provisions. 5. Finical information presented in prescribed forms or schedules that require a prescribed form of auditor’s report.
5- Give examples of comprehensive bases of accounting other than GAAP.
-Basis of accounting that the entity uses to file its income tax return. – A basis of accounting used to comply with requirements of a regulatory agency having jurisdiction over the reporting entity. – The cash receipts and disbursements system, and modifications of the cash basis having substantial support. – A definite set of criteria having substantial support that is applied to all material items, such as price-level adjusted financial statements.
- Name the five elements of compilation and review engagements.
- A three-party relationship (management, the accountant, and the intended users) - Financial reporting framework. – Financial statements or financial information. – Sufficient, appropriate evidence (review only). – written communication or report.
- What are the performance requirements applicable to a review engagement for a nonissuer’s financial statements? (U LIAR CPA)
The performance requirements applicable to a review are: 1.U- understanding with client must be established. 2. L- Learn and /or obtain sufficient knowledge of the entity’s business. 3.I- Inquiries should be addressed to the appropriate individuals. 4. A- Analytical procedures should be performed. 5.R-Review-other procedures should be performed. 6. C- Client representation latter should be obtained. 7. P- Professional judgment should be used to evaluate results. 8. A- Accountant should communicate results. * Remember the mnemonic “U LIAR CPA”
- What should be included in an accountant’s report on a review of a nonissuer’s Financial statements ?
Title ( Independent ++++++
- If an accountant has reviewed the prior period statements but compiled the current period statements, what are his or her reporting options?
- The accountant has provided a lower level of service: review to compilation. Reporting options include: - Issue a compilation report on the current period statements with a paragraph added to describe the responsibility assumed for the period statements: or - Reissue (Not update) the review report on the prior period. * The reissued report may be combined with or presented separately from the compilation report on the current period. * Either the added paragraph (From the first option above) or the reissued report (in the second option) should include the original date and state that no review procedures have been performed since that date.
- Compilation and review standards required that an accountant establish an understanding with client as to the service to be performed. What should be included in this understanding?
An engagement letter is presumptively mandatory and should include: 1. A description of the specific compilation or review service to be performed. 2.A description of the report expected to be rendered. 3. Management’s responsibilities and the accountant’s responsibilities. 4. An explanation of the limitations of the service, including a statement that: 4.a. The engagement cannot be relied upon the disclose errors, fraud, or illegal acts: and 4.b. The entity will be informed of any information indicating that fraud or an illegal act may have occurred. 5. Adscription of other accounting services, if any, to be performed.
- How does the expected use of compiled financial statements affect reporting requirements?
- When financial statements are expected to be used by third parties, a compilation report is required. – - When financial statements are not expected to be used by third parties, a written communication (either a compilation report or an engagement letter) is required.
- What should be included in an accountant’s report on a compilation of nonissure’s financial statements?
-Title ++++++
- What are the reporting requirements with respect to compiled financial statements when: - Substantially all disclosures are omitted? - Only limited disclosure are included? -The auditor lacks independence?
- Statements that omit substantially all disclosures: - The accountant can only report if the omission is not intended to mislead expected users. – The report must clearly indicate the omission. – The compilation can only report if the omission is not intended to mislead expected users. – The report must clearly indicate the omission. – The compilation report should be modified by a third paragraph disclosing the omissions. * Statement that include only limited disclosures: - Note should be labeled “Selected information-substantially All Disclosures Required by GAAP are NOT included” * Statement when the accountant lacks independence: - The last paragraph of the report should disclose the lack of independence. The auditor is permitted, but not required, to disclose the reason(S) for the independence impairment.
- If the accountant has audited prior period statements, but compiled or reviewed curred period statements, what are his or her reporting options?
*When the level of service decreases from an audit to a review or compilation, the accountant should either reissue the prior period report or include an additional paragraph in the current period report. Such an additional paragraph should indicate. – That period statements were audited. – The date of the previous report(s). – The opinions expressed, and if other than unqualified, the reasons for the modification; and - That no auditing procedures have been performed since the previous report date.
- What procedures should be performed in a review of the interim financial information of a publicly held company? “U LIAR CPA”
The performance requirements applicable to a review are: 1.U- understanding with client must be established. 2. L- Learn and /or obtain sufficient knowledge of the entity’s business. 3.I- Inquiries should be addressed to the appropriate individuals. 4. A- Analytical procedures should be performed. 5.R-Review-other procedures should be performed. 6. C- Client representation latter should be obtained. 7. P- Professional judgment should be used to evaluate results. 8. A- Accountant should communicate results. * Remember the mnemonic “U LIAR CPA”
- What should be included in an accountant’s report on a review of interim financial statement of a publicly held entity?
- A title that includes the word “Independent” - A statement that the interim financial information identified in the report was reviewed. – A statement that the interim financial information is the responsibility of management. – A statement that the review was conducted in accordance with the standards of the PCAOB. – A description of the procedures used in the review. – A statement that the review is substantially less in scope than an audit, and that no opinion is expressed. – A statement about whether the accountant is aware of any material modification required for GAAP conformity. – Identification of the country of origin of the accounting principles used. – A signature and date.
What is a comfort litter and what types of assurance are provided within it?
- A comfort letter is a letter from the CPA to underwrites. It provides: 1. Positive assurance regarding the CPA’s independence and whether the financial statements comply as to form in all material respects with the applicable requirements of the SEC ACT. 2. Negative assurance regarding unaudited financial statement capsule financial information, changes in certain financial statement items, and compliance of certain nonfinancial Statements information with SEC requirements. 3. A list of procedures and findings (no assurance) regarding pro forma financial information, forecasts, and other financial information.
- Define an attestation engagement?
- An attestation engagement is one in which a practitioner (CPA) is engaged to issue or does issue an examination, a review, or an assertion about the subject matter, that is the responsibility of another party (Usually management).
- List six major attestation services?
- Reports on: 1. Agreed-upon procedures. 2. Financial forecasts and projections. 3. Pro forma financial statements. 4. Internal control over financial reporting. 5. Compliance with statutory, regulatory, or contractual requirements. 6. Management’s Discussion and analysis (MD&A)
- What are the five general attestation standards? “TIPPY”
- Training. – Independence. - Performance (due professional care). - Professional Knowledge of subject matter. – Your belief that the assertion is capable of evaluation against criteria that are suitable and available to users.
- What are the two fieldwork attestation standards?
- Planning and supervision. – Appropriate, sufficient evidence. * Note: The GAAS second standard of fieldwork is omitted.
- What are the four reporting attestation standards?
-Identify the subject matter or the assertion being reported on and the character of the engagement. – Disclose significant reservations about the engagement. – Express conclusions about the subject matter or the assertion in relation to the established or stated criteria. – Restrict use of the report to specified parties when: > The criteria are appropriate for or available to only a limited number of parties. > Reporting on subject matter and a written assertion has not been provided. > Reporting on an agreed-upon procedures engagement.
- How are attestation standards different from GAAS?
- Attestation standards are boarder in scope than GAAS. – Attestation standards have a different conceptual focus: No reference is made to GAAP or to financial statements. – Attestation standards provide a level of assurance below that provided by an audit. – Attestation standards provide for service tailored to the needs of the user, who may directly participate in specifying either the nature and scope of the engagement or the criteria against which the assertions are measured.
- What levels of assurance may be provided by attestation engagements?
-Examination: A positive opinion. High level of assurance, generally based on a variety of procedure, including search, verification, inquiry, and analysis. – Review (“Negative assurance”) moderate level of assurance, generally based on inquiry an analytical procedures. – Agreed upon procedures: NO assurance, but procedures findings are listed.
