Audit 2 Flashcards
Elements of Quality Control Standards
H-uman Resources
E-ngagement/Client acceptance and continuance
L-eadership responsibilities
P-erformance of the engagement
M-onitoring
E-thical Requirements
Levels of Service
- More than 1 service(Report on highest level of service)
- ## Review(Limited Assurance)
- Compilation(No assurance)
Compilation and review engagements include the following 5 elements
- R-elationship 3 party
a. A-ccountant in the practice of public accounting
b. I-ntended users
c. M-anagement - F-ramework of financial reporting
- F-/S of Financial information
- E-vidence is sufficient and appropriate(Reviews only)
- W-ritten communication or report
Compilation requirements
R-eading the Financial Statements
U-nderstanding the clients business
I-ndustry knowledge including accounting principles and practices
Omitting disclosures must include the following
- Omission of disclosures in 4th paragraph
- State” if the disclosures were included they might affect the users conclusions
- State” report is not intended for those uninformed”
- Not intended to mislead users of F/S
- Otherwise in conformity with GAAP
- Restricted use not required
Understanding of Client’s Business
S-taff qualifications
T-ransactions types and frequency
A-ccounting basis used to prepare the financial statements
F-orm of the accounting records
F-inancial statements’ form and content
Compilation Contents
- Introductory Paragraph
- Management’s Responsibility Paragraph
- Accountant’s Responsibility Paragraph
Introductory Paragraph of Compillation
C-ompiled=Have been compiled
A-udited (has not)
R-eviewed (has not)
Management’s Responsibility Paragraph of Compilation
M-anagement’s
R-esponsibility
D-esigning
I-mplementing
M-aintaining
Accountant’s Responsibility Paragraph of Compilation
A-ccountant’s R-esponsibility S-SARS issued by the AICPA O-bjective M-anagement
Other notes of Compilation
R-estrict use
E-ngagement letter required
D-eparture from reporting framework= disclose or withdraw
Review Requirements (Same for issuers and nonissuers)
U-Understanding with client
L-earn and/or obtain sufficient knowledge of the entity’s business
I-nquiries should be made addressed to appropriate individuals
A-nalytical procedures should be performed
R-eview other procedures should be performed
C-lient representation letter should be obtained from management
P-rofessional judgment should be used to evaluate results
A-ccountant(CPA) should communicate results
Not done for Reviews
I-nternal control test
A-udit tests
F-raud risk
P-redecessor auditor communication
Rep letter required= if not withdraw
CONTENTS
INQUIRE (Inquiries responses)
OF
D-ate of the Completion of review procedure performed
R-esponsibility of management
I-nformation is complete
F-raud Acknowledgment/knowledge to prevent/detect fraud
R-epresentations additionally related to matters specific to the entities business and industry
S-ubsequent information on events
R-esponsibility of management for the:
P-reparation of the F/S
F-air presentation of the F/S
A-cknowledgment of responsibility for DIM
Understanding should include with regard to Reviews
L-imitation of the engagement
A-ccountant’s responsibility
M-anagement’s responsibilities
O-bjectives of the engagement
Review Contents(Negative Assurance)
- Introductory Paragraph
- Management’s Responsibility Paragraph
- Accountant’s Responsibility Paragraph
Introductory Paragraph of Reviews
A-nalytical procedures= review includes
M- anagement’s financial data= review includes
I-nquiries of management
S-ubstantially less in scope
A-udit= less in scope than an audit
D-oes not express an opinion=disclaimer
Management’s Responsibility Paragraph for Review
M-anagement
R-esponsibility
F-inancial statements= fair presentation of the financial statements
I-nternal control= maintaining internal control relevant to Designing, implementing and maintaining internal control
Accountant’s Responsibility Paragraph for Reviews
R-esponsibility=Accountant’s responsibility
S-SARS= in accordance with SSARS issued by AICPA
A-ICPA= in accordance with SSARS issued by AICPA
L-imited assurance=we obtain limited assurance
A-ssurrance= we obtain limited assurance
Notes for Reviews
- P-age marked= “See Independent Accountant’s report”
2. W-ithdraw:Do not issue Adverse or disclaimer instead Withdraw
Acceptable change to a compilation or review
M-isunderstanding of the nature of the services to be rendered
R-esponsibilities of client changes
S-cope limitations are reasonable
Unacceptable(consider withdrawing) change to a compilation or review
F-raud
L-ier: Client is attempting to create misleading or deceptive F/S
O
S-cope limitations are not reasonable
S-ignature Client refuses to sign rep letter
Reissued audit report (previous auditor should)
C-ompare last year’s statements with this year’s statements
O-btain a report stating that the new information does not affect last year’s report
R-ead the statements and report of the current period
Not Reissued audit report (New auditor should)
- Make reference to the prior period audit report in the current report
OR - Perform that level of service themselves
Reporting when prior period is audited
- Reissue prior period report
OR - Include additional paragraph describing the responsibility assumed
Comfort letter includes the following
C-onducted like a review engagement
A-ttorney’s opinion or representation letter required
R-estricted use
D-ue Diligence
Comfort letters Positive assurance
- CPA’s Independence
2. Compliance with SEC rules and regulations
Comfort letters Negative Assurance
- Changes in selected F/S
- Unaudited F/S
- Non-financial information applies to for in all material respect
Auditor should Not comment or provide assurance
- Market risk sensitive instruments
2. Qualitative disclosures
The 11 attestation Standards
- 5 general standards
- 2 fieldwork standards
- 4 reporting standards
5 general standards of Attestation
T-raining and proficiency
I-ndependence
P-erformance/due professional care in planning and performance
P-rofessional, adequate knowledge of subject matter
Y- our belief that the subject matter is capable of evaluation against criteria that are suitable and available to users
Suitable criteria of attestation must be
C-omplete
R-elevant
O-bject
M-easurable
2 fieldwork standards of attestation
a. P-lanning and supervision
b. A-ppropriate, sufficient evidence to provide a reasonable basis for the conclusion
4 reporting standards
S-ubject Matter
S-ignificant Reservations
E-xpress Conclusions
R-estricted Use
Restrict use in reporting standards When?
L-imited number of parties
A-ssertion(written) has not been provided
R-eporting on AUP’s
Attestation standard notes
a. May be on Assertion itself or Subject matter
b. Scope restrictions on examination or review
c. Examination= positive opinion=high level of assurance
d. AUP= No assurance
Agreed-Upon Procedures Engagements conditions (must exist)
I-ndependence of the Practioner
A-greement of the parties
M-easurability and Consistency
S-ufficiency of the Procedures
U-se of the Report is Restricted to the Specified Parties
R-esponsibility for the Subject Matter
E-ngagements to perform Agreed-Upon Procedures on Prospective Financial Statements
Notes for AUP’s
- Statement that the procedures performed were those agreed to by the specified parties identified in the report, and a description of any agreed-upon materiality limits
- Restricted Use
- Prospective Financial Information=Assumptions
Prospective F/S have3 levels
C-ompilation
E-xamination
A-UP
