Audit 6 Flashcards
Direct Financial Interest
Stock ownership, even if owned in a blind trust
Financial interest in a client through a partnership and the member is a general partner
Financial interest in a trust when the member is the trustee
Indirect financial interest examples
Member owns shares in a mutual fund that invests in the attestation client
Member owns a direct financial interest in Company A and Company A has a direct financial interest in the attestation client
Independence is NOT impaired in a financial institution client by (ordinary course of business)
Collateralized (Fully) car loans with a financial institution client
Cash advance or credit card balances not exceeding $10,000
A bank account that is fully insured by the government
A passbook loan
General standards include
Professional Competence
Due Professional Care
Planning and Supervision
Sufficient Relevant Data
Member is obligated to disclose confidential information even without the consent of the client in the following circumstances
Subpoena or summons
Quality review of the member’s professional practices by the AICPA
Inquiry either by the ethics division or the trial board
Types of services where receiving a commission is acceptable (MUST DISCLOSE)
C-ompilation
A-dvisory
T-ax
The PCAOB is subject to oversight by the SEC and has the duty to
Register public accounting firms
Establish rules
Conduct Inspections
Broad categories of misconduct
While performing audit
Outside the scope of accounting services
Criminal conviction
Audit documentation should
Assist with planning, conducting, and supervising the audit
Show that the accounting records reconcile with the F/S
Be prepared in enough detail so that an EXPERIENCED Auditor who has no previous connection with the audit can understand including the NET(nature, extent, timing)
Document retention
Issuers (PCAOB )
Documentation retained 7years
Documentation completion date 45 days following the report release date
Document retention
NON-issuers(SAS)
Documentation retained 5 years
Final audit documentation file to be assembled within 60 days following the report release date
Significant audit findings include matters that
Are related to the selection and application of accounting principles
Are related to matters that give rise to significant risks
Are related to possible material misstatements in the F/S
Cause significant difficulty in applying necessary audit procedures
May result in modification of the auditor’s opinion or the inclusion of an emphasis-of-matter paragraph in the auditor’s report
Need to revise the auditor’s previous risk assessment
Areas that must be separated in IT
C-ontrol team O-perators P-rogrammers A-nalyst(System) L-ibrarian
Audits of recipients of federal financial assistance should be conducted in accordance with both GAAS and GAGAS. The following also apply
Expanded IC documentation and testing requirements
Expanded reporting to include formal written reports on the consideration of IC and the assessment of control risk
Expanded reporting to include whether the federal financial assistance has been administered in accordance with applicable laws and regulations
Applications of single audit standards to federal financial assistance
Attestation requirements under GAGAS/GAS could include
Compliance with laws, regulations, rules, contracts, or grants
Effectiveness of IC over compliance with specified requirements
Presentation of MD&A
Reliability of performance measures
Objectives of performance audits
I-C
C-ompliance
E-ffectiveness, Economy, and Efficiency
Audit risk of noncompliance=
Risk of material noncompliance X Detection risk
As risk of noncompliance increases
CPA should decrease detection risk=(More audit work)
Types of government reports
R-eport on IC over compliance
O-pinion of compliance
C-ombined report on compliance and IC over compliance
Required documentation is includes the following
The assessed risk of material noncompliance
Responses to the risk assessment
The basis or rationale for materiality levels
Compliance with supplemental requirements
GAGAS includes the following ethical principles
Serving the public interest
Integrity
Objectivity
Proper Uses of Government Information, Resources, and Positions
Professional Behavior
General Standards
General Standards are made up of?
Independence
Professional judgment
Competence
Quality Control and Assurance
GAGAS Requirements for performing Financial Audits
Previous Audits and Attestation Engagements
Fraud, noncompliance, and abuse
Develop a Finding
Audit Documentation
Elements of a finding include
Criteria
Condition
Cause
Effect or potential effect
GAGAS Requirements for Reporting on Financial Audits
Auditor’s compliance with GAGAS
Report on IC and Compliance with Provisions of Laws, Regulations, Contracts and Grant Agreements
Communicate Deficiencies in IC, Fraud, and Noncompliance
Content of report on IC of Governmental entities
Assertion that evaluating compliance with laws, rules, and regulations with a direct and material effect on the F/S is part of developing an opinion on F/S
The Assertion that specific controls relating to financial reporting are considered
An indication wither no weaknesses were found or that significant deficiencies were found, and an indication whether those deficiencies were material.
Threats to Independence
Self-Interest Threat
Self-Review Threat
Bias Threat
Familiarity Threat
Undue Influence Threat
Management Participation Threat
Structural Threat
Documentation of Independence must include
Threats to independence
Safeguards
Considerations
The auditor’s understanding
The interrelated elements of quality control are:
H-uman resources
E-ngagement/client acceptance and continuance
L-eadership responsibilities
P-erformance of the enegagement
M-onitoring
E-thical requirements
