Audit 6 Flashcards
Who can revoke or suspend your CPA license?
The state board and ONLY the state board
AICPA code of professional conduct
- applicable to all AICPA members
- distinguishing mark of the profession
- high degree of responsibility towards the public
Covered member
= audit team and office/boss “chain of command”
Immediate family
= spouse and dependents
Close relatives
= parents, siblings, and adult kids
Instances when independence is NOT impaired
- fully collateralized car loans
- cash advance or credit card balances not exceeding $10,000
- bank account that is fully insured
- passbook loan
Independence impaired by FINANCIAL interests
- direct material financial interest
- material indirect financial interest
- covered member or immediate family has a loan to or from client
- acceptance of a gift > token gift
- close relative has financial interest that the covered member knows & material or significant influence
Independence impaired by EMPLOYMENT relationships
- former client employee is on the engagement team (if covers period of employment)
- immediate family in key position
- partner or professional leaves firm and is employed by client in a key position
- audit member seeking or discussing employment with client
Independence impaired by BUSINESS relationships
- make management decisions for client
- if client is over 1 year overdue on payment
- actual or threatened litigation MAY impair
** acting as an honorary trustee or being in the same trade association / country club does not impair indpendence
Professional competence
knowledge or technical subject matter of ability to obtain knowledge
What are the exceptions to the rule that you cannot disclose confidential client info?
- subpoena
- quality/ peer review
- inquiry by state CPA society
- your legal defense team needs it cause they’re suing you
When are contingent fees permitted?
- fixed by courts
- tax matters with regard to a court proceeding
- compilations to be used by third party if disclose lack of independence
What is the most highly tested in the “Acts Discredible Rule”?
Failure to return records to a client after they have demanded them
What type of advertising and solicitation is not allowed?
Any that is False, Misleading or Deceptive
Adverse interest threat
objectivity impaired- opposing interests
Advocacy threat
objectivity and independence compromised- promote client’s interests/position
Familiarity threat
sympathetic or too accepting
Management participation threat
acting as management
Self-interest threat
get benefits
Self-review threat
evaluating your own work
Undue influence threat
subordinate judgment
What are the PCAOB’s duties?
- register public accounting firms
- establish rules for audits of issuers
- conduct inspections, investigations and disciplinary proceedings
PCAOB inspection rules for auditors of issuers
Once a year if > 100 issuers
Every 3 years if less than or = 100
Audit partner rotation rule (SOX)
lead and concurring partner-must rotate every 5 years for 5 years (5 on- 5 off)
other audit partners- 7 years (2 year time-out)
How long is the “cool off” period?
ONE year
When is pre-approval of non-audit services not required?
- services don’t exceed 5% of total revenues from client
AND - promptly brought to attention of the audit committee
AND - approved before completion of audit
With regard to tax services, what can an audit firm not do?
- tax services involving certain confidential or aggressive tax transactions
- tax returns for officers or immediate family members (of client)
What are the three broad categories of misconduct?
- while performing accounting services
- outside the scope of accounting services
- criminal conviction
What 5 penalties can the state accountancy board impose?
- suspension or revocation of license
- monetary fine
- reprimand or censure
- probation
- CPE requirement
Audit documentation should…
- indicate that accounting records = financial statement compliance with standards
- be prepared enough for an experienced auditor with no previous connection to understand
How long must work papers be kept?
5 years or SAS
7 years for PCAOB
How long does the auditor have to complete the workpapers?
SAS = 60 days after report release PCAOB = 45 days after report release
What does the permanent file include?
audit documentation that has a continuing interest from year to year
Examples: contracts, pension plans, leases, stock options, bylaws, articles of incorp., minutes, bond indentures, internal info
What does the current file include?
all audit documentation applicable to the year under audit
Examples: audit plan, financial statements, working trial balance, letters of confirm, letters of rep, analyses, worksheets, abstracts or copies of docs, summaries of significant audit findings/issues, records of tests of controls, etc.
Transaction tagging
electronically mark specific transactions and follow them through the client’s system
Embedded Audit modules
sections of the application programs code that collect transaction data for the auditor
-usually built into the application program
Test data
process a set of test data using the client’s system, but off-line and under the auditor’s control
- you already know the result that you should get
- test things such as invalid #’s, excess pay rate, excess hours
Integrated test facility
test data is commingled with live data
- don’t tell the client
- on-line
Parallel simulation
Reperformance test
-re-process some of client’s data using own software and compare results
What are the government auditing standards?
GAGAS
Generally accepted government auditing standards
**These are also called the yellow book standards
Audit risk of noncompliance
= RMM x DR
risk of material noncompliance * detection risk
Risk of material noncompliance
= Inherent risk x Control risk
Quality control and assurance necessary for performing GAGAS audits
- maintain a system of quality control
2. have an external peer review every 3 years
Quality control elements
"HELP ME" Human resources Engagement/ client acceptance and continuance Leadership responsibilities Performance of the engagement Monitoring Ethical requirements
Does failed quality control = failed GAAS
NOPE
