Audit Section 1 Flashcards
Ethics / Prof Responsibilities / General Principles
AFRF are adopted by who?
Those charged w/ governance
Public Companies comply with PCAOB , Non public companies comply with:
AICPA’ Auditing Standards Board’s statement on auditing standards (SAS)
Can Financial reporting frameworks affect the scope of an audit?
Yes
GAGAS (Generall Accepted Governmental Auditing Standards) is also known as what
Yellowbook
Single audits are divided into what two areas?
Compliance and financial
Who has the authority to develop government wide guidelines?
Office of Management and Budget (OMB)
Can a unit elect to have a program-specific audit?
Yes
What is a program-specific audit?
Audit only the federal program and not the entity
Does a single audit require a financial audit as well?
Yes
When an auditor reports to those charge w/ governance, is this considered a management responsibility and therefore would make the auditor NOT independent?
Yes – make auditor not independent
Does an auditor need to collect evidence for accuracy or completeness in a compilation?
No
Is a compilation an attest engagement?
Yes
When can an auditor perform a review?
ONLY when the auditor is set to audit the upcoming F/S or has audited the previous F/S
What does the SEC require when an auditor performs a review of a public company?
They require a review report of the interim F/S if the accountant is independent (should be independent anyways)
What is the purpose of an attestation engagement?
provide users of info that generally 3rd parties w/ an opinion/conclusion/finding regarding the reliability of a subject matter.
PCAOB adopted what from the AICPA?
SSAE – Statements on Standards for Attest Engagements
Is membership of the AICPA required?
No - voluntary
Are reviewers of an engagement apart of an engagement team
yes
What is a covered Member?
On engagement Team
Position to influence attest engagement
Partner/partner equivalent/manager that provides >10 hours of nonattest services to client
Firm
Is the firm employee benfeit plan apart of the covered member criteria?
Yes
Is a covered member a person who can influence accounting/financial polices of an entity?
Yes
What is a joint closely held investment?
Auditor and client jointly own an investment that they exercise sig. influence over.
What is a partner equivalent
Dont need partners approval to do things
Authority to sign firm;s name to an attest report
Period of professional engagement begins when?
When engagement letter/other agreement to perform attest services is signed.
A member of the AICPA needs to be ____ and ____
Independent and objective
If threats are not at an acceptable level you should:
Talk to supervisor
Discuss with management in member’s organizations
Consult w/ counsel
An advocacy threat to compliance mainly violates what?
Integrity and objectivity
What interpretation should an auditor/member apply if independent rule is absent?
Conceptual Framework For Independence
What interpretation should an auditor/member apply if objective/independent rule is absent?
Conceptual Framework for Members in public practice
Should an auditor document identified threats and document the safeguards applied?
Yes
What is an adverse interest threat?
Threat a member will not act w/ objectivity b/c the member’s interests are opposite w/ the clients. (The auditor may be out to get the client because of some outside event) (Lawsuit, etc)
Advocacy threat, what is it?
The auditor/member promotes the client’s interest to the point where his independence is compromised
Familiarity Threat
Close/long relationship w/ the client
Management Participation threat
Auditor takes on role of management. This threat is ONLY in public practice.
Self-interest Threat
Member tries to benefit financially from the client
Self-review threat
Member evaluates his own work
Undue Influence
Client threatens auditor to act a certain way. Black mail
Is a member’s immediate family subject to the Independence rule?
Yes
When can an immediate family member of a covered member have a direct &/or material financial interest in a client
Member isn’t involve in the engagement
Investment is unavoidable
Family member agrees to dispose the material/direct interest within 30 days
if a close relative is in a key position w/ the client, is independence impaired?
Yes
If a close relative has a financial interest w/ the client, is independent impaired?
Yes
If an auditor is an underwriter for a client, is independence impaired?
Yes
If an auditor is an honorary director or trustee of a Not for profit, is independent impaired?
NO
Can an auditor be able to vote on a board and still be independent?
No
If a position is CLEARLY honorary a member holds on the board, is independence impaired?
No
Before performing non-attest services for an attest client, what needs to be evaluated
Independence rule
Nonattest services provided prior to engagement, prior to the period of the F/S, or F/S were audited by a different firm during non attest services – would this impair independence?
No
Do you communicate client’s selection/application of accounting standards to clients governance?
No – only management
Do you communicate accounting methods to clients management?
Yes
Do you communicate AJE that member has prepped/propposed to governance?
No – to management
Do you communicate the form and content of the F/S to client’s governance?
No – management
Independence impaired if you perform appraisal/valuation/actuarial services on the F/S?
Yes – cannot reduce to acceptable level
Independence impaired if you perform appraisal/valuation/actuarial services to tax planning/tax compliance/divorce proceedings?
No
Is foresnic accounting an attest or nonattest service?
Non attest
Forensic accounting consists of ___ services and ___ services
litigation and investigative
If a member agrees to be an expert witness for a client, is independence impaired?
Yes – it conflicts w/ objectivity
Does being a fact witness impair indpendnence?
No
Would representing a client in court impair independence if it was to resolve a dispute?
Yes
Would representing a client in court impair independence if it was infront of a tax authority?
No
Can a member be a power of attorney and still be independent? Why?
Yes – only limited to tax matters
General Standards rule includes what components?
States generally have DCSS (Department of child services (extra s)
Due professional Care
Competence
Supervision Planning
Sufficient Relevant Data
A member performing an audit/review/comp/consulting/tax/other professional services must comply with WHAT rule?
General Standards Rule Due professional care Competence Supervision Sufficient relevant data
If a departure from gaap exists on the F/S , can an auditor still form an opinion?
Yes and No.
Yes – if the auditor can demonstrate that safeguards were applied
No – auditor cannot demonstrate that safeguards were applied
If a client request the member’s work products, can the member say no?
Yes and no.
Auditor can say no if there are unpaid fees.
What is a work product from a member?
deliverable assets to the client. Reports, etc.
Can a client request the auditor’s wp?
They can request, but the auditor doesnt have to give it to them
If you give a client a work product document and they request it again, do you have to give it to them?
No
If you give a client a work product document and a natural disaster happens and they request another one, do you have to give it to them/
Yes
If a member has the ability to record an entry and chooses not to correct a material misleading instance….this is an act of what?
Act of discredibleness
Is an act discredible if a member doesn’t follow the requirements of regulatory agencies?
Yes
If a member preps F/S for purpose of reporting to regulatory agencies/commissions/etc, should they follow the requirements of the agencies/commissions and gaap?
Yes
Is an act discredible if a member fails to comply w/ federal/state/local laws regarding the timely filing of tax returns & payroll?
Yes
What is a contingent fee?
A fee that is charged based off an event or result
Can a member charge a contingent fee if a client claimed their tax return had an omitted deduction?
No
Can you receive a commission/referral fee for a non-attest client?
Yes
Can you receive a commission/referral fee for an attest client?
No
Can 40% of owners of a CPA firm be non CPAS?
No – at least 51% must be CPAs.
Can a Non-CPA owner of a firm assume the ulitmate responsibility?
No – has to be a CPA
Can a non-cpa owner be non-active in the firm?
No – the non-cpa has to be active.
What tiles can a non-cpa have?
Non CPAs are cheerleaders. They use POMS
Principal
Officer
Member
Shareholder
Can a non cpa owner have a regular membership to the AICPA?
NO
Securities Act of 1933 main objectives are
Provide info on securities offered for public sale
Prohibit misrepresentation/fraud in sales of securities
If a company has an exemption with Regulation D, can securities be sold without registering with the SEC?
Yes
What regulation can securities be sold without registering with the SEC
Regulation D
Can an exempt security sale have to file a form D before a security?
No – it can file afterwards
Rule 504 of regulation D provides an exemption from the registration requirement for sales up to $____ in any ___ month period.
Can these sales be advertised to the public?
Can the securities be resold by investors without registering
5 milllion / 12months
Not advertised to public
Cannot be resold without registering or w/o an exemption
Securities Exchange Act of 1934 created what
Securities Exchange Commission
SEC regulates securities on national exchanges & OTC stocks with more than $____ in assets and ____ or more shareholders
$10milllion 500 shareholders
What 4 reports are required by the SEC
10k
10q
8k
Proxy Statement
What does the 10k need to be accompanied by?
Auditor’s report
10Q may be limited to what type of engagement?
Review
What type of engagement is for the 8k
no engagement necessary
Are proxy statements audited?
can they contain audited financial statemnets?
No they’re not audited
Yes they can contain audited f/s (not required)
Can public offerings be offered through mail?
no
can public offering be offered through interstate commerce?
no
Can someone sue the CPA that audited the f/s who acquires securities
yes
When can someone sue the CPA
if the f/s contain untrue statements
does the plaintiff have the burden to prove the CPA was negligent or fraudulent?
No
does the cpa have the burden to establish innocence
yes
Is simple negligence enough when sueing a cpa?
yes
A defense for a CPA is:
Plaintiff purchased securities after issuing a _____ statement and did not rely on ____
Generally available earnings statement
Registration statement
‘rule 10b5 with the SEC does what?
Regulates securities exchanges listed and traded on exchanges
What is scienter
it means intent to deceive/perpetuate fraud
With scienter, is simple negligence enough to hold a CPA responsible?
No
Dodd Frank is also known as what type of protection
Investor Protection
Dodd frank is what type of reform?
Regulatory
Dodd frank created what type of committee
Investor Advisory Committee
Investor Advisory committees do what?
Consult w/ SEC on regulatory priorities
Is the SEC granted the authority to establish a ____ for brokers and dealers to require ___ of range of products offered to _____
fiduciary duty
disclosure
investors
Sarbanes Oxley Act of 2002 protects ___ by improving ___ and ___ reliability of corporate ____
Investors
Reliability
Accuracy
Disclosures
Sarbanes Oxley created what board?
PCAOB
Public Company Accounting Oversight Board
What do CPA firms have to do w/ PCAOB
register with the PCAOB to perform attest services for public companies
Does the PCAOB have the authority to set/update/amend ethics standards?
Yes
PCAOB has the authority to conduct ____ inspections of each registered accounting firm
Compliance
If a CPA firm audits more than 100 issuers, how often does the PCAOB inspect them?
Audit >100 issuers are inspected annually
If a CPA firm audits less than 100 issuers, how often does the PCAOB inspect them?
Every 3 years
What does the PCAOB inspect?
Engagements/quality control system/supervisory conditions
What type of court can the PCAOB pursue?
Civil court
If a foreign accounting firm audits public companies, what does the PCAOB require
produce their workpapers
can pcaob approve a rule w/o the SEC’s approval
no
Can CPA firms provide non attest services to public companies?
Yes – only provide tax services
If the CPA firm can provide tax services, who approves this from the issuer?
Audit Committee
Is a disclosure required when performing a nonattest service to the issuer?
Yes it is required.
How often does the partner need to rotate out of the issuer’s engagement?
Every 5 years
who is required to study and review potential effects of requiring mandatory rotation of a CPA firm?
Comptroller General of the US
Title III of SOX prohibits officer/directors to fraudulently influence/mislead a CPA
T/F
True
Do material correcting adjustments need to be disclosed when auditing a public company?
Yes
Can a public company extend credit or provide a loan to a director/officer?
NO
An internal control report is NOT required by the SEC annually?
T/F
False – it is required
How often do public companies need to submit their I/C report?
Annually
Do senior financial officers require a separate code of ethics?
Yes
what does the SEC require if a code of ethics is not present for senior financial officers?
Need to disclose why not
An audit committee requires at least two members be a financial expert
T/F
false – only requires ONE
What must be disclosed in “Plain English”
Material changes to the financial condition of the issuer
Is the PCAOB an agency of the United States Government?
No
Who created PCAOB
Sarbanes oxley
