ch 1 review Flashcards
what is an internal audit?
an audit from an inside
what are they looking for in an internal audit?
internal controls and efficiency
what is an external audit?
a 3rd party hired to review financial statements
the _____ requires publicly traded company to be externally audited
Securities Exchange Commission (SEC)
what type of audits must publicly traded companies get?
historical financial statement audit AND internal controls audit
what type of audits must privately traded companies get?
usually only historical financial statement audit
to conduct an audit you have to be an _____________ CPA
independent
a historical financial statement audit provides an _________ on whether financial statements are ________________ in accordance with __________
opinion; presented fairly; GAAP
can you use the words guaranteed or certified in an audit?
no never use these words in an audit
an internal controls audit is where a/ an __________ CPA provides an ___________ on effectiveness of __________
independent; opinion; internal controls over financial reporting (ICFR)
what is internal controls financial reporting
the set of controls or a control system at an organization that protects financial statements and their inputs from being tampered with; limit fraud risk; and ensure the accuracy and validity of the company’s financial reporting
for an attestation service the independent CPA is called a __________________
practicioner
in an attestation service the practitioner can do what four things
- reports on subject matter that is prepared by someone else
- examination of financial forecast
- review of financial statements
- assurance
what is an assurance service
any independent service that improves quality of information
does assurance have to be done by a CPA?
no, could be done by experts
in assurance the information can be _________ or ____________
financial or nonfinancial
what is the attestation service: examination of forecast
look at if clients forecasts are properly formatted, math correct, proper methods
What are the set of accounting rules
Generally accepted accounting principles (GAAP)
Who enforces GAAP
Securities exchange commissions (SEC)
Who is the accounting rule maker
Financial accounting standards board (FASB)
What is the board that oversees the audits of private companies
Auditing Standards Board (ASB)
The auditing standards board is a committee within what?
The AICPA
What are the three subsets of the auditing standards board
- Statements on Auditing Standards (SAS)
- Statements on Standards for Attestation Engagements (SSAE)
- Statements on Quality Control (SQCS)
why have audit standards?
-uniformity
- guidelines measure quality of audit work
prior to _____ there was on 1 set of audit standards
Sarbanes- Oxley
What year was SOX in?
2002
What is the National Association of State Board Association (NASBA)
state board of accountancy that controls your license
what is the board that oversees public company audits
Public Company Accounting Oversight Board (PCAOB)
what is the subset of the PCAOB
Auditing Standards (AS)
What is an unmodified audit report?
also known as a “clean report” in which the auditor states the company’s financial statements give fair representation of the company’s affairs
what are the four sections of an unmodified audit report?
1) opinion
2) basis for opinion
3) responsibilities of management
4) auditor’s responsibilities for the audit of financial statements
what is the difference between an unmodified audit report and an unqualified audit report?
unmodified opinion is given to private companies and unqualified is given to public companies
what is a summary of the opinion section of an unmodified audit report of financial statements?
identifies the financial statements and what the auditors did; states their opinion that the financial statements are presently fairly in material respects; financial statements presented fairly in accordance with GAAP
what is a summary of the basis for opinion section of an unmodified audit report of financial statements?
states that audit was conducted in accordance with auditing standards (ASB); they are independent; audit evidence is sufficient and appropriate
what is a summary of the responsibilities of management for the financial statements section of an unmodified report?
states that management is responsible for preparing and presenting the financial statements and the internal controls; management required to evaluate going concern
what is a summary of the auditor’s responsibilities for the audit of the financial statements section of an unmodified report?
obtain reasonable assurance as to if financial statements as a whole are free from material misstatements, issue an auditor’s report that includes opinion; defines that material misstatements; professional judgement and skepticism; going concern; reasonableness of accounting estimates
The date at the end of an unmodified audit of financial statement report is the date of what?
end of field work and the day we decide if we have enough evidence to support the opinion
what does “registered” mean on an unqualified report?
the auditors are registered with the PCAOB
what are the sections in an unqualified audit report of financial statements?
opinion on the financial statements
basis for opinion
critical audit matter
- description of audit matter
- how they addressed the matter in
the audit
summary of the section “opinion on the financial statements” section of an unqualified audit report of the financial statements
state they audited the companies consolidated statements and provide an opinion that they are presented fairly in accordance with GAAP; audited ICFR in accordance with the PCAOB
summary of the section “basis for opinion” section of an unqualified audit report of the financial statements
consolidated financials are responsibility of company’s management; auditors responsibility is to express an opinion on the company’s financial statements; firm registered with PCAOB and are independent according to SEC and PCAOB; audit done in standards of PCAOB and performed procedures to respond to risk of misstatement due to error or fraud
summary of the section “critical audit matter” section of an unqualified audit report of the financial statements
CAM subsections explain the matter that was communicated or required to be communicated to audit committee and 1) relates to accounts or disclosures that are material to the financials and 2) involved our especially challenging, complex, judgements
CAMs are unique to ______________
public company audits
disclaimer of opinion due to auditor not being independent-
causes a modified opinion as the auditor is not independent and cannot express opinion
qualified due to scope limitation
causes a modified opinion where the financial statements are presented fairly, except for the auditor’s inability to gather evidence for a material item
disclaimer of opinion due to scope limitation
causes a modified opinion as auditor was unable to gather sufficient appropriate evidence and cannot express an opinion on the financial statements (pervasively material scope of limitations)
qualified due to material departure(s) from applicable financial reporting framework and the client refuses to make correctiond
financial statements are not presented fairly, except for the uncorrected departure(s)
adverse due to material departure(s) from applicable financial reporting framework and the client refuses to make corrections
financial statements are not presented fairly and should not be relied upon (pervasively material departures)
The SEC classifies public companies into three categories based on ….
worldwide market value (public float), in dollars, of outstanding voting and non-voting common equity
what are the three categories that the SEC classifies public companies into
large accelerated filer
accelerated filer
non-accelerated
large accelerated filer
$700 million or more
accelerated filer
$75 million to less that $700 million AND $100 million or more in annual revenues
non-accelerated filer
1) between $75 and $700 million in outstanding common equity AND less than $100 million in annual revenues
2) less than $75 million in outstanding common equity
public categorized as ____________ are not required to have an audit of ICFR
non-accelerated filers
what are the section in an unqualified audit report on the effectiveness of ICFR
1) opinion on the internal control over financial reporting
2) basis for opinion
3) definition of internal controls over financial reporting
summary of the “internal control over financial reporting” section of the unqualified audit report on the effectiveness of ICFR
state opinion that the company has maintained in all material respects effective internal controls over financial reporting; also audited consolidated fs in accordance with PCAOB
summary of “basis of opinion” section of the unqualified audit report on the effectiveness of ICFR
management is responsible for maintaining effective internal control over financial reporting and for assessment of the effectiveness; auditors express opinion on ICFR; reasonable assurance that effective ICFR maintained
summary of “ definition and limitations of Internal Control over financial reporting section of the unqualified audit report on the effectiveness of ICFR
defines internal control
purpose of an audit
provide financial users with an opinion by the auditor on whether financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework ; increase degree of confidence
management is responsible for…
the preparation and fair presentation of financial statements in accordance with the applicable financial reporting framework and to provide the auditor with access to all documents and personnel
competence
technical training
responsibilities of auditor
competence and capabilities; independent; professional skepticism and judgement
to obtain reasonable assurance the auditor:
- plans the work and properly supervised any assistants
- appropriate materiality
- identify and assess risk of material misstatement
-sufficient audit evidence
inherent limitations that make it to where the auditor is unable to obtain absolute assurance
- nature of financial reporting
- the nature of auditing procedures
- time/ cost constraints
