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Audit > Chapter 1 -- Engagement Responsibilities > Flashcards

Chapter 1 -- Engagement Responsibilities Flashcards

1
Q

Section 1.1: Overview of Auditing Engagements

What is the purpose of FASB and GASB?

A

The FASB and GASB issue financial accounting pronouncements and interpretations. They do not establish generally accepted auditing standards.

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2
Q

Section 1.1: Overview of Auditing Engagements

What is the purpose of the Statement of Auditing Standards (SAS)?

A
  • The purpose of SAS is to create the generally accepted auditing standards.
  • These standards are established by the AICPA.
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3
Q

Section 1.1: Overview of Auditing Engagements

What are the different types of terminology used by the auditor to articulate their understanding and responsibility within their respective standards?

A
  • Must: Uncondition. Absolutely required.
  • Should: Presumptively mandatory. The consideration is required, but carrying out the procedure is not required.
  • Could, Might, May: Does not enforce a professional requirement. The auditor has the responsibility to consider the matter.
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4
Q

Section 1.1: Overview of Auditing Engagements

What type of documentation is included for quality control monitoring?

A
  • Polices and Procedures
  • Evaluations
  • Deficiencies
  • Basis for taking or not taking further action
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5
Q

Section 1.1: Overview of Auditing Engagements

What are the objectives of monitoring the policies and procedures?

A
  • Compliance with professional standards and legal requirements
  • Whether appropriate reports are issued
  • Policies and procedures that provide reasonable assurance that the firm’s quality control system is functioning properly.
  • That the system is adequate and relevant
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6
Q

Section 1.1: Overview of Auditing Engagements

What is the Accounting and Review Services Committee?

A
  • The Accounting and Review Services Committee is designated by the AICPA.
  • The committee issues pronouncements that relate to financial statements and other information that is unaudited of a nonissuer.
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7
Q

Section 1.1: Overview of Auditing Engagements

What are primary transactions-level assertions related to the income statement?

A

“COCA-C”
Completeness
Occurrence
Cutoff
Accuracy
Classification

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8
Q

Chapter 1

What are primary Account Balance Level assertions related to the balance sheet?

A

“CERV-C”
Completness
Existence
Rights and Obligations
Valuation, Allocation and Accuracy
Classification

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9
Q

Section 1.1: Overview of Auditing Engagements

What are primary Presenation and Disclosure Assertions?

A

“AU-COR”
Accuracy
Understandability and Classifications
Completeness
Occurrence
Rights and Obligations

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10
Q

Section 1.1: Overview of Auditing Engagements

What is the Completeness assertion?

A
  • All assets, liabilities, and equity interests that should have been recorded are recorded.
  • All related disclosures that should have been included in the financial statements are included.
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11
Q

Section 1.1: Overview of Auditing Engagements

What is the Classification assertion?

A

Are they recordedin the proper accounts?

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12
Q

Section 1.1: Overview of Auditing Engagements

What is the Existence assertion?

A

Management asserts, or claims, that assets, liabilities, and equity interests exist.

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13
Q

Section 1.1: Overview of Auditing Engagements

What is the Rights and Obligations assertion?

A
  • Does the company own the asset or liability?
  • Is the asset being used as collateral?
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14
Q

Section 1.1: Overview of Auditing Engagements

What is the Occurrence assertion?

A
  • Transactions and events that have been recorded or disclosed have actually occurred
  • Such transactions and events pertain to the entity.
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15
Q

Section 1.1: Overview of Auditing Engagements

What is the Valuation, Accuracy and Allocation assertion?

A
  • Assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts, any resulting valuation or allocation adjustments have been appropriately recorded.
  • Related disclosures have been appropriately measured and described.
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16
Q

Section 1.1: Overview of Auditing Engagements

What is the Presentation assertion?

A
  • Assets, liabilities, and equity interests are appropriately aggregated or disaggregated and clearly described.
  • Related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.
17
Q

Section 1.1: Overview of Auditing Engagements

What is the purpose of an audit and an attestation engagement?

A

Audit: The audit is based on the financial statements
Attestation: The attestation is based on a subject matter

18
Q

Section 1.2: Overview of Accounting and Review Engagements

What is the purpose of Statements on Standards for Accounting and Review Services (SSARS)?

A
  • SSARS applies to engagements based on historical finanacial information of nonissuers.
  • SSARS also applies to certain prospective, pro forma and other historical financial information
19
Q

Section 1.2: Overview of Accounting and Review Engagements

What types of work can be done under SSARs?

A

“CPR”
Compilations
Preparations
Reviews

20
Q

Section 1.3: Overview of Attestation Engagements

What is the purpose of Statement on Standards of Attestation Engagement (SSAE)?

A
  • Attestation engagements are additional services that are the responsibility of another party, other than an audit, that an CPA performs.
  • Attestation engagements report on subject matter other than financial statements
  • Attestation engagements do not rely on historical financial statements
21
Q

Section 1.3: Overview of Attestation Engagements

What are the type of engagements covered under SSAE?

A

Attestation Engagements (“EAR”)
* Examinations: Similar to an audit
* Agreed-Upon Procedures: No assurance is made.
* Reviews: Limited assurance is made.

22
Q

Section 1.3: Overview of Attestation Engagements

What is the basic concept of an examination in an attestation engagement?

A

The practitioner measures or evaluates the subject matter in order to develop an assertion that the subject matter is in accordance with suitable criteria.

23
Q

Section 1.3: Overview of Attestation Engagements

What documentation is provided for an Agreed-Upon Procedure?

A
  • Agreed-upon procedures report will report on the results of the procedures performed.
  • Agree-upon procedures report will not state an opinion or conclusion.
24
Q

Section 1.4: Additional Professional Services

What are assurance and advisory services?

A
  • Assurance and advisory services focus on improving information for better decision making.
  • Involves monitoring one party by another party.
  • They improve the quality of information for its decision makers.
  • They often related to audit, attestation or other nonstandard services.
25
Q

Section 1.4: Additional Professional Services

What are consulting services?

A

Think a retirment advisor. The Retirement Advisor consults you to purchase certain stock. This will result in more money being earned.

  • Consulting services strive to provide advice
  • They often involve two-party arrangements.
  • Consulting services are designed for the improvement of operations, resulting in better outcomes (“Con-Com”).
26
Q

Section 1.5: Quality Control

What factors would have an impact on the form of content of quality control documentation?

A
  • The size of the firm and the number of offices
  • The nature and complexity of the firm’s practice and organization
  • The technology used in the documentation process
27
Q

Section 1.5: Quality Control

What are the six elements of quality control?

A

“HARLEM”
Human Resources
Acceptance and continuance of client relationships and specific engagements.
Relevant Ethical Requirements
Leadership Responsibilities (aka “Tone at the Top”)
Engagement Performance
Monitoring

28
Q

Section 1.5: Quality Control

What is the purpose of human resources in a firm’s quality control?

A

Policies should also address personnel professional development as they advance in position and experience.

Policies should be in place to ensure the firm has the appropraite and sufficient staff to perform engagements that:
* Are in accordance with professional standards
* Enable the firm to issue reports that are appropraite for the circumstances.

29
Q

Section 1.5: Quality Control

What are the components of Human Resources in regard to quality control?

A
  • Engagement partner has appropriate competence, capabilities and authority for each engagement.
  • Recruitment
  • Hiring
  • Determine competencies and capabilities
  • Assignment of personnel
  • Professional development
  • Performance evaluation
  • Compensation
  • Advancement
  • Consideration of team’s understanding of similar engagements through training and participation
30
Q

Section 1.5: Quality Control

What is included in the Acceptance component in regard to quality control?

A
  • Consideration of client’s integrity.
  • The firm has personnel with competence, capabilities and resources to perform the engagement.
  • The firm can comply with legal, regulatory and ethical requirements.
31
Q

Section 1.5: Quality Control

What are the components of Relevant Ethical Requirements in regard to quality control?

A

“RIP-SOD”
* Responsibilities
* Integrity
* Public interest
* Scope and nature of services
* Objectivity and independence
* Due Care

32
Q

Section 1.5: Quality Control

What are the components of Leadership Responsibilities in regard to quality control?

A
  • Polices and procedures to promote an internal culture that emphasized that quality is essential in performing engagements
  • Perform work that complies with all professional standards and applicable legal and regulatory requirements.
  • Appropriate reports are issued.
33
Q

Section 1.5: Quality Control

What type of documentation must a CPA firm have to a proper quality control system?

A
  • Control Policies and Procedures
  • Compliance with Existing Policies and Procedures
  • Complaint and allegations and responses to them
34
Q

Section 1.5: Quality Control

What are the components of Engagement Performance in regard to quality control?

A
  • Engagements are preformed in accordance with professional standards and legal requirements.
  • The firm issues appropriate reports.
  • Consistency in the quality of engagement performance.
  • Supervision responsibility
  • Review responsibility
35
Q

Section 1.5: Quality Control

What are the components of Monitoring in regard to quality control?

A

The policies and prcedures are:
* Relevance
* Adequate
* Operating effectively
* Complied with in practice
* Includes inspection and evaluation of prior engagements.

36
Q

Section 1.5: Quality Control

What type of monitoring process is used in public accounting firms provide that provide reasonable assurance that policies relating to the system of quality control are relevant, adequate, and operating effectively?

A
  • Ongoing consideration and evaluation of the firm’s system of quality control.
  • Inspection or periodic review of engagement documentation, reports, and clients financial statements.
37
Q

Section 1.5: Quality Control

What is an audit’s firm responsibility regarding quality control?

A
  • The audit firm must adopt a sytem of quality control in conducting an audit practice.
  • The quality controls provide reasonable assurance that the personnel comply with GAAS in its audit engagements.
38
Q

Section 1.5: Quality Control

What services are applicable to a firm’s quality control practices?

A

Review and Compliation Services

39
Q

Section 1.5: Quality Control

Under PCAOB standards, when should a lead audit partner be rotated off an audit engagement?

A

Every 5 years

Audit (23 decks)

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