Chapter 1: The Role of the Public Accountant

Question 1

assurance services

Answer 1

independent professional services that improve the quality of info, or its context, for decision makers

Question 2

attestation services

Answer 2

to attest to info means to provide assurance as to its reliability. attest to an assertion from a third-party. result in a report

Question 3

assertion

Answer 3

a declaration or set of declarations about whether the subject matter is based on or in conformity with the suitable criteria selected

Question 4

attestations that involve the financial statements

Answer 4

engagements in which practitioners are engaged to issue or do issue an examination, a review, or an agreed-upon procedures report on an assertion about subject matter that is the responsibility of another party

Question 5

examinations (audits)

Answer 5

result in reasonable (or high) assurance, also referred to as an opinion. the cpa selects from all available procedures any combo that can limit attestation risk to an appropriately low level

Question 6

reviews

Answer 6

result in moderate assurance, also referred to as limited assurance. ordinarily the primary procedures include inquiries of management and analytical procedures. the objective is to accumulate sufficient evidence to limit attestation risk to a moderate level

Question 7

agreed-upon procedures

Answer 7

result in a report with procedures performed and findings. the scope of procedures performed are determined by the specified party that wants them to be performed

Question 8

compilations

Answer 8

putting all the financial statements together, don’t have to be independent

Question 9

business risk

Answer 9

risk that a company might go under

Question 10

information risk

Answer 10

management has intentionally (or unintentionally) corrupted info

Question 11

assertions made by management

Answer 11

PERCCV
presentation and disclosure
existence and occurrence
rights and obligations
completeness
cutoff 
valuation, allocation, accuracy

Question 12

external auditing

Answer 12

1. focus on financial statements
2. close supervision/ structured audit approach
3. audits of public companies require an integrated audit that includes providing assurance on both the financial statements and the effectiveness of internal control
4. public accounting

Question 13

internal auditing

Answer 13

1. focus on how well is business run
2. review policies and procedures for compliance and effectiveness
3. recommendations to reduce costs and increase revenues
4. operational audits
   - -effectiveness of and compliance with policies and procedures
   - -independent review of operating and financial activities
   - -promote attainment of organizations objectives
5. compliance audits
   - -compliance to laws
   - -government auditing
6. testing internal controls for management’s reports required by SOX
7. most often internal auditors repot to the audit committee and the CEO

Question 14

Governmental Regulation

Answer 14

General Accounting Office

US Congress

Question 15

Internal Regulation

Answer 15

Institute of Internal Auditors (IIA)

Question 16

External Regulation (Public)

Answer 16

1. State and US Court System
2. Securities and Exchange Commission (SEC)
   - -regulates accounting and auditing of public companies
   - -accounting series releases
   - -power over companies selling stock to public only
   - -requires peer review
3. State Boards of Accountancy
   - -regulates the practice of public accounting
   - -determines rules for certification and licensing
   - -initial requirements and continuing education

Question 17

PCAOB

Answer 17

regulates audits and auditors of public companies:

1. register public accounting firms that prepare audit reports for financial statement issuers
2. establish or adopt auditing, quality control, ethics, independence and other standards relating to audit reports for issuers
3. conduct inspections of registered public accounting firms
4. perform other duties or functions to promote high professional standards for audits, enforce compliance with the enabling act establishing the Board, set the budget, and manage

Question 18

AICPA

Answer 18

Nonpublic companies

1. individual members and division of firms
2. issues statements on auditing standards (SAS/AU)
3. power from SEC and state boards
4. quality control standards and peer review
5. members must be enrolled in a firm with a peer review program
6. ethical rules in the code of professional conduct

Question 19

External nonpublic regulation

Answer 19

AICPA

State CPA societies

Question 20

International Federation of Accountants (IFAC)

Answer 20

1. membership consists of approximately 160 professional accounting bodies from about 125 countries
2. established to provide a coordinated worldwide accounting profession with harmonized standards
3. the international auditing and assurance standards board (IAASB)