Chapter 2 Flashcards
AICPA standards are for _____ (public/nonpublic) companies
nonpublic
What are the three standards of Field Work?
- Adequate planning and supervision
- Sufficient understanding of Internal Control to determine the NET of tests
- Sufficient evident matter to afford a reasonable basis for an opinion
SASs are based on ____ (GAAP/10 Principles)
10 Principles
What are the three categories of the ten principles of GAAS?
General Standards
Field Work
Reporting Standards
What are the three General Standards for GAAS.
- Adequate technical training and proficiency
- Independence
- Due Professional care exercised
Who issues GAAP?
FASB, through their Codification and Accounting Standards and Updates
Describe the Auditor Responsibility for the Detection of Errors and Fraud
- Obtain info to assess inherent risks and fraud
- assess risk of errors and fraud that may cause material misstatement
- plan and perform audit to obtain reasonable assurance that misstatements will be detected
- Exercise due care in planning/performing audit procedures, evaluating results, and using enough professional skepticism
What are the four standards of reporting?
- In accordance w/GAAP
- Identify where not observing GAAP
- Reasonably adequate disclosures in the statement
- Expression of Opinion. If not able to express, reasons why
What is the definition of Reasonable Assurance?
Adequately low Audit Risk
Describe the Standard Unqualified Opinion
o Auditor was able to gather sufficient evidence that financial statements follow GAAP without additional commentary for any issue.
o These companies conform to GAAP without qualifications (big mistakes, exclusions, etc) so GOOD result.
What three things does the intro paragraph of the audit report do?
- States the CPA firm has done an audit
• 2. It lists the financial statements that were audited
• 3. It defines responsibilities between management and the auditor
Describe an Unqualified Opinion with Emphasis of Matter?
Good, but going concern issues, A lack of consistency in application of accounting principles (add an explanatory paragraph)
What is a goal of Quality Control?
to establish adequate quality control policies and procedures to provide reasonable assurance that it follows professional standards on every engagement.
What kind of opinion is one that departure from GAAP so significant that financial statements as a whole are misleading (change opinion and add explanatory paragraph)?
Adverse
Describe a disclaimer of opinion
• Scope limitation so significant that auditor is unable to arrive at an opinion due to inability to examine evidence, or a lack of auditor independence
Procedures performed by an independent CPA firm to ensure compliance is known as
Peer Review
What kind of opinion is one that has a material departure from GAAP or scope limitation but financials can be taken fairly as a whole (add an “except for” to the opinion and an explanatory paragraph)?
Qualified Opinion
Does the AICPA require specific quality control procedures?
No, depends on size of firm, number of offices, and nature of firm’s practices. Quality control of 200-office firm differs largely from a single-office firm
A firm that audits 100 or less must be inspected
every three years or less. If audited more than 100, annual inspections
A ______ (system/engagement) review studies appraisal of a CPA firm’s quality control to perform accounting and auditing work
System review. An engagement review is one in which reviewers select a sample of firm’s accounting work to evaluate whether they are appropriate or not.
Describe some elements of Quality Control
- Leadership responsiblilites for quality within term (“Tone at the Top”)
- Relevant Ethical Requirements
- Acceptance and Continuance of Clients and Engagements
- Human Resources
- Engagement Performance
- Monitoring
• In addition to peer reviews, CPA firms with SEC registrants as clients are required to have an inspection performed by the PCAOB staff. Inspections are performed annually for CPA firms with numerous public clients and less frequently for those with fewer public clients. True or False?
True
o The Sarbanes-Oxley Act provides that an inspection shall include at least the following three general components:
An inspection and review of selected audit and review engagements.
An evaluation of the sufficiency of the quality control system of the firm and the manner of the documentation and communication of the system.
Tests of the audit, supervisory, and quality control procedures considered necessary.