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Audit final > Chapter 20 > Flashcards

Chapter 20 Flashcards

1
Q

Define Assurance Services

A

are independent professional services that improve the quality of information or its context for decision makers

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2
Q

AICPA’s Assurance Standards Executive Committee does what?

A

Identifies emerging trends and market needs for assurance

Develops related assurance methodology guidance and tools

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3
Q

Assurance services are less broader when compared to attestation services. True or False?

A

False -
Assurance services encompass attestation services but can be broader than attestation services, sometimes involving analyzing data/putting them in a form to facilitate decision making

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4
Q

Define attestation services

A

Attestation services are engagements to issue an examination, review, or agreed-upon procedures report on the subject matter asserted by another party against some suitable criteria

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5
Q

All assurance services must issue a report

A

Assurance services may/may not issue report

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6
Q

What new assurance services are currently being developed?

A
  • Continuous auditing

- Assurance on system reliability

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7
Q

Why is there demand for assurance services?

A

Reduce information risk for outside parties and enable the company to contract at more favorable terms/reduce contracting costs. Also, Information technology has created a broad range of instantaneous online information, significantly increasing certain demands and changing expectations of information users

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8
Q

See slide 5 for Selected Characteristics of Assurance Services

A

Slide 5 picture

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9
Q

What are most assurance services performed in accordance with?

A

Most are performed in accordance with AICPA’s Statements on Standards for Attestation Services

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10
Q

Define an Attestation Service

A

Engagements to issue an examination, review, or agreed-upon procedures report on subject matter, or an assertion about subject matter, that is the responsibility of another party based on some suitable criteria

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11
Q

What are examples of “subject matter”?

A

historical or prospective performance or condition, physical characteristics, historical events, analyses, systems or processes, or behavior

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12
Q

See slide 3 for relationship between Assurance and Attestation services

A

slide 3

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13
Q

Suitable criteria on attestation services should be

A

Suitable Criteria should be objective, complete, relevant, and permit reasonably consistent measurements. May come from regulatory agencies, management/industry groups, contract terms – but must be clear and have these characteristics

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14
Q

The report from an attestation servicecan be on either

A
  • The subject matter itself (In our opinion, management has maintained effective ICOFR based on COSO), or
  • The assertion about the subject matter (In our opinion, management’s assertion that it maintained ICOFR appears reasonable based on COSO)
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15
Q

See slide 7 for Relationships Among Terms Used in Attestation Engagements

A

Slide 7

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16
Q

What is an Assertion?

A

declaration about whether the subject matter is presented in accordance with suitable criteria

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17
Q

Basic characteristic of Examinations, a type of attestation engagement:

A
  • Select from all available procedures to gather evidence
  • Highest level of assurance CPAs provide (positive assurance)
  • Attestation risk at low level
  • General-use report (unless criteria are agreed upon or only available to specified parties)
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18
Q

Materiality May be difficult to determine as subject matter may not be financial
To determine, one should try to

A

-Analyze likely needs of intended users,

Consider the extent and nature of misstatements of the subject matter that would be significant to user decisions

-May use quantitative and/or qualitative factors

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19
Q

the risk that practitioners will unknowingly fail to appropriately modify their report on subject matter that is materially misstated (like audit risk)
is known as

A

Attestation Risk.

Like audit risk, it consists of:

  • Inherent risk
  • Control risk
  • Detection risk
20
Q

Basic characteristic of Agreed-Upon procedures, a type of attestation engagement:

A

Procedures agreed upon by specified parties

List of procedures and related findings

Restricted-use reports

21
Q

When it coms to Assurance on Internal Control over Financial Reporting, who is required to have internal controls audited by Federal Deposit Insurance Corporation (FDIC)?

A

Financial Institutions with over $500 million in assets

22
Q

True or False? For public companies, the assurance on ICOFR is optional for an integrated audit.

A

False - Public companies—Required as a part of the integrated audit covering financial statements and internal control

Nonpublic Companies—Have the option of having a similar integrated audit

23
Q

Basic characteristic of Reviews, a type of attestation engagement:

A

0Limited procedures (inquiries and analytics)

  • Limited/negative assurance
  • Attestation risk at moderate level
  • General-use report (unless criteria are agreed upon or only available to specified parties)
24
Q

What are two types of Prospective Financials?

A

Financial Forecasts and Financial Projections

25
Q

Difference between Financial Forecasts and Projections.

A

Forecasts: Present entity’s expected results based on current assumptions. for general use

Projections: Present expected results, given one or more hypothetical assumptions. Use should be restricted to the party with whom company is negotiating

CPAs may be engaged to perform an examination or agreed-upon procedures, but not a review!

26
Q

Steps for Examinations of Prospective Financial Statements

A
  1. Practitioners gather evidence relating to the client’s procedures for preparation of the statements
  2. Evaluate the underlying assumptions
  3. Obtain a written representation letter from the client
  4. Evaluate whether statements are in conformity with AICPA guidelines
27
Q

Whilst Reporting on Prospective Financial Statements,

A
  • Report on subject matter
  • States whether the statements are presented in conformity with AICPA guidelines
  • Whether underlying assumptions provide a reasonable basis for the statements
  • Does not vouch for the achievability of the forecast or projection
  • In a projection report, must also add restricted use paragraph and explicitly state the hypothetical assumptions in the opinion
28
Q

Management required to provide narrative explanation of financial results as part of 10-K and 10-Q - True or false?

A

True. Practitioner must have audited the most recent financial year to which MD&A applies. Practitioner may examine or review

29
Q

Type 1 and 2 assurance differences:

A
  1. Attesting to an entity’s compliance with specified requirements of laws, regulations, rules, contracts, or grants
  2. Attesting to the effectiveness of an entity’s internal control over compliance with specified requirements

Once again, CPAs may be engaged to perform an examination or agreed-upon procedures, but not a review!

30
Q

IT has created great reliance on technology-enabled systems (e.g., to maintain information, to produce products and services, to interact with customers and suppliers, to run portions of the business) – as a result, system reliability is a major concern to all stakeholders. In response, CPAs have developed a set of Trust Services:

A
  • Jointly developed by the AICPA and the Canadian Institute of Chartered Accountants (CICA)
  • Set of professional attestation and advisory services to address risks and opportunities of IT-enabled systems and privacy programs
  • Intended to address user and preparer needs regarding issues of security, availability, processing integrity, online privacy, and confidentiality within e-commerce and other systems
  • Help companies differentiate themselves and emphasize their awareness and addressing of IT risks
  • Practitioner examines system controls and attests to system reliability
  • Many future opportunities for the profession along this path
31
Q

What two things does the practitionaer do in trust services?

A

1.

32
Q

Objective of an examination or review of MDA is to see if

A

1) the presentation includes, in all material respects, the required elements of the rules and regulations adopted by the SEC;
(2) the historical financial amounts included in the presentation have been accurately derived, in all material respects, from the entity’s financial statements; and
(3) the underlying information, determinations, estimates, and assumptions of the entity provide a reasonable basis for the disclosures contained in the presentation.

33
Q

What two things does a practitioner do when performing trust services?

A
  1. performs procedures to determine that management’s description of the system is fairly stated, and
  2. obtains evidence that the controls over the system are designed and operating effectively to meet the Trust Services Principles and Criteria—the suitable criteria required for an attest engagement
34
Q

Principles and Criteria used in Trust Services

A

Principles:

  1. Security
  2. Availability
  3. Processing Integrity
  4. Confidentiality
  5. Privacy

Criteria for each principle:

  1. Policies
  2. Communications
  3. Procedures
  4. Monitoring
35
Q

Similarities between webtrust and systrust

A
  • assurance is provided on management’s assertion relating to the principles
  • Designed to incorporate a seal management process. Seal (logo) included on a client’s website as electronic representation of the report. Engagement must be updated at least annually to use the seal. Initial reporting period must include at least two months
36
Q

Difference between WebTrust and SysTrust

A

WebTrust - Assurance on electronic commerce systems

SysTrust - Assurance on any system

37
Q

A future assurnt service may be

Health Care Performance Measurement. Further explain.

A

health care recipients and employers increasingly concerned about quality and availability of health care services. This service provides assurance over the effectiveness of health care services provided by health maintenance organizations, hospitals, doctors, and other providers

38
Q

What are SOC Reports?

A

Service Organization Control (SOC) Reports - Service Organizations provide outsourced data processing services (e.g., cloud computing services, payroll processing services, information security services, information system services)

39
Q

SOC 1,2, and 3 arethree different CPA Reports on Service Organization Controls (SOC). Define SOC 1

A

Restricted use reports on controls at a service organization that are relevant to a user entity’s internal control over financial reporting.

40
Q

A future assurance service may be continuous auditing. What is this?

A

Demand is increasing for assurance beyond a quarterly and annual financial statement basis, especially as companies provide more and more up-to-date/real time information on their websites. This would rovides assurance using a series of reports provided simultaneously or shortly after the related information is released.
These services are anticipated to be grow dramatically in the coming years

41
Q

SOC 1,2, and 3 arethree different CPA Reports on Service Organization Controls (SOC). Define SOC 3

A

General use SysTrust reports related to security, availability, processing integrity, and/or privacy to meet Trust Services criteria

42
Q

With increasing age 65+ individuals, the AICPA and CICA developed these services with the goal of helping older senior citizens maintain their lifestyle and financial independence for as long as possible

A

PrimePlus/ElderCare Services.

Target markets are
Older clients of CPAs,
Children of older adults, and
Other professionals that deal with older adults (e.g., lawyers, health care professionals)

43
Q

SOC 1,2, and 3 arethree different CPA Reports on Service Organization Controls (SOC). Define SOC 2

A

Restricted use reports on controls at a service organization that related to security, availibilty, processing integrity, privacy, and/or confidentiality.

44
Q

What is XBRL, one of the more prominet future assurance services?

A

XBRL (eXtensible Business Reporting Language)

  • International information format designed for business information
  • Assigns unique electronically readable tags to all individual disclosure items within business reports
  • Major benefits in preparation, analysis, and communication of business information in a cost-effective, reliable manner
  • AICPA’s XBRL Assurance Task Force is in process of developing guidance for CPAs to provide assurance on XBRL-Related Documents
45
Q

Financial PrimePlus/ElderCare Services include

A

Goal setting, funding analysis, cost management, and needs assessment. Nonfinancial would be Interpersonal and relationship management,
Management of interaction between service providers and client

46
Q

Basic summations of SOCs

A

SOC 1 - Controls related to ICOFR

SOC 2 - Controls related to security/privacy/integrity/etc

SOC 3 - Systrust reports

Audit final (6 decks)

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