Chapter 6: Professional Responsibilities Flashcards
the specific accounting principles, and the methods of applying those principles, that have been judged by management to be the most appropriate under the circumstances to present fairly the financial position and results of operations and statement of cash flows, in accordance with generally accepted accounting principles, and that, accordingly, have been adopted by the reporting entity for preparing financial statements
Accounting Policies
represents the CPA profession nationally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups, and other professional organizations
American Institute of Certified Public Accountants (AICPA)
was adopted to provide guidance and rules to all members in the operation of their professional responsibilities
AICPA Code of Professional Conduct
the measure of the quality of audit evidence, that is, its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based.
Appropriate
declarations or a set of declarations about whether subject matter is based on or conforms to selected criteria
Assertions
when an auditor is associated with financial information when the auditor has applied procedures sufficient to permit the auditor to report in accordance with GAAS (generally accepted auditing standards)
Association with Financial Statements
to issue a written communication expressing a conclusion (opinion) on subject matter, or an assertion about the subject matter that is the responsibility of another party
Attest Engagement
a set of standards that provides guidance and a broad framework for a variety of attest services performed by a certified public accountant
Attestation Standards
a periodic verification of assets, records, transactions, events, or conditions performed by a person independent of the custody or recordkeeping for the items verified
Audit
a body formed by a company’s board of directors to oversee audit operations and circumstances
Audit Committee
Another name for the goal of the audit procedures used to obtain evidence about the dollar amounts and disclosures presented in the financial statements
Audit Objective
a series of specific and specialized steps or actions auditors take to meet audit objectives
Audit Procedure
the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated
Audit Risk
the number of shares of stock that the issuing corporation may legally issue as specified in the corporate charter or as amended by a vote of shareholders.
Authorized
the condition of being judged insolvent by the court and having property distributed to creditors when a debtor is unable to meet debts
Bankruptcy
intended to provide relief to an insolvent debtor from his debts (to provide a “fresh start”) and to give all creditors an equal chance to share in the assets of the debtor in a specified priority and according to their claims. It also incorporates secured financing per the Uniform Commercial Code (U.C.C.) and other debtor-creditor relationships. Contrast to liquidation and reorganization
Bankruptcy Reform Act
a policy-setting committee, elected by and accountable to the shareholders in a business.
Board of Directors
the leader of an organization and the highest ranking official in an organization
Chief Executive Officer (CEO)
gives workers and their families the right to choose to continue group health benefits for limited periods of time under certain circumstances. The circumstances would include involuntary job loss, reduction in hours worked, transition b
Consolidated Omnibus Budget Reconciliation Act (COBRA)
a statement of ethical principles governing acceptable and unacceptable behaviors for members of an organization
Code of Ethics
payments to employees, agents, or brokers for selling, purchasing, and collecting services and other business transactions that are usually determined as a percentage of the transaction price
Commissions
a service, the objective of which is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework
Compilation
part of the group audit engagement partner’s firm in a different location, a network firm, or another firm
Component Auditor
the use of the same accounting principles over time
Consistency
providing advisory services
Consulting Services
fees dependent upon a specified finding or result
Contingent Fees
a form of business that is a legal entity, separate and apart from its owners
Corporation
the federal department responsible for promoting the working conditions of wage earners in the United States
Department of Labor
the risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material, either individually or when aggregated with other misstatements
Detection Risk
ownership in the entity/client, i.e., common stock, preferred stock, or convertible debt
Direct Financial Interest
an individual elected or appointed to the board of directors of a corporation
Director
an expression of no opinion
Disclaimer of Opinion
revealing or uncovering
Disclosure
to act with competence and diligence
Due Care
a measure of the number of eligible workers who hold jobs
Employment
a situation wherein the practitioner renders professional services
Engagement
enacted by Congress in 1974 to protect employees’ retirement benefits by setting forth rules for employer-provided retirement plans to make them equitable and secure
Employee Retirement Income Security Act of 1974 (ERISA)
the basic tenets that guide performance of professional responsibilities
Ethics
enacted into law in 1938 to set standards for workers involved in interstate commerce
Fair Labor Standards Act
an independent authoritative body, created in 1973 to replace the AICPA Accounting Principles Board, and authorized by the AICPA Code of Professional Conduct as a promulgator of generally accepted accounting principles (GAAP)
Financial Accounting Standards Board (FASB)
one who holds a position of trust with respect to another party or its property
Fiduciary
providing financial information to external users
Financial Accounting
the principal means of communicating financial information to those users external to the entity
Financial Statements
the prediction of outcomes, trends, or expected behavior for the economy, an industry, a particular business, or an item such as sales or market prices using statistical methods
Forecast
a legal doctrine that specifies the negligent accountant is liable to all parties who can be foreseen to be injured, even though he may lack knowledge of actual third parties who may rely on the report
Foreseeability Rule
the intentional misrepresentation or failure to disclose a material fact or facts that results in injury or loss to someone relying on it
Fraud
basic accounting principles and standards and specific conventions, rules, and regulations that define accepted accounting practice at a particular time by incorporation of consensus and substantial authoritative support
Generally Accepted Accounting Principles (GAAP)
the Statements on Auditing Standards issued by the Auditing Standards Board (ASB), the senior committee of the AICPA designated to issue pronouncements on auditing matter for nonissuers
Generally Accepted Auditing Standards (GAAS)
the body authorized to promulgate standards of financial accounting and reporting for governmental units
Government Accounting Standards Board (GASB)
audit standards that must be followed for audits of federal organizations, programs, activities, functions, and funds received by contractors, nonprofit organizations, and other external organizations.
Government Auditing Standards
an independent, not-for-profit, private-sector organization working in the public interest
International Accounting Standards Board (IASB)
an independent standard-setting organization that serves the public by creating ethical standards for professional accountants
International Ethics Standards Board for Accountants (IESBA)
an assembly representing more than two million accountants
International Federation of Accountants (IFAC)
to be free from conflicts of interest and bias, self-governing, impartial, not subject to control by others, not requiring or relying on something else, not contingent, and acting with integrity and objectivity
Independence
the susceptibility of an assertion about a class of transaction, account balance, or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls
Inherent Risk
an unimpaired condition or firm adherence to a code of ethics or moral values
Integrity
a process, effected by an entity’s board of directors, management and other personnel, which is designed to provide reasonable assurance regarding the achievement of objectives in one or more categories:
Effectiveness and efficiency of operations
Reliability of financial information
Compliance with applicable laws and regulations
Internal Control
a legal business form that offers limited liability to the owners
Limited Liability Company
a partnership created by statute (not common law) consisting of at least one general partner and one or more special or limited partners
Limited Partnership
a consulting function of providing advice and technical assistance to help the client improve the use of capabilities and resources to achieve its objectives
Management Advisory Services (MAS)
involvement, other than direct ownership (i.e., ownership of common or preferred stock or convertible debt), that exceeds 5% of the member’s net worth. Independence is deemed to be impaired
Material Indirect Financial Interest
an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report
Materiality
a fixed wage floor, the lowest wage that can be paid legally
Minimum Wage
violations of laws or governmental regulations perpetrated by the entity or by the management or employees acting on behalf of the entity
Noncompliance with Laws and Regulations by Client
remaining impartial in judgments in order to get more quality information.
Objectivity
a debt or a liability of an entity or an amount owed. In governmental accounting, it is an encumbrance or commitment of the governmental unit
Obligation
develops standards for job health and safety designed to protect employees from occupational injury or illness
Occupational Safety and Health Act
the location where the review is conducted
On-Site Review
an association of two or more persons to carry on as co-owners of a business for profit
Partnership
established by Congress to oversee public company audits.
Public Company Accounting Oversight Board (PCAOB)
an agreement whereby the employer undertakes to provide to retired employees benefits that can be estimated or determined in advance, based on the provisions of the plan and established company practice
Pension
a financial statement or report prepared using assumptions regarding future events
Pro Forma
the professional conduct or skill expected of one rendering professional services
Professional Competence
the application of relevant training, knowledge, and experience, within the context provided by auditing, accounting, and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement
Professional Judgment
official, authoritative statements or standards that must be complied with
Pronouncements
the reasonable assurance that policies and procedures are in place during an audit engagement to be in compliance with GAAS (generally accepted auditing standards)
Quality Control
a CPA firm’s system of specified standards that are required to be developed to assure that firm is in compliance with professional standards for the services it provides
Quality Control Standards
the degree of assurance to convince a “reasonable man” within the cost-benefit constraint
Reasonable Assurance
an engagement undertaken to achieve, through the performance of inquiry and analytical procedures, limited assurance that there are no material modifications that should be made to the statements in order for them to be in conformity with GAAP or, if applicable, with a comprehensive basis of accounting other than generally accepted accounting principles
Review
the combination of inherent risk (IR) and control risk (CR) for an entity
Risk of Material Misstatement (RMM)
provide the detail and guidance needed to meet the 10 GAAS standards
Statements on Auditing Standards (SAS)
a federal government agency charged with the responsibility of writing rules consistent with federal security laws, investigation of violations, maintenance of financial disclosure documentation, and initiation of action against violators of federal securities acts
Securities and Exchange Commission (SEC)
a lender, seller, or other person in whose favor there is a security interest
Secured Party
a federal statute regulating the initial public offering (IPO) and private placement of securities
Securities Act of 1933
a federal statute that regulates the trading of securities that are already issued and outstanding
Securities Exchange Act of 1934
was enacted to develop new or enhanced standards for all U.S. public company boards, management, and public accounting firms
Sarbanes-Oxley Act of 2002 (SOX)
states that the financial statements present fairly, in all material respects, the entity’s financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the United States of America
Standard Auditor’s Report
a sampling plan in which the laws of probability are used for selecting and evaluating a sample from a population for the purpose of reaching a conclusion about the population
Statistical Sampling
the directing and reviewing the efforts of assistants
Supervision
a statement of information, usually on a prescribed form, required by governments from individuals, businesses, and other entities
Tax Return
the formal education and subsequent experience an auditor must have to perform an adequate audit.
Technical Training and Proficiency
regulates the conduct of tax professionals admitted to practice before the Internal Revenue Service, including ethical and technical types of matters
Treasury Circular 230
the body authorized to promulgate standards that must be followed in the audits of recipients of federal financial assistance
United States Government Accountability Office (GAO)
states that the financial statements are presented fairly in accordance with accounting principles generally accepted in the United States of America or an applicable financial reporting framework—the basic premise being that the auditor has tested the financials and they give an accurate representation of the company’s condition
Unmodified Opinion
document the work done and conclusions reached by the auditor, showing procedures applied, tests performed, information obtained, and pertinent conclusions reached
Workpapers
