Engagement Planning 3 Flashcards
Information that may suggest the possibility of illegal acts
- Unauthorized, improperly recorded, or unrecorded transactions
- Investigation by a governmental agency
- Reports of regulatory agencies citing law violations
- Large payments for unspecified services to consultants, affiliates, or employees
- Excessive sale commissions
- Unusually large payment to cash, bearer, transfers to numbered bank accounts
- Unexplained payments to government officials or employees
- Failure to file tax returns or pay other fees
Describe the limitations on Prospective Financial Statements?
Report is restricted to specified users.
Agreed-upon procedures are implemented.
What are the overall responses to the risk of material misstatement due to fraud
The overall responses to the risk of material misstatement due to fraud include
(1) assigning personnel with particular skills relating to the area and considering the necessary extent of supervision to the audit,
(2) increasing the consideration of management’s selection and application of accounting principles, and
(3) making audit procedures less predictable.
What is the independence requirement for Compilations?
- Independence NOT required for Compilations
- No Internal Control work allowed
- No assurance given
Attest Function
In an attest engagement a CPA is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about subject matter, that is the responsibility of another party.
The attestation standards apply to engagements that involve subject matter other than historical financial information, whereas the generally accepted auditing standards apply to the performance of services related to historical financial statements.
What is the independence requirement for a Review?
- Reviews require independence.
- No Internal Control work allowed
- Performs analytical procedures and Inquiries
- No material indirect financial interest allowed
- No immaterial direct financial interest allowed
What was the effect of the SOX Act of 2002?
- Created PCAOB
- Designates Officer responsibility for internal control
- Must disclose significant internal control weaknesses to auditor and audit committee
- Must disclose any level of fraud discovered by employees with internal control responsibilities
What type of assurance is provided by Review services?
Reviews provide NEGATIVE or Limited assurance
Assurance services
The Special Committee on Assurance Services (the Elliott Committee), defined assurance services as independent professional services that improve quality of information, or its context, for decision makers.
What is the Hierarchy of Authoritative Literature?
- Statements on Auditing Standards (SAS)
- Auditing Interpretations- AICPA Guides & SOPs
- Industry Articles (no authority)
when assessing the internal auditors’ competence
when assessing the internal auditors’ competence, the auditor should obtain or update information from prior years about such factors as:
- educational level and professional experience of internal auditors.
- professional certification and continuing education.
- audit policies, programs, and procedures.
- practices regarding assignment of internal auditors.
- supervision and review of internal auditors’ activities.
- quality of working-paper documentation, reports, and recommendations.
- evaluation of internal auditors’ performance.
What is the independence requirement for consulting services?
Independence is not required for consulting services.
Effect of specialist’s work on the auditor’s report
Effect of specialist’s work on the auditor’s report
- If the specialist’s findings support the related financial statement assertions, the auditor may conclude that sufficient competent evidential matter has been obtained, and no reference should be made to the specialist’s work in the audit report
- If the specialist’s findings do NOT support the related financial statement assertions
- *a**. The auditor should (1) apply additional procedures and (2) if necessary, obtain the opinion of another specialist (unless it appears that the matter cannot be resolved)
- *b**.If the difference cannot be resolved, the auditor will ordinarily qualify the opinion or disclaim an opinion because the inability to obtain sufficient competent evidential matter is a scope limitation
- *c**.If the financial statements are incorrect, the auditor should express a qualified or adverse opinion due to a departure from GAAP
NOTE: Only in b. and c. may the specialist be referred to.
Evaluation of the work of specialist by CPA
- An auditor should obtain an understanding of the nature of the work performed by the specialist, including the objectives and scope.
- The auditor should also understand the specialist’s relationship to the client, the methods or assumptions used (including a comparison with the preceding period), the appropriateness of using the specialist’s work, and the form and content of the specialist’s findings.
The auditor’s communication with those charged with governance
The professional standards require that a communication (orally or in writing) of certain information occur between the auditor and those charged with governance of the company being audited (e.g., the board of directors, audit committee).
- Qualitative aspects of the entity’s significant accounting practices
- Significant difficulties encountered during the audit
- Uncorrected misstatements
- Disagreements with management
- Management’s consultations with other accountants
- Significant issues discussed, or subject to correspondence with management
- Auditor independence issues
- If those charged with governance are not involved in managing the entity, the following should also be communicated
- Material corrected misstatements resulting from audit
- Representations requested from management
- Other significant issues
