Ethics Professional Responsibilities General Principles Flashcards
PCAOB
GAAS
SSARS
SSAE
PCAOB AS
GAAS SAS AU
SSARS AR
SSAE AT
SSARS - Statements on Standards for Accounting and Review Services
(types, assurance for each type, independence for each type, opinion/conclusion/report?)
SSARS - preparation, compilation (of either historical OR proforma) & reviews of historical FS (of unaudited FS for nonissuers)
Statements on Standards for Accounting and Review Services codified in AR-C
Preparation- no assurance, no independence, no opinion/conclusion/report
Compilation- no assurance, no independence but must disclose if not, no opinion or conclusion but yes report
Review- limited (negative) assurance, independence required, no opinion but yes conclusion
Compilation Report (SSARS) wording
Management is responsible for the accompanying financial statements of XYZ Company, which comprise the balance sheets as of December 31, 20X2 and 20X1 and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements in accordance with accounting
principles generally accepted in the United States of America. I (We) have performed compilation engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of
the AICPA. I (We) did not audit or review the financial statements nor was (were) I (we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, I (we) do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.
[Signature of accounting firm or accountant, as appropriate]
[Accountant’s city and state]
[Date of the accountant’s report]
Review Report (SSARS) (wording)
Independent Accountant’s Report
[Appropriate Addressee]
We have reviewed [identify the subject matter, for example, the accompanying schedule of investment returns of XYZ Company for the year ended December 31, 20XX]. XYZ Company’s management is responsible for [identify the subject matter, for example, presenting the schedule of investment returns] in accordance with (or based on) [identify the criteria, for example, the ABC criteria set forth in Note 1]. Our responsibility is to express a conclusion on [identify the subject matter, for example, the schedule of investment returns] based on our review. Our review was conducted in accordance with attestation standards established by the AICPA. Those standards require that we plan and perform the review to obtain limited assurance about whether any material modifications should be made to [identify the subject matter, for example, the schedule of investment returns] in order for it to be in accordance with (or based on) the criteria. The procedures performed in a review vary in nature and timing from, and are substantially less in extent than, an examination, the objective of which is to obtain reasonable assurance about whether [identify the subject matter, for example, the schedule of investment returns] is in accordance with (or based on) the criteria, in all material respects, in order to express an opinion. Accordingly, we do not express such an opinion. Because of the limited nature of the engagement, the level
of assurance obtained in a review is substantially lower than the assurance that would have been obtained had an examination been performed. We believe that the review evidence obtained is sufficient and appropriate to provide a reasonable basis for our conclusion.
We are required to be independent and to meet our other ethical responsibilities in accordance with relevant ethical requirements related to the engagement. [Include a description of the work performed as a basis for the practitioner’s conclusion.]
[Include a description of significant inherent limitations, if any, associated with the measurement or evaluation of the subject matter against the criteria.]
[Additional paragraphs may be added to emphasize certain matters relating to the attestation engagement or the subject matter.]
Based on our review, we are not aware of any material modifications that should be made to [identify the subject matter, for example, the accompanying schedule of investment returns of XYZ Company for the year ended December 31, 20XX], in order for it be in accordance with (or based on) [identify the criteria, for example, the ABC criteria set forth in Note 1].
[Signature of accounting firm or accountant, as appropriate]
[Accountant’s city and state]
[Date of the accountant’s review report]
SSAE - Statements on Standards for Attestation Engagements
(types, independence for each type, assurance for each type, opinion/conclusion?)
SSAE - examinations, agreed-upon procedures, and proforma projections/forecasts (anything that IS NOT historical FS)
Statements on Standards for Attestation Engagements
Attest engagements - exam, review, or AUP (agreed upon procedures) on a subject matter or assertion about a subject matter - WRITTEN CONCLUSION/WRITTEN ASSERTION
AUP, forecasts/projections, proforma FS, compliance, MD&A, reporting on controls at a service organization
agreed upon procedures - independence required, no assurance, list of procedures and findings
review (not historical FS) - independence required, limited (negative) assurance, conclusion
examination (not historical FS) - independence required, reasonable (positive) assurance, opinion
Which standards apply to REVIEW engagements?
SSAE - applies to anything that’s not historical financials so applies to review of management assertions
PCAOB - applies to quarterly reviews/interim for issuers that have annual audit
SAS - applies to quarterly reviews/interim for NON-issuers that have annual audit
SSARS - applies to reviews for NON-issuers annual financial statements that do NOT also get audited
Which standards apply to an AUDIT of a NON-issuer?
SAS - Statements on Auditing Standards published by Auditing Standards Board is comprised of Generally Accepted Auditing Standards (GAAS)
Which standards apply for compilations (regardless of whether it is a compilation of historical OR proforma/projections)
SSARS
Unconditional vs presumptively mandatory requirements
unconditional requirements = “must”
presumptively mandatory requirements = “should” (comply in all cases when relevant, except in rare circumstances when procedure ineffective and alternate procedures achieve the requirement’s intent
performance principle (assurance)
reasonable assurance must be obtained about whether FS as a whole are free of material misstatement, whether due to fraud or error
reporting principle (opinion)
based upon the sufficient appropriate evidence obtained (auditor should issue a written report expressing an opinion or make a statement that an opinion cannot be expressed)
Inherent limitations of audit (conditions that create inability to provide absolute assurance)
nature of financial reporting, nature of audit procedures, need for audit to be conducted in reasonable period of time with balance of benefit and cost
Government Auditing Standards conducted under Government Accountability Office (GAO)
Generally Accepted Government Auditing Standards GAGAS or “Yellow Book” - what is this framework? What are the GAGAS requirements in addition to?
‘Yellow Book/GAGAS provides a framework for auditors of government entities, entities that receive government awards, and other audit organizations conducting governmental audits.
GAGAS requirements are in addition to the requirements contained in the AICPA standards.
Government Auditing Standards conducted under Government Accountability Office (GAO)
Generally Accepted Government Auditing Standards GAGAS or “Yellow Book”
Responsibilities for auditor (framework, IC, laws/regs, fraud/abuse)
a. Financial statements in conformity with applicable financial reporting framework
b. Understanding of internal control, to assess risk of material noncompliance in the financial statements as a whole
c. Identified noncompliance with laws and regulations that have a direct and material effect on the financial statements as a whole
d. Other matters, such as identified material fraud and abuse
Government Auditing Standards conducted under Government Accountability Office (GAO)
Generally Accepted Government Auditing Standards GAGAS or “Yellow Book”
Single Audit Act, threshold?
a. Single audits are more extensive than GAAS or GAGAS audits. A single audit encompasses an examination of a recipient’s financial records, financial statements, federal award transactions and expenditures, the general management of its operations, internal control systems, and federal assistance it received during the audit period (the time period of recipient operations examined in the single audit, which usually covers a natural or fiscal year).
b. The single audit is divided into two areas: compliance and financial. The Compliance Supplement is the document that provides guidance to auditors who are engaged to test for compliance with program requirements
Threshold of $750,000 is related to expenses, not revenues. An organization may receive more than $750,000 and not be required to undergo a single audit if it does not spend more than $750,000.
Government Auditing Standards conducted under Government Accountability Office (GAO)
Generally Accepted Government Auditing Standards GAGAS or “Yellow Book”
Type A program vs Type B program? Minimum coverage rule?
Type A program - federal program that exceeds a quantifiable amount of federal awards expended, then determined whether high or low risk
minimum coverage rule:
high risk - recipient that has high risk of noncompliance with federal laws and regulations; audit 40% of total awards expended
low-risk - recipient that has low risk of noncompliance with federal laws and regulations; audit 20% of total federal awards expended
Type B program - any program that doesn’t meet Type A requirement
AICPA Code of Professional Conduct: (“SPROID”)
* scope and nature of services principle
* public interest principle
* responsibilities principle
* objectivity & independence principle
* integrity principle
* due care principle
Scope and nature of services principle - “A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.”
Public interest principle - “Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism.”
Responsibilities principle - “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities”
Objectivity and Independence principle - “member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.”
Integrity principle - “To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.”
Due care principle - “A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.”
AICPA Code of Professional Conduct
Independence Rule
Steps
1) identify threats to independence
2) evaluate significance of threats, both individually and in aggregate
3) apply safeguards to eliminate or reduce threats
AICPA Code of Professional Conduct
Independence Rule
Adverse Threat (claim/litigation)
The threat that a member will not act with objectivity because the member’s interests are opposed to the client’s interests
1. The client has expressed an intention to commence litigation against the member
2. A client or officer, director, or significant shareholder of the client participates in litigation against the firm
3. A subrogee asserts a claim against the firm for recovery of insurance payments made to the client
4. A class action lawsuit is filed against the client and its officers and directors and the firm and its professional accountants
AICPA Code of Professional Conduct
Independence Rule
Advocacy Threat
The threat that a member will promote a client’s interests or position to the point that their objectivity or independence is compromised
1. A member provides forensic accounting services to a client in litigation or a dispute with third parties
2. A firm acts as an investment adviser for an officer, a director, or a 10 percent shareholder of a client
3. A firm underwrites or promotes a client’s shares
4. A firm acts as a registered agent for a client
5. A member endorses a client’s services or products
AICPA Code of Professional Conduct
Independence Rule
Familiarity Threat
The threat that, due to a long or close relationship with a client, a member will become too sympathetic to the client’s interests or too accepting of the client’s work or product
1. A member’s immediate family, close relative, or close friend is employed by the client
2. A former partner or professional employee joins the client in a key position and has knowledge of the firm’s policies and practices for the professional services engagement
3. Senior personnel have a long association with a client
4. A member has a significant close business relationship with an officer, a director, or a 10 percent shareholder of a client
AICPA Code of Professional Conduct
Independence Rule
Management Participation Threat
The threat that a member will take on the role of client management or otherwise assume management responsibilities, such as may occur during an engagement to provide nonattest services
AICPA Code of Professional Conduct
Independence Rule
Self-Interest Threat
The threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, a client or persons associated with the client
1. The member has a financial interest in a client, and the outcome of a professional services engagement may affect the fair value of that financial interest
2. The member’s spouse enters into employment negotiations with the client
3. A firm enters into a contingent fee arrangement for a tax refund claim that is not a predetermined fee
4. Excessive reliance exists on revenue from a single client
AICPA Code of Professional Conduct
Independence Rule
Self-Review Threat
The threat that a member will not appropriately evaluate the results of a previous judgment
made, or service performed or supervised by the member, and that the member will rely on that service in forming a judgment as part of another service
1. The member relies on the work product of the member’s firm
2. The member performs bookkeeping services for a client
3. A partner in the member’s office was associated with the client as an employee, an officer, a director, or a contractor