Final Review I Flashcards
What should the auditor consider in the firms acceptance and continuance policies?
- Firms ability to meet reporting deadlines
- Firms ability to staff the engagement
- Independence
- Integrity of client management
What preconditions should the auditor look for before accepting the audit?
Whether Financial Reporting Framework is acceptable
&
Management understands its Responsibilities
What are management responsibilities the auditor should look for before accepting an engagement?
Auditor should obtain an agreement from management that they are responsible for:
- Prep and fair presentation of financials
- Design Implementation and maintenance of internal controls
- will provide auditor with information needed
- unrestricted access to ppl in company
What should the current auditor ask predecessor auditor before starting the engagement?
- Management integrity
- Disagreements with predecessor auditor
- Reason for change in auditors
- Any fraud or non compliance
- Fee payment problems
What should a auditor on a new engagement check before starting
- If opening balances contain misstatements
- If accounting policies in opening balances have been consistently applied
Does the current year auditor look at the predecessor auditors auditor documentation?
Yes
Current year auditor asks mgmt to review PY auditor:
-Planning documentation
-Risk assessment procedures
-Further audit procedures
-Audit results
-Matters of continuing accounting and audit significance
What should the written engagement letter include?
- Objective of the Audit
- Managements responsibilities
- Auditor responsibilities
- limitations of engagement
- Identification of applicable financial reporting framework
- reference to expected form and content of any reports
- Auditor should consider if terms of engagement should be revised
When is audit documentation required to be assembled by? public companies
assembled within 45 days
When is audit documentation required to be assembled by? nonpublic companies
assembled within 60 days
How long is audit documentation kept for a public company?
7 years
How long is audit documentation kept for non public company?
5 years
When can audit documentation be disclosed without the client permission?
- Quality review program
- Subpoena
- Investigation conducted by AICPA
What are those charged with governance responsible for?
oversee the obligations and strategic direction of an entity including BoD and audit committee
Who are the members of an audit committee?
- members of the board of directors
- 3-5 outside directors that do not have a material financial interest in the company
- NOT mgmt NOT employees
What do audit committee functions include?
- Establishing the control environment
- Selecting and appointing the independent auditor
- Reviewing the quality of the auditors work
- Reviewing the scope of the audit
- Responding to any auditor recommendations
- helping resolve disagreements
- bridge b/w BoD and the auditor
What are the matters related to auditors responsibility that the auditor should communicate with those charged with governance?
- Matters related to auditors responsibility
- Planned scope and timing of the audit
- Significant Audit findings
What are matters related to auditors responsibility?
- auditor is responsible for expressing an opinion, following GAAS, communicating significant matters
- Internal control is considered as part of planning the audit
- an audit does not relieve management or those changed with governance of their responsibilities
What may the auditor communicate with those charged with governance about planned scope and timing of audit?
Auditor may communicate
- significant risk of material missatements will be addressed, use of internal audit staff, factors affecting materiality
- solicit information about entitys objectives, strategies, and risks that auditor should pay attention to
- attitides, awareness, and actions of governance
What significant audit findings should auditor communicate?
- difficulties encountered and disagreements with mgmt
- uncorrected and nontrivial misstatements
What are some additional requirements for auditors to communicate with those charged with governance for issuers
- Critical accounting policies
- all material alternative GAAP accounting treatments
- other material communications
- discuss and provide draft of auditors report
What is the auditor responsible for communication of internal control during a financial statement audit?
auditor is not required to search for deficiencies that are less severe than a material weakness or to express an opinion on internal control
What deficiencies should an auditor communicate when doing a financial statement audit
- significant deficiencies and material weaknesses must be communicated in writing to mgmt and those charged with governance within 60 days of the report release date
- previously communicated significant deficiencies and material weaknesses that have not been corrected should be communicated again
- communicate to mgmt only, in writing or orally other deficiencies identified during the audit
- auditor may not report the absence of sig deficiencies but may report on the absence of material weaknesses
When is independence required?
Audit and attestations
NOT required for compilations, consulting services, and tax work
When is independence impaired for a CPA?
- Cpa has financial interest regardless of materality
- audit fees remain unpaid for more than 1 year prior to the issuance of the current audit report
- CPA has mgmt position with a client or is employee, spouse cannot hold a mgmt position
- CPA makes hiring decision for a client
- Litigation if material
When is independence not impaired?
- bank client by a checking account that is fully insured
- fully collateralized loan
What is the objectivity rule?
- all engagements must be performed with objectivity and integrity
- free of conflict of interest
What is due professional care?
CPA must exercise the same skill a reasonably prudent accountant would. CPA must critically review the work done by others
What is the contingent fees rule?
not allowed to perform work based on a specific result
What is the Acts Discreditable rule
- retaining client records after the client has demanded the records be returned
- discrimination
- failure to follow standards
- negligently making false JE’s
- failure to timely file tax returns
- soliciting or disclosing CPA exam questions
- false claims about members professional services
- disclosure of confidential information
What are the threats to compliance?
- Adverse interest
- Advocacy
- Familiarity threat
- Mgmt participation
- self interest
- self review
- undue influence
What is adverse threat
members interest are opposed to the interest of the client or employing organization
what is advocacy threat
will promote the interest of the client or employing organization to the point that CPA’s objectivity or independence as applicable is compromised
what is familiarity threat
long or close relationship with the client will make the member too accepting or sympathetic
what is mgmt participation threat
take on the role of client mgmt or otherwise assume mgmt responsibilities
what is self interest threat
member could benefit financially from relationship with a client
what is self review threat
member will not appropiately evaluate the results of the previous judgement made or service performed or supervised
what is undue influence threat
member will subordinate his or her judgement to an individual associated with a client due to that individuals reputation
how often must the partner rotate off the audit
every five years
What must the auditor report to the audit committees of audited corporations?
- critical acct policies used
- alternative accounting treatments
- material written communications between auditor and mgmt
What independent requirements does the department of labor have for CPA’s?
must be independent when auditing and rendering an opinion on ERISA information
What impairs independence with regard to employee benefit plans?
- financial interest (regardless of materiality)
- connection to the plan or plan sponsor
- accountant or member or accounting firm maintains financial records for ee benefit plan
What are the independence requirements for GAGAS
- ID necessary threats to independence
- Eval the significance of threats identified both individually and in the aggregate
- apply safeguards to eliminate the threats
What are the GAGAS threats to independence?
- self interest
- self review
- bias
- familiarity
- undue influence
- mgmt participation
- structural
What are safeguards ?
-controls designed to elim or reduce an acceptable level threat to independence
How should auditor evaluate non audit services?
consider whether they pose a threat to independence?
What are the components of a quality control system?
HELP ME
HR Engagement/Client Acceptance Leadership Engagement Performance Monitoring Ethical Req.
