First 30

Question 1

PCAOB Responsibilities

Answer 1

• conducting inspections of registered accounting firms
• overseeing the registration of public accounting firms
• Issuing auditing standards that must be followed by registered public accounting firms in auditing the financial statements of issuers.

NOT an accounting standard body

Question 2

inspection by PCAOB

Answer 2

more than 100 issuers: inspected annually

less than 100 issuers: every 3 years

Question 3

How long can someone serve as an engagement partner or review partner before mandatory rotation is required?

Answer 3

5 years

Question 4

Auditing Standard #1 Modifications

Answer 4

• Changed the title of the report from “Independent Auditor’s Report” to “Report of the Independent Registered Public Accounting Firm.”
• Replaced the reference to “auditing standards generally accepted in the United States of America” with reference to “the standards of the Public Company Accounting Oversight Board (United States).”
• Added a requirement that registered public accounting firms specify their city and state (or country, as applicable) along with their signature and date of the audit report.

Question 5

Auditing Standard #3

Answer 5

-explicitly allows auditors to make appropriate reference to matters documented at a “central repository” (independence issues, staffing training matters, client acceptance/retention issues)

Question 6

Audit documentation must be documented for at least how many years?

Answer 6

7 years ( AU 3)- everything can be added after the release date but nothing can be deleted

Question 7

For public companies, how many days does it take to assemble audit documentation after the release date?

Answer 7

45 days (AU 3)

Question 8

According to AU 4 what is a “stated control objective”?

Answer 8

it is the specific control objective that is identified by management; when achieved would result in material weakness no longer existing

Question 9

What level helps determine if a material weakness exists?

Answer 9

financial statement level (AU 4)

Question 10

What opinion would be issued to determine if a previous material weakness continues to exist? (according to AU 4 this is not required; only material weaknesses need to be reported to the audit committee and management)

Answer 10

unqualified opinion or a disclaimer

Question 11

Requirement of AU 4

Answer 11

A statement of management’s responsibility for establishing and maintaining effective internal control over financial reporting.

A statement that identifies the material weakness previously identified as part of management’s annual assessment (or the auditor’s report on it).

A statement that the specified controls achieve the stated control objectives as of a specified date.

Question 12

Testing Design Effectiveness

Answer 12

inquiry, observation and inspection of relevant documentation.

Question 13

Testing Operating Effectiveness.”

Answer 13

inquiry, observation and inspection of relevant documentation and reperformance of the control procedure

Question 14

When there are separate reports on internal controls and f/s over f/r then what is required by PCAOB?

Answer 14

each report should include a paragraph that references the other related report

Question 15

Walkthroughs

Answer 15

inquiry, observation. inspection and documentation, and reperformance (confirmation is a substantive audit procedure)

Question 16

Deficiency in Design

Answer 16

When a control necessary to meet the control objective is missing or when an existing control is not properly designed so that, even if the control operates as designed, the control objective is not always met.

Question 17

What type of opinion should be issued if more than one material weakness is found in internal control?

Answer 17

adverse opinion

Question 18

Top Down Approach

Answer 18

Directs auditors to begin their study of internal control at the f/s level and the overall risks to internal control over f/r, then consider “entity-level” controls, followed by focusing on the relevant assertions for significant accounts and disclosures

Question 19

Entity Level Controls

Answer 19

those policies and procedures that have very broad implications to the achievement of an entity’s control-related objectives related to operating activities, financial reporting, and compliance.

Question 20

What opinion is a GAAP Departure?

Answer 20

qualified or adverse opinion

Question 21

How do you know there is a GAAP departure in a change of accounting principal?

Answer 21

When there is a change in accounting principle, the auditor should evaluate whether

(1) the newly adopted principle is GAAP;
(2) the method of accounting for the effect of the change conforms to GAAP;
(3) the disclosures related to the change are adequate; and
(4) the company has justified that the alternative accounting principle is preferable.
eg. management accounting estimates were unreasonable

If one (or more) of the above criteria is (are) not met, the auditor should treat the matter, if material, as a GAAP departure, which involves a choice between a qualified opinion and an adverse opinion.

Question 22

An explanatory paragraph should be added for what two reasons?

Answer 22

1) change in accounting principle

2) adjustment to correct a mm in previously issued f/s

Question 23

“Significant Engagement Deficiency”

Answer 23

(1) the engagement team failed to obtain sufficient appropriate evidence;
(2) the engagement team reached an inappropriate overall conclusion;
(3) the engagement report is not appropriate; or
(4) the firm is not independent of its client.

Question 24

Difference between PCAOB and SQCS (Statement on Quality Control Standards)

Answer 24

PCAOB

• requires engagement quality review
• require “cooling off” period of 2 years before engagement partner can serve as a reviewer
• require concurring approval of issuance before report is released

SQSC

• no engagement quality review
• no cooling off
• no approval needed

Question 25

How should an engagement quality reviewer evaluate judgments and conclusions by audit team?

Answer 25

(1) hold discussions with the engagement partner and other members of the engagement team; and
(2) reviewing the engagement’s audit documentation.

Question 26

What do you call an individual outside of the public accounting firm?

Answer 26

associated person (who receives compensation if he/she does quality review)

Question 27

Supplemental Information

Answer 27

Information that a company voluntarily presents on its web site is outside

Supporting schedules that brokers and dealers are required to file with the Securities and Exchange Commission.

Information outside of the financial statements that is derived from the entity’s accounting records, which is covered by the auditor’s report in relation to financial statements audited under PCAOB auditing standards.

Information that is required to be presented under the rules of a regulatory authority, which is covered by the auditor’s report in relation to financial statements audited under PCAOB auditing standards.