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AUD > Module 1 - Profession Responsibilities > Flashcards

Module 1 - Profession Responsibilities Flashcards

1
Q

AICPA - Issuers & Non-Issuers

A
  1. Issues Statements on Auditing Standards (SAS) (AU/AU-C)
  2. Issues Statements on Standards for Attestation Engagements (SSAE) (AT)
  3. Issues Statements on Standards for Accounting & Review Services (SSARS) (AR) for Compliations & Reviews
  4. ET - Ethics
  5. QC - Quality Control
  6. PFP - Personal Financial Statements
  7. CS - Consulting Services
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2
Q

US Government

A
  1. SEC
  2. SOX - Sarbanes Oxley
    - Set up PCAOB - Public Company Accounting Oversight Board
    - For Issuers
    - Two Main Jobs:
    1) Monitor CPA firms who audit issuers
    2) Issue standards for audit
  3. GAO
  4. DOL
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3
Q

IFAC - International Federation of Accountants

A
  1. IAASB - International Auditing Assurance Standards Board
    - Issue ISA - International Standards on Auditing
  2. IESBA - International Ethics Standards Board for Accountants
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4
Q

Independence Required for:

A
  1. Audits, Reviews, & Attestations
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5
Q

Independence Not Required for:

A
  1. Compliations (but must disclose if not dependent)

2. Tax & Consulting

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6
Q

Audits, Reviews, & Attestations are generically referred to as?

A

Attestation Engagements

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7
Q

The Code of Professional Conduct provides minimal levels of?

A

Acceptable conduct, but CPA firms may set the standard higher

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8
Q

ET Section 100.01 - Conceptual Framework of AICPA Independence Standards states what about Threats & Safegaurds (Pg 51 - Be familiar)?

A

Both threats & safeguards must be weighted together. If Threats outweigh Safeguards, then auditor is not independent. If Safeguards outweigh threats, then auditor is independent.

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9
Q

What falls under Interpretation 101-1 as Impaired Independence?

A
  1. Any Direct financial interest (Ex: Owning one share of a companies stock)
  2. Any Material Indirect financial interest (Not in control of the investor)
  3. Trustee of trust or administrator of estate that had or were to acquire a direct financial interest or material indirect interest in the client
  4. Had a joint closely held investment that was material to the covered member
  5. Except as permitted in 101-5, had any loan to or from the client, officer or director of the client or any individual owning 10% or more in the client’s outstanding equity securities
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10
Q

The stricted rules apply to Covered Members who would be?

A
  1. Members of the Attestation Team
  2. Individuals in a position of influence (Ex: A partner of the firm who will review the work of the auditor)
  3. Partner or manager who provided Non-Attest services of more than 10 hours per year to the audit client
  4. A partner in the office in which the lead attest engagement partner primarily practices
  5. The firm, including the firm’s employee benefit plan
  6. An entity whose operating, financial, or accounting polices can be controlled by anyone described in the above 1 - 5
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11
Q

Standard definition of Immediate Family where very strict rules apply?

A
  1. Spouse or Spouse Equivalent

2. Dependents

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12
Q

Standard definition of Close Relative where less strict rules apply?

A
  1. Siblings
  2. Non-dependent children
  3. Parents
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13
Q

According to AICPA Standards, when a CPA performs non-attest services for an attest client, two rules must be followed:

A
  1. The non-attest services must be summarized in an engagement letter
  2. CPA must be satisfied that the client can take responsibility for the non-attest services; if the client cannot take responsibility for these non-attest services, the CPA is essentially performing a management function which inhibits independence
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14
Q

According to AICPA Standards, general activites that can impair independence are (Pg 54)?

A
  1. Setting Policies for client
  2. Directing actions of client employees (except internal review)
  3. Authorizing or Executing transactions
  4. Preparing source documents
  5. Having custody of assets
  6. Deciding on recommendations
  7. Reporting to those charged with governance on behalf of management
  8. Accepting responsibility for managing a client’s project, preparing FS, or designing, implementing, or maintaining internal controls
  9. Serving as stock transfer agent, registrar, or general counsel
  10. Performing evaluations of internal controls as part of the companies monitoring activities
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15
Q

According to Interpretation 101-4, a CPA who is a member of a board is not independent except if firm is NFP and:

A
  1. CPA is an honorary member (basically using the CPA’s name, but the CPA does not attend meetings or make decisions)
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16
Q

Most of CPA Code of Ethics will apply to any function performed by a CPA except what?

A

Rule 101 - Independence which only only applies to Audit, Review, or Attestation functions

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17
Q

CPAs are to allow departure from GAAP without giving a qualified or adverse opinion only when what?

A

When the results would be misleading

Possible justifications are:

  • New Legislation
  • New form of business transaction
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18
Q

CPAs are not allowed to release client information without the client’s permission except for?

A
  1. If a material transaction is found that the client is unwilling to correct, it must be disclosed; if the client is still unwilling to allow disclosure, then the CPA must withdraw from the audit
  2. Enforceable subpoenas or summons
  3. AICPA review of professional practice
  4. Initiating complaint or responding to inquiry made by recognized investigative or disciplinary body
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19
Q

Contingent Fees or Commisions cannot be accepted for any professional sevices by a CPA or anyone in that CPAs firm that performs what services for a specific client:

A
  1. Audits or reviews FS
  2. Compilations
  3. Examinations of prospective financial information
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20
Q

A Client’s request for records depends on the nature of records and certain circumstances which are (any records withheld may only be withheld based on the present engagement and not a prior engagement):

A
  1. Original Records provided by the client must be returned when requested no matter what
  2. CPA Prepared records may be withheld until payment is made
    Ex: Adjusting Entries approved by Client
  3. CPA Work Products may be withheld due to:
    • Fees not paid
    • Work product is incomplete
    • Complying with professional standards
    • Litigation concerning CPA work
  4. CPA Working Papers are CPA’s property and need not be provided (the CPA may not disclose unless Court Ordered or Client provides permission)
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21
Q

CPAs may practice under what forms of business?

A
  1. Proprietorship
  2. Partnership
  3. Professional Corporation

***May not practice under a name that would be misleading
Ex: A & B form a partnership; A dies; B must change the name because it is no longer a partnership, but a sole proprietor
Ex: A, B, & C for a partnership; A dies; B & C do not have to change the name because they still have a partnership

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22
Q

Generally Accepted Auditing Standards deal with measures of what?

A

Quality of the performance of audit procedures

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23
Q

A Self Review Threat means what?

A

An audit team member should not reveiw their own work

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24
Q

If two standards apply to a situation, which standard is supreme?

A

Which ever standard is more strict

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25
Q

The word “Auditor” is only used in what type of engagement?

A

An Audit

26
Q

Types of Consulting Services: Consultations

A

Short time frame, usually based on personal knowledge of the client

Ex: Reviewing a business plan or software usage needs

27
Q

Types of Consulting Services: Advisory Services

A

Develop findings, conclusions, & recommendations

Ex: Operational review; Improvement Study; Analysis of Accounting System; Strategic Planning Assistance

28
Q

Types of Consulting Services: Implementation Services

A

Place a plan of action into effect

Ex: Installing & supporting a computer system

29
Q

Types of Consulting Services: Transaction Services

A

Provide services related to a specific client transaction usually invovling a third party

Ex: Valuation Services; Litigation Services; Analysis of possible Merger/Acquisition

30
Q

Types of Consulting Services: Staff & Other Support Services

A

Provide appropriate staff and possibly other support tasks to support client

Ex: Controllership Activities; Bankruptcy Trusteeship; Computer Programming; Data Processing Facilities Management

31
Q

Types of Consulting Services: Product Services

A

Provide Client with a product & associated support services

Ex: Sale, delivery, installation, & implementation of training programs; computer software & systems development

32
Q

Standards for Consulting

A
  1. Statements on Standards for Consulting Services (SSCS)
  2. Rule 201 - General Standards
    • Professional Competance
    • Due Professional Care
    • Planning & Supervision
    • Sufficient Relevant Data
  3. Rule 202
    • Client Interest - Integrity & Objectivity
    • Understanding with Client (either orally or written)
    • Communication with Client (must inform client of any conflicts of interest, reservations, or significant findings)
33
Q

Personal Financial Planning involve what tasks?

A
  1. Defining engagement objectives
  2. Planning specific procedures appropriate to engagement
  3. Developing basis for recommendations
  4. Communicating recommendations to client
  5. Identifying tasks for taking action on planning decisions
34
Q

Other Non Personal Financial Planning Engagements that a CPA may offer that relate to PFP are?

A
  1. Assisting client to take action on planning decisions
  2. Monitoring clients progress in achieving goals
  3. Updating recommendations and helping client revise planning decisions
35
Q

Under PCAOB, these functions cannot legally be performed by an issuer’s CPA firm:

A
  1. Bookkeeping
  2. Financial Information Systems design or implementation
  3. Appraisal Services
  4. Internal Audit
  5. Mangement Functions
  6. Actuarial Services
  7. Investment or Broker/Dealer Services
  8. Certain Tax Services such as Tax Planning for potentially abusive tax shelters
36
Q

Under PCAOB, Internal Controls are the responsibility of?

A
  1. Management’s responsibility to establish adequate internal controls
  2. Management must asses it’s internal controls
  3. The CPA firm must attest to managment’s assessment of internal controls (FS & IC may be in a single report or may be reported separately)
37
Q

SEC requires an Audit on FS & IC for an issuer when? Review when?

A

At the end of every fiscal year

Quarterly

38
Q

Are Non-Issuer’s required to have FS or IC audits?

A

No; unless a third party (such as a bank) requires an audit before engaging in business

39
Q

International Ethics Standards Board for Accountants (IESBA) is a standard setting body within the International Federation of Accountants (IFAC) which code is broken down into three parts:

A

Part A - Framework which applies to all professional accountants

  • Integrity
  • Objectivity
  • Professional Competance & Due Care
  • Confidentiality
  • Professional Behavior

Part B - Applies to professional accountants in public practice

  • Threats & Safeguards
  • Professional Appointments
  • Conflicts of Interest
  • Second Opinions
  • Fees & Commisions
  • Marketing Professional Service
  • Gifts & Hospitalities
  • Custody of Client Assets
  • Objectivity - All Services
  • Independence

Part C - Applies to professional accountants in business

  • Potential Conflicts
  • Preparation & reporting information
  • Acting with sufficient expertise
  • Financial Interests
  • Inducements
40
Q

What is the difference between AICPA & International independence ethics rules?

A

International have fewer definitive prohibitions

41
Q

What are substantive differences between the International Auditing & Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) & PCAOB?

A
  1. IAASB do not require an audit of IC
  2. IAASB do not allow refernce to other audit firms involved in the audit process
  3. IAASB are less detailed and require more professional judgement
  4. As far as Going Concern,
    • IAASB include time horizon of at least but not limited to 12 months
    • PCAOB include time horizon of up to 12 months
42
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding Compliance with GAAS?

A

IAASB: Auditors comply with requirements except in exceptional circumstances

PCAOB: Three responsibility levels for compliance

  1. Unconditional
  2. Presumptively Mandatory
  3. Responsiblity to Consider

AICPA: Two responsibility levels for compliance

  1. Unconditional
  2. Presumptibely Mandatory
43
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding CONFIRMATION OF A/R?

A

IAASB: Not required

PCAOB: Presumptively Required unless immaterial

44
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding FRAUD DEFINITION?

A

IAASB: The use of deception to obtain an unjust or illegal advantage

PCAOB: An intentional act that results in a material misstatement in FS that are the subject of an audit

45
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding FRAUD?

A

IAASB: Management should report to the auditor the risk of fraud

PCAOB: Not required

46
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding USE OF THE WORK OF INTERNAL AUDITORS?

A

IAASB: Auditors evaluate internal auditor objectivity, competence, & work performance before using their work

PCAOB: Auditors must determine that internal audit used a systematic & disciplined approach including QC

47
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding SENDING LETTER OF AUDIT INQUIRY TO LAWYERS?

A

IAASB: Only required when an auditor assesses a risk of material misstatement

PCAOB: Presumptively Required

48
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding OPINION ON FS?

A

IAASB: Audit opinion may be either 1) the Fair Presentation of the FS or 2) that the FS give a True & Fair View

49
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding AUDIT REPORT MODIFICATIONS FOR CONSISTENCY RELATED TO CHANGES IN ACCOUNTING PRINCIPLE?

A

IAASB: Not required

PCAOB: Modified for changes in Accounting Principle that have a material affect

50
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding THE LOCATION THE AUDITOR PRACTICES IN THE AUDIT REPORT?

A

IAASB: Required

PCAOB: Not Required

51
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding DATING THE AUDIT REPORT FOR A SUBSEQUENT EVENT?

A

IAASB: Change the date on the audit report

PCAOB: Auditors may dual date

52
Q

Non-Substantive differences between IAASB of IFAC & PCAOB regarding COMMUNICATIONS TO THOSE CHARGED WITH GOVERNANCE?

A

IAASB: Addressed specifically to those charged with governance or management, but does not place a restriction on use to these parties; significant deficiences identified

PCAOB: Restriction of use placed on those charged with governance and management; IC defeciences divided into two categories:

  1. Significant Deficiences
  2. Material Weaknesses
53
Q

Independence defined:

A
  1. Of Mind

2. Of Appearance

54
Q

Risk of Material Misstatement defined:

A

Risk that FS are materially misstated prior to the audit; consists of two components:

  1. Inherent Risk
  2. Control Risk
55
Q

Under PCAOB, audit working papers must be kept how long?

A

7 years unless state laws require a higher number

56
Q

Under PCAOB, the audit partner in charge and the second partner who reviews may only perform that role for that company for how long?

A

5 years

57
Q

Under PCAOB, an engagement that focuses more on QC will be referred to as what?

A

An Inspection

58
Q

PCAOB Board is made up how?

A

5 members
2 CPAs
3 Non-CPAs

59
Q

The PCAOBs report in a CPA Firm that audits Issuers is mostly available to the public except for which part?

A

Quality Control section

60
Q

GAO describe what three types of impairments of independence?

A
  1. Personal
  2. Organizational
  3. External

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