Professional Standards Flashcards
Generally Accepted Auditing Standards
“GAAS”
Generally Accepted Govt. Auditing Standards
“GAGAAS”
Public Co. Accounting Oversight Board
established by SOX Act of 2002
PCAOB
Required when auditing an “issuer” (public company)
“Issuer”
A publically traded company, subject to the rules of the SEC.
ASB = Accounting Standards Board
PCAOB adopted their standards for issuers. ASB retains the authority to set performance and reporting standards for audits of financial statements of NONISSUERS.
International Standards on Auditing
IAASB=International Auditing and Assurance Stds. Board
Is a standards setting board of IFAC (International Federation of Accountants). Establishes International Standards on Auditing (ISA).
Sarbanes Oxley Act of 2002 (SOX)
Congress passed SOX in 2002 in the wake of Enron and WorldCom collapse and restatements of financial statements of a # of other SEC reporting companies.
IFAC Code of Ethics for Professional Accountants
International Federation of Accountants (IFAC) has the International Ethics Standards Board for Accountants (IESBA).
Auditing Guidance: The GAAS Hierarchy
In the US Auditors required to comply with:
SAS’s published by the Auditing Standards Board for NONISSUERS.
PCAOB Auditing Standards for audits of ISSUERS.
Interpretive Publications
Recommendations regarding how SAS’s should be adopted in specific situations. They are NOT considered auditing standards.
Interpretive Publications - include: auditing interpretations of GAAS exhibits to GAAAS AICPA-Audit & Accounting Guides-auditing guidance AICPA-Statements of Position (SOP)
Recommendations regarding how SAS’s should be adopted in specific situations. They are NOT considered auditing standards.
Other Auditing Publications-have not authoritative status but may be helpful to auditor.
Articles in the Journal of Accountancy (or other prof jrnls)
Articles in the AICPA CPA Letter
Continuing professional education materials, books etc.
Overall Objects
- Get reasonable assurance
2. To report on the financial statements
Conduct of the Audit
- Professional Skepticism - things match, reconcile, etc
- Ethical Requirements
- Professional Judgment
- Sufficient Appropriate Audit Evidence & Audit Risk
- Compliance with GAAS
Professional Skepticism
Recognition that circumstances may exist that cause the financial statements to materially misstated. Be alert for:
- Contradictory audit evidence
- Info that calls into question the reliability of documents & responses.
- Conditions that indicate possible fraud
- Circumstances that suggest the need for audit procedures in addition to those required by GAAS.
Conditions that indicate possible fraud
Perfect Conditions for Fraud:
Pressure
Opportunity (perceived)
Rationalization
Ethical Requirements
Must be Independent in Both Fact and Appearance
Otherwise must give a disclaimer of opinion
Professional Judgment is necessary in an audit
Auditor must exercise prof. judgment in planning & performing the audit:
- Materiality - is it 1%, 2%, etc.
- Audit Risk
- Nature, Extent & Timing of Audit Procedures (NET)
- Evaluate if sufficient, appropriate evidence is obtained
- Evaluate mgmt.’s judgment in applying financial reporting framework
- Draw conclusions from the audit evidence obtained
Sufficient Appropriate Audit Evidence & Audit Risk
Exam Trick:
Weak Internal Control DOES NOT = an Adverse Opinion
(Just means you can’t RELY on their internal control - will have to look at them closer). They may indeed be Correct, you just have to look at them closer. It’s just More Work!
Compliance with GAAS
Auditing Standards issued by PCAOB (issuers)
International Standards on Auditing
Government Auditing Standards (GAGAAS)
Auditing Standards of a specific jurisdiction or country.
General GAAS requirements for the conduct of the audit
- Professional Skepticism
- Ethical Requirements
- Professional Judgement
- Sufficient Appropriate Audit Evidence for Audit Risk
- Compliance with GAAS
