Professional Standards

Question 1

Generally Accepted Auditing Standards

Answer 1

“GAAS”

Question 2

Generally Accepted Govt. Auditing Standards

Answer 2

“GAGAAS”

Question 3

Public Co. Accounting Oversight Board

established by SOX Act of 2002

Answer 3

PCAOB

Required when auditing an “issuer” (public company)

Question 4

“Issuer”

Answer 4

A publically traded company, subject to the rules of the SEC.

Question 5

ASB = Accounting Standards Board

Answer 5

PCAOB adopted their standards for issuers. ASB retains the authority to set performance and reporting standards for audits of financial statements of NONISSUERS.

Question 6

International Standards on Auditing

Answer 6

IAASB=International Auditing and Assurance Stds. Board
Is a standards setting board of IFAC (International Federation of Accountants). Establishes International Standards on Auditing (ISA).

Question 7

Sarbanes Oxley Act of 2002 (SOX)

Answer 7

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.

Question 8

IFAC Code of Ethics for Professional Accountants

Answer 8

International Federation of Accountants (IFAC) has the International Ethics Standards Board for Accountants (IESBA).

Question 9

Auditing Guidance: The GAAS Hierarchy

Answer 9

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.

Question 10

Interpretive Publications

Answer 10

Recommendations regarding how SAS’s should be adopted in specific situations. They are NOT considered auditing standards.

Question 11

Interpretive Publications - include:
auditing interpretations of GAAS
exhibits to GAAAS
AICPA-Audit & Accounting Guides-auditing guidance
AICPA-Statements of Position (SOP)

Answer 11

Recommendations regarding how SAS’s should be adopted in specific situations. They are NOT considered auditing standards.

Question 12

Other Auditing Publications-have not authoritative status but may be helpful to auditor.

Answer 12

Articles in the Journal of Accountancy (or other prof jrnls)
Articles in the AICPA CPA Letter
Continuing professional education materials, books etc.

Question 13

Overall Objects

Answer 13

1. Get reasonable assurance

2. To report on the financial statements

Question 14

Conduct of the Audit

Answer 14

1. Professional Skepticism - things match, reconcile, etc
2. Ethical Requirements
3. Professional Judgment
4. Sufficient Appropriate Audit Evidence & Audit Risk
5. Compliance with GAAS

Question 15

Professional Skepticism

Answer 15

Recognition that circumstances may exist that cause the financial statements to materially misstated. Be alert for:

1. Contradictory audit evidence
2. Info that calls into question the reliability of documents & responses.
3. Conditions that indicate possible fraud
4. Circumstances that suggest the need for audit procedures in addition to those required by GAAS.

Question 16

Conditions that indicate possible fraud

Answer 16

Perfect Conditions for Fraud:

Pressure
Opportunity (perceived)
Rationalization

Question 17

Ethical Requirements

Answer 17

Must be Independent in Both Fact and Appearance

Otherwise must give a disclaimer of opinion

Question 18

Professional Judgment is necessary in an audit

Answer 18

Auditor must exercise prof. judgment in planning & performing the audit:

1. Materiality - is it 1%, 2%, etc.
2. Audit Risk
3. Nature, Extent & Timing of Audit Procedures (NET)
4. Evaluate if sufficient, appropriate evidence is obtained
5. Evaluate mgmt.’s judgment in applying financial reporting framework
6. Draw conclusions from the audit evidence obtained

Question 19

Sufficient Appropriate Audit Evidence & Audit Risk

Answer 19

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!

Question 20

Compliance with GAAS

Answer 20

Auditing Standards issued by PCAOB (issuers)
International Standards on Auditing
Government Auditing Standards (GAGAAS)
Auditing Standards of a specific jurisdiction or country.

Question 21

General GAAS requirements for the conduct of the audit

Answer 21

1. Professional Skepticism
2. Ethical Requirements
3. Professional Judgement
4. Sufficient Appropriate Audit Evidence for Audit Risk
5. Compliance with GAAS