Sarbanes Oxley Act of 2002 Flashcards
What are the 5 primary responsibilities of the PCAOB?
- Registration of public accounting firms - that audit U.S issuers
- Inspections of registered accounting firms
- firms audit > 100 issuers - annual inspection
- firms audit =< 100 issuers - inspect triennially
- Standard setting
- Enforcement
- investigate - may revoke frim registration or bar person from participating, invoke monetary penalties, take remedial measures (training or quality control procedures)
- Funding - registration fees and an annual accounting support fee assesed on issuers
What is Title I of SOX?
- Established PCAOB
- gave standard setting authority and
- created its role
Whta is Title II of SOX?
- Established indpendence requirements for external auditors
- Limits non-audit services (except tax, and if approved by audit commitee and properly disclosed)
- establishes 5 year rotation for the audit partner and review partner
- restricting memeber from taking key positions (FOFR) during the one year preceding the engagement
What is Title III of SOX?
established requirements related to corporate responsibility for the accuracy of financial reporting, and makes in illegal for managementto influence the conduct of an audit
What is Title IV of SOX?
addressed required internal control reporting
What changes did the PCAOB make to the auditor’s report? (article 1)
- Replaced Title - “Independent Auditor’s Report” with “Report of Independent Registered Public Accounting Firm”
- In scope paragraph - “auditing standards generally accepted in the United States of America is replaced with “the standards of the Public Company Accounting Oversight Board”
- In opinion paragraph - “accounting principles generally accepted in the uSA” is replaced with “ U.S generally accepted accounting principles”
- Signature - Required firms to add their city and state with their signiture
What documentation does Article 3 require?
- Demonstrate compliance with PCAOB standards
- Support basis for conclusion
- demonstrate reconciliation of underlying docs to financial statements
- document all procedures and all significant findings or issues in an engagement completion document
- Retain working papers for 7 years fom report release date
- complete and final documentation delievered no later than 45 days after report release (This is the doc completion date)
- can’t delete docs - but can add - give name date and why
What are the conditions for reporting on whether a previously reported material weakness continues to exist/
- Management
- accepts responsibility for effectiveness of internal control over financial reporting
- evaluates the new control using same criteria used to evaluate old weak control
- asserts the new control is effective
- supports assrtion with evidence
- presents written report stating responsibility, the control criteria, idenifying the weakness, the control objective, and stating that the weakness no longer exists
What 4 things should an auditor evaluate when there isa change of accountign principle?
- is the new principle GAAP?
- is the method of accounting for the change GAAP?
- are the disclosures related to the change GAAP?
- has the company justified that the new accounting principle is preferable?
How does the auditor handle changes in accounting principle/estimate once the 4 criteria has been met?
add an explanatory paragrah
if the criteria have not been met - modify the report
What are the 8 risk assesment standards issued by the PCAOB?
*These apply to the integrated audit of issuers*
- Audit Risk - conduct in manner that reduces risk to reasonably low levels (financial statement and assrtions level
- Audit Planning - engagement partner is responsible
- Supervision - extent correlates with underlying risk of RMM (engagement partner responsible)
- Consideration of materiality - apply to planning and performing appropiately
- Identifying and Assessing RMM - - basis for designing further audit procedures (top down approach)
- Auditor response to RMM - staffing, extent of supervision, unpredictable procedures (nature, tiing, and extent), etc.
- Evaluating Audit Results - is the evidence sufficient and appropriate?
- Audit evidence - plan and perform to et sufficient and appropriate evidence to support conclusions (assertions)
What are the 5 assertions related to audit evidence?
- Existance
- Completeness
- Rights and Obligations
- Valuation and Allocation
- Presentation and Disclosure
Primary differences between AICPA standards and PCAOB?
- PCAOB - intergrated audit, AICPA - financial statement audit
- PCAOB - 8 standards (more specific), AICPA - standards
- PCAOB focused on 5 traditional F/S assertions, AICPA focused on 13 in 3 categories
