Sarbanes Oxley Act of 2002 Flashcards
Under the Sarbanes-Oxley Act of 2002, which of the following is not a stated responsibility of the Public Company Accounting Oversight Board?
Issuing accounting standards that must be followed by issuers in financial reporting.
The PCAOB is a “standard-setting body” for certain matters related to registered public accounting firms (including auditing and quality control, among other matters). However, the PCAOB is not an “accounting” standard-setting body and does not promulgate GAAP affecting the financial statements of issuers.
The PCAOB issued Auditing Standard #3 to specify the documentation requirements related to audits of public companies. The PCAOB documentation requirements include all of the following, except
All documentation related to client acceptance/retention issues must be maintained at the office primarily responsible for the engagement, so the auditor is prohibited from referring to any materials that might be held at a central repository, such as a national office.
AS #3 explicitly permits auditors to make appropriate reference to matters documented at a “central repository” (such as independence issues, staffing training matters, and client acceptance/retention issues).
One of the conditions required for an auditor to report on whether a previously reported material weakness continues to exist is that management presents an appropriate written report to accompany the auditor’s report. Which of the following is not one of the elements of management’s report as required by PCAOB auditing standards?
A statement that identified the materiality threshold used in determining what constitutes a material weakness.
AS #4 does not include any requirement that management’s report discuss the materiality threshold used in determining what is a “material” weakness.
According to PCAOB auditing standards, which of the following is not ordinarily considered an indicator of a “material weakness” in internal control over financial reporting?
The issuer has engaged in material transactions with related party entities.
AS #5 (paragraph 69) specifically identifies A - C as conditions that would indicate a material weakness. There is nothing inherently inappropriate about related party transactions.
When there is a change in accounting principle, the auditor should evaluate whether all of the following criteria have been met, except for whether
The change has been authorized by those charged with governance.
When there is a change in accounting principle, the auditor is required to evaluate 4 matters: (1) whether the newly adopted principle is GAAP; (2) whether the method of accounting for the effect of the change conforms to GAAP; (3) whether the disclosures related to the change are adequate; and (4) whether the company has justified that the alternative accounting principle is GAAP. Hence, it is not true to suggest that the change must be authorized by those charged with governance.
An auditor should ordinarily add an explanatory paragraph to the auditor’s report to identify a material matter related to
A change in accounting principle caused by the issuance of a new authoritative accounting standard that rendered the principle previously used no longer generally accepted.
PCAOB Auditing Standard No. 6 identifies 2 specific matters that affect the auditor’s evaluation of consistency of financial statements: (1) a change in accounting principle; and (2) an adjustment to correct a misstatement in previously issued financial statements (i.e., a “restatement”). A change in accounting principle may be at management’s discretion or it may be mandated by a change in accounting standards that eliminates an accounting alternative that was previously accepted, but no longer is.
PCAOB Auditing Standard No. 12, “Identifying and Assessing Risks of Material Misstatement,” states that the auditor should perform all of the following as risk assessment procedures, except for
Incorporating a degree of unpredictability in planned audit procedures.
The auditor should incorporate a degree of unpredictability in planning audit procedures, but this is considered an “overall response” to the risks of material misstatement, not a “risk assessment procedure.”
Each of the following is identified by both the PCAOB risk assessment standards and the AICPA risk assessment standards as an assertion to be specifically addressed by the auditor, except for
Presentation and disclosure.
The PCAOB identified “presentation and disclosure” as an assertion, whereas the AICPA standards (SAS No. 106, “Audit Evidence”) identified “presentation and disclosure” as a separate category of assertions consisting of 4 separate, specific assertions: (1) occurrence and rights and obligations; (2) completeness; (3) classification and understandability; and (4) accuracy and valuation.
The definition of “supplemental information” under PCAOB Auditing Standard No. 17 includes all of the following, except for
A public company’s sustainability report consisting of a variety of financial and nonfinancial measures of performance, which is made available to readers on the entity’s web site.
Information that a company voluntarily presents on its web site is outside the PCAOB’s definition of “supplemental information.” As a practical matter, sustainability reports are not required, nor is third-party assurance on sustainability required.
The auditor’s report on supplemental information should include a statement about each of the following, except for
A statement that the methods of measurement and presentation have not changed from those used in the prior period.
The auditor should obtain management’s representation that the methods of measurement or presentation have not changed from those used in the prior period. However, the auditor’s report does not include such a statement.
