Spec Aud 1 Flashcards
A systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and
events to ascertain the degree of correspondence between those
assertions and established criteria and communicating the
results to interested
Financial Statement Audit
It is a unique function that is
licensed by the government to promote the
effective functioning of the capital markets.
But that unique license comes with a
price—accountability and responsibility to
the public
Auditing
The organizational hierarchy of CPA firms has most
often taken a pyramidal structure:
– Partners (or owners) form the top of the pyramid and are
responsible for the overall conduct of each audit
– Managers, who review the audit work performed by staff
personnel (the base of the pyramid)
– Seniors are responsible for overseeing the day-to-day
activities on a specific
– Staff personnel typically spend two to four years at a staff
level, after which they assume increasing supervisory
responsibilities
PCAOB
Public Company Accounting Oversight Board (PCAOB)
IAASB
International Auditing and Assurance Standards Board
(IAASB)
COSO
Committee of Sponsoring Organizations (COSO)
Accounting Standard Setters:
– Generally accepted accounting principles (GAAP) set by Financial
Accounting Standards Board (FASB), with approval by the Securities
and Exchange Commission (SEC)
– International Financial Reporting Standards (IFRS) set by the
International Accounting Standards Board (IASB)
Ten standards that fall within three categories:
– General standards—applicable to the auditor and audit firm
– Fieldwork standards—applicable to the conduct of the audit
– Reporting standards—applicable to communicating the auditor’s
opinion
The ten standards were developed by the…
The ten standards were developed by the ASB of the AICPA
and have been adopted by the PCAOB
Principles Governing an Audit
Conducted in Accordance GAAS
• In place of the ten standards, the AICPA has
now developed fundamental principles in four
categories
– Purpose of an Audit and Premise Upon Which an
Audit Is Conducted
– Responsibilities
– Performance
– Reporting
The Audit Opinion
Formulation Process
• Phases I and II: Making Client Decisions and Gaining an
Understanding of the Client
• Phases III and IV: Obtaining Evidence
– Management Assertions
– Audit Procedures to Test Assertions
• Phase V: Wrapping Up the Audit and Making Reporting
Decisions
It is an “independent
professional services that improve the quality of
information, or its context, for decision makers”
Assurance services
two levels of assurance that can
be provided:
– Reasonable assurance
– Limited assurance
They are “engagements in
which a practitioner expresses a conclusion designed to
enhance the degree of confidence of the intended users other
than the responsible party about the outcome of the evaluation
or measurement of a subject matter against criteria”
Reasonable assurance engagement
This engagement is one in which the
objective is to provide less assurance by doing less work that
may be appropriately understood by all involved parties
Limited assurance engagement
