35 terms



Terms in this set (...)

Contrast the roles of the AICPA and the PCAOB in the development of auditing standards.
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What is the difference between GAAP and AICPA GAAS?
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What is the financial reporting framework? Why is a financial reporting framework important to a financial statement audit?
GAAP.. The financial reporting framework is important to follow because they are the standards that are established or developed by groups composed of experts. The auditors' report provides assurance on whether the financial statements follow that framework.
What relationship exists between AICPA GAAS and the Statement on Auditing Standards (SAS)?
The AICPA oversees the Auditing Standards Board (ASB) who issues auditing standards in the form of Statement on Auditing Standards (SASs).
In the context of an audit of financial statements, explain what is meant by professional skepticism.
Professional skepticism includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence...
Explain briefly the auditors responsibility for detecting noncompliance with laws by clients.
The auditors' responsibility for identifying client non compliance with laws and regulations (hereafter, laws) depends upon their nature. Professional Standards identify two types of laws - those with a diret effect on the financial statement amounts and others.
The auditors responsibility concerning laws with a direct effect, the auditors must gather sufficient appropriate audit evidence to obtain reasonable assurance of detecting material misstatements resulting from noncompliance-this is the same responsibility the auditors have for material errors and fraud....
For other laws, the auditors are required to perform specified audit procedures that may identify instances of noncompliance with other laws that may have a material effect (other than the amounts) on the financial statements.
Evaluate the following quotation: "If a CPA firm completes a nonpublic company audit of Adam Company's financial statements following AICPA GAAS and is satisfied with the results of the audit, an unmodified audit report may be issued. On the other hand, if no audit is performed of the current year's financial statements, but the CPA firm has performed satisfactory audits in prior years, has confidence in the management of he company, and makes a quick review of the current year's financial statements, a qualified report may be issued." Do you agree?
This is inacurate. In the event the auditors are unable to determine the overall fairness of the financial statements due to very significant limitations in the scope of the auditors' examinations, the auditors must issue a DISCLAIMER OF OPINION....
Pike Company has had an annual audit performed by the same firm of CPAs for many years. The financial statements and copies of the audit are reported to stockholders each year shortly after completion of the audit. Who is primarily responsible for the fairness of these financial statements? Explain
..Management is responsible for the fairness of the financial statements. Managers are responsible for the assertions on the financial statements, auditors are responsible for assessing and providing an opinion as to the assertions represented on the financial statements.
Davis & Co., CPAs, after completing an audit of Samson Co. decided that it would be unable to issue an unmodified opinion. What circumstances might explain this decision?
An unmodified opinion cannot be issued if ...
there is very significant limitations in the scope of the auditors' examination, or
because the financial statements contain such material departures from applicable accounting principles as to warrant an adverse opinion, or
some limitation on the scope of the audit, or when one or more items in the financial statements are not presented in accordance with applicable accounting principles.
State the principal assertions made by the auditors in the opinion paragraph of the AICPA auditors' standard report.
The principle assertions made by the auditors in the opinion paragraph of the auditors report are...
in our opinion, conformity with accounting principles generally accepted in the United States of America
Alan Weston, CPA, completed an audit of Kirsten Manufacturing Co. and issued a standard audit report. What does this tell us about the extent of auditing procedures included in the audit?
A standard audit report tells us that auditing procedures included in the audit resulted in found no matieral exceptions and they didn't find material deficiencies.
When a CPA firm completes an audit of a nonpublic business and issues a report, does it express an opinion on the client's accounting records, financial statements, or both? Give reasons.
It directly expresses an opinion on the financial statements and indirectly expresses an opinion that the accounting records were created within an acceptable financial framework...
A CPA firm does not guarantee the financial soundness of a client when it renders an opinion on financial statements, nor does the CPA firm guarantee the absolute accuracy of the statements. Yet the CPA firm's opinion is respected and accepted. What is expected of the CPA firm in order to merit such confidence?
CPAs are required to perform all professional engagements in accordance with applicable professional standards. AICPA'S QUALITY CONTROL STANDARDS PROVIDE GUIDANCE IN DEVELOPING THESE SYSTEMS. CPAs who audit public companies undergo inspection by the PCAOB....
If a CPA firm has performed a thorough professional audit of a client's financial statements, should it not be able to issue a report dealing with facts rather than the mere expression of an opinion? Explain.
Auditors should not issue a report dealing with facts and only a mere opinion...because auditors do not make a complete and detailed examination of all transactions. There are inherent limitations in the accounting process and because of practical limitations of time and cost in performing an audit, the auditors' work culminates in the expression of an opinion.
What is a "material" amount from the perspective of auditors? Give an example of how that amount may differ based on the nature of the item.
...Material amount is defined as sufficiently important to influence decisions made by reasonable users of financial statements. This may be influenced by the size of the organization.
Explain how the auditors determine whether a client's accounting is appropriate when the FASB codification includes no specific guidance with respect to accounting for a particular type of transaction.
...If the guidance for a transaction or event is not specified within the authoritative GAAP or SEC guidance, the company should first consider accounting principles for similar transactions or events in authoritative GAAP. When no other guidance can be found, non authoritative accounting guidance should be consulted.
Do hhe AICPA attestation standards supersede any of the AICPA generally accepted auditing standards? Explain
...No, however the ASB does provide guidance for attesting to specific types of information, such as prospective financial statements and internal control over financial reporting.
What is the meaning of quality control and peer review as these terms relate to the operation of a CPA firm? Is peer review mandatory? Explain.
A CPA firm should establish adequate quality control policies and procedures to provide reasonable assurance that it follows professional standards on every engagement....CPA firms undergo a peer review performed directly by a CPA, a CPA fir, or CPA team for the purpose of reviewing and appraising a CPA firm's system of quality control to perform accounting and auditing work.A CPA firms actual accounting work is also reviewed to evaluate whether the reports and procedures are appropriate.
Explain the basic objective of establishing control procedures in the following areas.
a. Engagement performance
b. Human resources
c. Monitoring
The objectives of establishing control procedures for ..
ENGAGEMENT PERFORMANCE is to ensure engagements are consistently performed win accordance with professional standards and regulatory and legal requirements with policies and procedures..
HUMAN RESOURCES is to ensure it has sufficient personnel with needed competence, capabilities, and commitment...
MONITORING is to ensure policies and procedures relating to quality control are relevant, adequate, and operating effectively.
Do the AICPA's Statements on Quality Control Standards require every CPA firm to implement similar quality control procedures?
No...In fact it states that the specific procedures should depend upon the size of the firm, the number of offices, and the nature of the firm's practice.
What are the duties and responsibilities of the PCAOB?
Register public accounting firms that prepare audit reports for financial statement issuers.
Establish or adopt auditing, quality control, ethics, independence, and other standards relating to audit reports for issuers...
Distinguish between the system review and the engagement review types of peer reviews.
...System review involves peer reviewers' study and appraisal of a CPA firm's system of quality control to perform accounting and auditing work.
An engagement review is one in which the peer reviewers select a sample of a CPA firm's actual accounting work, including accounting reports issued and CPA firm documentation to evaluate whether the reports and procedures are appropriate.
Briefly describe four differences between an international audit report and one based on the PCAOB reporting standards
...This needs to be reviewed
Which organization can revoke the right of an individual to practice as a CPA?
The AICPA over time has played an important role in standards setting. What standards are currently established by the AICPA?
Auditing standards applicable to audits of nonpublic companies.
Which non authoritative guidance does FASB support for use when there is no authoritative guidance available?
FASB Concept Statements
Financial statement audits performed under PCAOB requirements are designed to provide which ttpe of assurance with respect to:
Detection of material misstatements due to errors or fraud.
A basic objective of a CPA firm is to provide professional services that confirm with professional standards reasonable assurance of achieving this basic objective is provided through:
...a system of quality control
Is the internal control of the client explicitly included in the standard report for a non public company?
Is the "auditors maintain an independent mental attitude" part of the general group of the 10 PCAOB Auditing Standards?
Which AICPA quality control standard would most likely be satisfied when a CPA firm maintains records indicating which partners or employees of the firm were previously employed by the CPA firm's clients?
Relevant ethical requirements
Does an audit provide reasonable assurance of detecting material:
Fraudulent financial reporting?
Misappropriation of Assets?
No. It provides reasonable assurance of whether the financial statements are free of material misstatement.
Fraud and misappropriation of assets may be identified or suspected during risk assessment or testing.
Does the integrated report of a public company state " The report states that the audit was performed in accordance with AICPA standards?
No. It states it was formed in accordance with PCAOB.
Audit firms that are subject to inspections by the PCAOB staff include,,,
Audit firms that are registered with the PCAOB
What is a difference between an International audit report and a standard AICPA audit report?
The internal audit report requires inclusion of the city of the CPA firm office that performed the audit.