Auditing Ch 2
Terms in this set (15)
Contrast the role of the AICPA and the PCAOB in the development of auditing standards
AICPA has no standard-setting or regulatory responsibilities regarding public company audits; the PCAOB has no standard-setting or regulatory responsibilities regarding CPA services for non-public companies
In context of an audit of financial statements, explain what is meant by professional skepticism
includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and critical assessment of audit evidence.
Explain briefly the auditors' responsibility for detecting noncompliance with laws by clients
depends upon their nature. The professional standards identify two types of laws. Those with a direct effect on the financial statement amounts and others.
Who is primarily responsible for the fairness of the financial statements
Management is responsible for financial statements; auditors responsibility is to express an opinion on the financial statements.
unmodified opinion is something a clients wants. alternatives to an unmodified opinion are
Qualified opinion, adverse opinion, disclaimer of opinion
when there is some limitation on the scope of their audit, or when one or more items in the financial statements are not in accordance to GAAP
states that the financial statements are not fairly presented
disclaimer of opinion
they are unable to determine the overall fairness of the financial statements
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?
It is appropriate that the auditors state in their report that they have audited the financial statements rather than accounting records. the auditor's report covers the years for which the financial statements were presented by the company.
Should a CPA firm not be able to issue a report dealing with facts rather than the mere expression of an opinion
they cannot express that it is mere facts because it is nothing more than an informed opinion. They are not guaranteeing or certifying that the statements are accurate, correct, or true. Audits do not provide absolute assurance or accuracy.
What is a "material amount"
"material" is defined as sufficiently important to influence decisions made by reasonable users of the "FS". Materiality is influenced by the size of the organization that is being audited.
Two types of peer review
system review & engagement review
On what part of the firm's practice does the PCAOB staff focus its inspections
selected quality control issues only and may also consider other aspects of practice management, such as the determinates of partner compensation
Describe a PCAOB inspection
-inspection and review of selected audit and review engagements
-evaluation of the sufficiency of the quality control system of the firm and the manner of the document and communication of the system
-tests of the audit, supervisory and quality control
(pass; pass with efficiency; fail)
Describe how the PCAOB staff selects an audit engagement for inspection
uses risk assessment process to identify engagements that have a higher risk of lack of compliance with professional standards