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ACC 4O2 Chapter 2 Powerpoint
Terms in this set (20)
most important legislation affecting accounting since Securities act of 1933-1934
applies to public companies
not for profit organization
five full-time members
- 3 non accountants
PCAOB has authority to
register CPA firms that prepare audit reports for public companies
establish or adopt auditing, quality control and ethical standards for CPA firms that audit public companies
conduct inspections of registered CPA firms that audit more than 100 companies (annual) and fewer than 100 are inspected once every 3 years
- inspection report consists of pubic and congidential
conduct investigations and disciplinary proceeding of registered CPA firms
Securities and exchange commission
government agency created by act in 1934
makes sure that investors of public companies get reliable information
1. S-1—Initial public offering (contains audited financial statements)
2. 10-K—Annual report (contains audited financial statements)
3. 10-Q—Quarterly report (contains reviewed financial statements)
4. 8-K—Significant events such as an acquisition or a change of auditors
national professional organization of CPAs
1.Auditing Standards—Statements on Auditing Standards (SAS)
2.Compilations and Review Standards—Statements on Standards for Accounting and Review Services (SSARS)
3.Other Attestations Standards—Statements on Standards for Attestation Engagements (SSAE)
4.Code of Professional Conduct
Writes and grades the CPA exam
Supports research by its own staff and provides grants to others
Publishes a variety of materials, including the Journal of Accountancy
Provides continuing professional education
U.S. and international auditing standards
1.International Standards on Auditing
2.U.S. Generally Accepted Auditing Standards
3.PCAOB Auditing Standards
International standards on auditing
ISAs are issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC).
IFAC is the worldwide organization for the accounting profession.
ISAs are applicable to entities outside the United States.
Information about the IAASB is available at www.ifac.org.
U.S. generally accepted auditing standards
1.GAAS are issued by the Auditing Standards Board (ASB) of the AICPA
2.GAAS are applicable to private companies in the United States.
3.The ASB has issued 131 auditing standards. Standard 122 is a codification of prior auditing standards.
4.The auditing standards are available at www.aicpa.org.
PCAOB Auditing standards
1.On April 16, 2003, the PCAOB adopted existing auditing standards established by the ASB. The PCAOB refers to these standards as its "interim standards."
2.Since that time, the PCAOB has modified some of the interim standards and has issued its own auditing standards.
3.PCAOB Auditing Standards are applicable to U.S. public companies and other SEC registrants.
4.The PCAOB has issued 18 auditing standards.
5.The standards are available at www.pcaob.org.
Historically, auditing standards have been organized around the 10 generally accepted auditing standards
Today, the ASB's auditing standards are organized around 4 principles
Effective December 31, 2016, the PCAOB's auditing standards are grouped into 5 categories:
1.General Auditing Standards
4.Matters Relating to Filings Under Federal Securities Laws
5.Other Matters Associate with Audits
Statements on auditing standards
Statements on Auditing Standards are the authoritative auditing literature for audits of nonpublic entities.
Classification of SASs
1.Every SAS is given two numbers.
2.The SAS number indicates the order in which it was issued in relation to other SASs.
3.The AU-C number indicates it location in the Codification of Auditing Standards. AU-Cs beginning with:
(b)"300 - 600" performance
auditor consider the SASs to be
Minimum standards of performance?
Maximum standards of performance?
Quality control standards address issues related to the management of an accounting practice.
The system of quality should include policies and procedures about six elements.
The six quality control elements are:
1.Leadership responsibilities for quality within the firm (Tone at the top)
2.Relevant ethical requirements
3.Acceptance and continuation of clients and engagements
Policies and procedures should exist to ensure that the other quality control elements are being effectively applied.
Leadership responsibilities for quality within the firm (Tone at the top)
The firm should promote a culture that quality is essential in performing engagements and should establish policies and procedures that support that culture.
Relevant ethical requirements
All personnel on engagements should maintain independence in fact and in appearance, perform all professional responsibilities with integrity, and maintain objectivity in performing their professional responsibilities.
Acceptance and continuation of client engagements
Policies and procedures should be established for deciding whether to accept or continue a client relationship. These policies and procedures should minimize the risk of associating with a client whose management lacks integrity. The firm should also only undertake engagements that can be completed with professional competence.
Policies and procedures should be established to provide the firm with reasonable assurance that
a.All new personnel should be qualified to perform their work competently.
b.Work is assigned to personnel who have adequate technical training and proficiency.
c.All personnel should participate in continuing professional education and professional development activities that enable them to fulfill their assigned responsibilities.
d.Personnel selected for advancement have the qualifications necessary for the fulfillment of their assigned responsibilities.
Policies and procedures should exist to ensure that the work performed by engagement personnel meets applicable professional standards, regulatory requirements, and the firm's standards of quality.
Peer review (practice monitoring)
review of one CPA firm's quality control by another CPA firm
purpose is to determine and report whether the reviewed firm:
a.Has developed adequate quality control policies and procedures
b.Complies with them
The AICPA has established audit practice and quality centers to improve audit practice quality
a.Center for Audit Quality (CAQ) focuses on audits of public entities
b.Private Companies Practice Section (PCPS) focuses on audits of nonpublic entities
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