Aud 1 Engagement Planning

Front 1

Foundations of GAAS

Back 1

Materiality & Audit Risk

Front 2

Auditing Standards
General Standards

Back 2

(TIP)
TRAINING and proficiency to perform audit
INDEPENDENCE in mental attitude
due PROFESSIONAL care

Front 3

Training & Proficiency

Back 3

Education & Audit Experience

Front 4

Independence

Back 4

 In Fact and Appearance
 Honest
 No Direct Financial Interest
 No Indirect Material Financial Interest

Front 5

Professional Care

Back 5

 Technical abilities mirror those help by peers
in the profession
 Follow GAAS Standards
 Obtain a Reasonable Level of Assurance
 Maintain Reasonable Level of Skepticism
 Supervise Audit Staff
 Review judgment at every level

Front 6

GAAS
Field Work Standards

Back 6

(PIE)
PLAN the work and supervise assistants
understand INTERNAL control
sufficient audit EVIDENCE

Front 7

GAAS
Standards of Reporting

Back 7

(GODC)
-conformity with GAAP
-expression of OPINION
-DISCLOSURES
-principles CONSISTENTLY observed

Front 8

Examples of Attest Engagements

Back 8

Practitioner is engaged to
Exam
Review
Agreed Upon Procedure

Front 9

Attestation Standards
General Standards

Back 9

(TSCIP)
T-RAINING and proficiency
-knowledge of SUBJECT matter
-suitable & available CRITERIA
I-NDEPENDENCE in mental attitude
-due PROFESSIONAL care

Front 10

Attestation Standards
Field Work

Back 10

(PE)
-PLANNING and supervision
-EVIDENCE reporting

Front 11

Attestation Standards
Reporting (4)

Back 11

(CCRR)
-CHARACTER of engagement
-CONCLUSION on subject matter
-significant RESERVATIONS
-RESTRICTIONS on use

Front 12

Compilation Services

Back 12

 SSARS be followed
- Non-Public entities only
 Independence NOT required for Compilations
o No Internal Control work allowed
o No assurance given
 Must understand client industry

Front 13

Review Services

Back 13

 SSARS to be followed
o Non-Public entities only
 Provides negative assurance
 Independence required
o No Internal Control work allowed
o Performs analytical procedures
o No material indirect financial interest allowed
o No immaterial direct financial interest allowed
 Must understand client industry

Front 14

Attestation Services

Back 14

 CPA expresses a conclusion about an assertion
o Compliance with laws
 NOT considered a Consulting engagement
 Independence Required

Front 15

Prospective F/S

Back 15

 Report is restricted to specified users
 Agreed-upon procedures implemented

Front 16

Sarbanes Oxley Act of 2002 requirements

Back 16

1. Preapproval of services by audit committees
2. Disclosure of fees paid to the accountant
3. Rotation of audit partners
4. Communications by auditor with audit committee
5. The auditor to avoid most nonaudit services
6. Audit committee to be established by issuers

Front 17

Responsibilities and Activities of Public Company Accounting Oversight Board (PCAOB)

Back 17

1. REGISTER public accounting firms
2. OVERSEE AUDIT of public companies
3. ESTABLISH/ADOPT STANDARDS on auditing, quality control, ethics, and independence
4. INSPECT REGISTERED AUDIT FIRMS
5. CONDUCT INVESTIGATIONS AND DISCIPLINARY PROCEEDINGS on registered public accounting firms

Front 18

Authoritative Literature Hierarchy

Back 18

 Statements on Auditing Standards (SAS)
 Auditing Interpretations, AICPA Guides & SOPs
 Industry Articles (no authority)

Front 19

Elements of Quality Control (6)

Back 19

(HR MEEL)
HUMAN resources
client RELATIONSHIPS
MONITORING
ETHICAL requirements
ENGAGEMENT performance
LEADERSHIP

Front 20

WebTrust services provides assurance on e-commerce related to (5)

Back 20

(SAPCO)
Security
Availability
Processing integrity
Confidentiality
Online privacy

Front 21

Prior to accepting engagement what must be done

Back 21

 Review F/S
 Speak to Third Parties
 Contact Predecessor Auditor to evaluate whether
engagement should be accepted

Front 22

What does Audit Committee do?

Back 22

 Part of the Board of Directors
 Officers Not Allowed
 Responsible for Hiring Auditor
o Oversees Internal Control
o Must Agree with Auditor on
 Responsibility of the Parties
 Audit Fee
 Timing of the Audit
 Audit Plan
o Acts as Liaison Between Auditor and the Board
 Auditor Communicates Concerns about
 Internal Control Deficiencies
 Errors
 Fraud
 Illegal Activities

Front 23

Categories of Assertions (5)

Back 23

(ADEPT)
Account balances
Disclosures
Events
Presentations
Transactions

Front 24

Financial Statement Assertions (8)

Back 24

(CAVE CROC)
Completeness
Accuracy
Valuation and allocation
Existence

Cutoff
Rights and obligations
Occurrence
Classification and understandability

Front 25

Audit Engagement Agreement must be written & cover what?

Back 25

o Objectives of Engagement
o Limitations of Engagement
o Responsibilities of Management
 Provide written assertions
o Responsibilities of Auditor
 Limited error/fraud responsibility
o Expectations of Access to Records
o Financial Statements (and Disclosures) are
Management’s Responsibility
o Compliance with Laws
o Internal Control

Front 26

Audit Risk Formula

Back 26

Audit Risk = Inherent x Control x Detection

Front 27

Control Risk

Back 27

o Will Internal Control detect error or fraud?
o Auditor cannot control

Front 28

Inherent Risk

Back 28

o Which transactions have a higher level of risk?
o Auditor cannot control

Front 29

Detection Risk

Back 29

o Will the auditor fail detect a material
misstatement?
o Auditor CAN control
 Do testing at year-end
 Increase substantive testing
 Run more effective tests

Front 30

Auditor's responsibility for detecting Fraud & Illegal Acts

Back 30

(AD)
o ASSESS THE RISK that such things will lead to
material misstatements.
o Design the audit to provide reasonable assurance
against
 Fraud
 Illegal acts that directly affect the F/S
 Material errors have been detected

Front 31

When to report fraud

Back 31

All Mgt Fraud to committee
Minor Fraud by low level -no
Minor Fraud by mgt - yes

Front 32

Fraud Red Flags

Back 32

 Management compensation tied to stock
 Aggressive financial forecasting
 Former auditor disagreed with Mgmt
 Records not available for audit