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27 Cards in this Set

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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 users
Financial statement Auditing
an auditor must maintain a level of professionalism and distance in order to maintain this
Objectivity
a three part process: gathering evidence about assertions, evaluating that evidence against objective criteria, and communicating hte conclusion reached.
Attestation Service
a process of gathering evidence to attest to assertions, evaluating those assertions against objective criteria, and communicating the audit conclusion to interested parties.
Auditing
What three principles must be present in and auditor in order for an audit to add value?
1. Expertise in both obtaining and evaluating evidence regarding the financial statements and the economic assertions embodied in the financial statements
2. Independent of management and the third parties
3. Can provide an objective opinion on the fairness of the financial statements
a positive statement about an action, event, condition, or the performance of an entity or product over a specified period of time; the subject of attestation
Assertion
Independent professional services that improve the context or quality of information for decision-making purposes
assurance services
an expression of opinion by an auditor to third parties concerning the correctness of assertions contained in financial statements or other reports against which objective criteria can be identified and measured
attestation services
This results when there are no reservations by the auditor about management's financial statements
Unqualified Audit Report
an oversight structure that is designed to ensure that there are constraints on management and that the organization acts in the best interest of the shareholders
Corporate Governance
What were the requirements from the Sarbanes-Oxley Act to strengthen the independence of auditors?
1. audit committee of the board of directors has authority to hire and fire the external auditors
2. mandatory rotation every fiver years of the partner in charge of the audit
3. consulting work cannot be performed by audit clients
4. increase oversight of potential independence conflicts, including potential conflicts of interest by the auditing firm
to be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing audition and other attestation services.
Objectivity and Independence
What is the objective of an audit by an independent auditor of financial statements?
to express an opinion of the fairness with which they present, in all material respects, financial position, results of operations, and its cash flows in conformity with generally accepted accounting principles
Who is responsible for the financial statements?
Management
What responsibility does the auditor have regarding immaterial misstatements and their detection?
None
What is the auditor's responsibility regarding the financial statements?
simply, the expression of his or her opinion
What are the parts of an audit report?
Introductory paragraph
Scope paragraph
Opinion paragraph
What is included in the introductory paragraph?
states the audit work performed and identifies the responsibilities of the auditor and the auditee in relation to the financial statements
What is included in the scope paragraph?
details the scope of audit work, provides a general description of the nature of the work, examples of procedures performed, and any limitations the audit faced based on the nature of the work. This paragraph also states that the audit was performed in accordance with the country’s prevailing generally accepted auditing standards and regulations
What is included in the opinion paragraph?
states the auditor’s opinion on the financial statements and whether they are in accordance with generally accepted accounting principles
What is materiality in the audit?
the magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement
What are the criteria used for financial statement auditing?
GAAP
What are the criteria used for Internal Auditing?
COSO
What factors create a need for assurance services?
the need for reliable information, and to show that systems have integrity and that they comply with regulatory requirements
indepedent professional services that improve the quality of information, or its context, for decision makers
assurance
What is the role of the PCAOB in audit standard setting and enforcement?
Has full authority to develop audit standards for the audits of public companies, and reviews the quality of the practice of independent accounting firms.
What is the role of the AICPA in audit standard setting and enforcement?
Develops standards for audits of non-public companies, provides continuing education programs, prepares and administers the CPA exam.