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94 Cards in this Set
- Front
- Back
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What performs tests on an organization's records to determine that they are accurate?
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the audit function
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How does the audit function ensure that financial stmts are fairly presented?
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by interpreting FASB, IASB, GASB, and other authoritative pronouncements
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The audit function makes judgments about what and then test what?
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the fairness of complex accting processes; the organization's system of internal control over financial reporting
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What manner does the audit function perform in?
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an objective, unbiased, and professionally skeptical manner
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What is 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?
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auditing
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Attestation involves what 3 things?
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gathering evidence about assertions, evaluating the evidence against objective criteria, and communicating the conclusion reached
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What is specific attestation service where the auditor gathers evidence to determine whether the FS are fairly presented in accordance with GAAP and issues an opinion to be used by third party users, mgmt, and the board of directors?
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auditing
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Gathering evidence to attest to assertions, evaluating those assertions against objective criteria, and communicating the audit conclusion to interested parties is the what?
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auditing process
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Auditing is both more and less than what?
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public accting
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How is auditing more than public accting?
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b/c it includes internal and operational auditing, govt'al auditing, and other services that evaluate and report on managerial performance
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How is auditing less than public accting?
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b/c public accting firms provide a variety of other assurance and non-audit services
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What are 6 challenges of the profession?
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detect material fraud and assure that users of FS are free from fraud; complex accting transactions and organizational structures; computer systems are complex; many companies are global; time pressure to get audit done; need to generate sufficient audit fees
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What are some users of audited FS?
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mgmt, stockholders, financial institutions, taxing authorities, potential investors, regulatory agencies, labor and labor unions, bondholders, court system, vendors, retired employees
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Who uses audited FS to buy stock or bonds?
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potential investors
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Who uses audited FS to assess performance, vote on organizational matters, make decision to by or sell stock, or purchase more stock as part of a stock offering?
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stockholders
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Who uses audited FS to determine taxable income and tax due?
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taxing authorities
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Who uses auditied FS to assess credit risk?
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vendors
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Who uses audited FS for collective bargaining decisions?
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labor unions
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Who uses audited FS to review performance, make decisions, report results to capital markets?
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mgmt
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Who uses audited FS for loan decisions-interest rates, terms, and risk?
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financial institutions
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Who uses audited FS for compliance with regulations, need for regulatory action?
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regulatory agencies
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Who uses audited FS to protect employees from surprises concerning pensions and other post-retirement benefits due to accting restatements?
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retired employees
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Who uses audited FS to assess the financial position of a company in litigation involving valuation?
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court system
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Why is there a need for assurance services?
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there's a potential bias in providing information, remoteness between user and organization, complexity of information, riskiness of investments
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What is meant by a potential bias in providing information?
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the providing party may want to convey a better impression than real circumstances merit
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Explain the complexity associated with the need for assurance services.
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complexity of transactions, info, and processing systems that it is difficult to determine their proper presentation without a review by an independent expert
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What happened during the accounting profession's decade of unprecedented turmoil and change?
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failure of one of the largest public accting firms (Andersen), four of the largest bankruptcies ever-each in companies where FS misrepresentation had happened, billions of investment and retirement dollars lost, perception that auditors were not independent from their clients
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What did the Sarbanes-Oxley Act of 2002 provide?
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critical improvements related to auditing and the FS
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The Sarbanes-Oxley Act focused on what 5 things?
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improved corporate governance, required reporting on internal controls, audit standard setting moved to new quasi-public organization, improved independence of the external audit function, and acknowledgment of greater public expectations of auditors
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What was a major factor in business failures?
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the lack of corporate governance-a failure of board of directors to oversee mgmt and utilize the audit function
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What does Sarbanes require of the boards of directors?
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to be independent of the organization and exercise oversight over mgmt and the audit function
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Who is the "client" of the public accounting firm through its audi committee?
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the board of directors
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In most cases of major fraud, companies had poor what? What should be established?
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internal controls over financial reporting; effective internal control system that produces reliable info
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What needs to be reported in public reports so that its impact can be assessed?
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deficiencies
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Treadway Commission's report on Fraudulent Financial Reporting in 1987 advanced the need for what?
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public reporting on internal control
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Sarbanes requires the CEO and CFO of SEC registered companies to do what?
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assess and publicly report on the quality of its internal controls over financial reporting
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The audit function must be __ and __ if assurances are to be trusted by third parties
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independent; objective
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Auditor independence has been strengthened by required what 4 things? Who isn't required to follow all these guidelines?
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audit committee has authority to hire and fire external auditors; mandatory rotation of audit engagement partner every five years; consulting work cannot be performed for audit clients; increased oversight of potential independence conflicts by the audit committee; nonpublic companies and smaller audit firms
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The public lost confidence in the ability of the profession to do what?
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serve the public interest
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Sarbanes created what?
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the Public Company Accounting Oversight Board (PCAOB)
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The PCAOB has authority to do what?
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develop audit standards for audits of publicly traded companies
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The PCAOB is comprised of what?
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five public members appointed by the SEC-no more than 2 canbe CPAs
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The PCAOB is also charged with what?
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performing peer review of all public accounting firms that perform audits of public companies
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Who defines assurance as independent professional services that improve the quality of info, or its context, for decision makers?
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the AICPA's special committee on assurance services
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Assurance services involve 3 components:
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info or a process on which the assurance is provided; a user or group of users who derive value from the assurance provided; an assurance service provider
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What are the 4 attributes needed to perform assurance services?
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subject matter knowledge, independence from parties requesting assurance, agreed upon criteria to evaluate quality of presentation, and expertise in the process of gathering and evaluating evidence
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What are the 3 levels of assurance provided?
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positive assurance (such as audit opinion); limited or negative assurance (such as a review of FS); no assurance (such as a compilation of FS)
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The AICPA's Special Committe on Assurance Services has identified what 6 areas of potential servie?
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risk assessment, business performance measurement, information system reliability, healthcare performance measurement, electronic commerce, and elder care plus
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What is the quality of processes implemented by an organization to identify, assess, and manage risks?
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risk assessment
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What are processes to identify, measure, and communicate alternative measures of performance?
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business performance measurement
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What is a quality of controls to ensure system security, reliability, timeliness, and accuracy?
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information system reliability
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What provides info about the quality of services provided by healthcare providers?
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healthcare performance measurement
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What provides assurance that systems and tools are designed and functioning with integrity and security?
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electronic commerce
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What provides assurance whether the needs of the elderly are being met by various caregivers?
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elder care plus
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What are attest services?
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a subset of assurance services, always involve evaluation of an assertion made by one party to a third party, always involve a report sent to a third party
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What are the 4 requirements to enter the public accting profession?
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accting and auditing expertise, internal auditing expertise, knowledge of busn and its risks, understanding accting system complexity
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What requirement says that in addition to technical knowledge, auditor must have sound conceptual understanding of financial reporting and auditing?
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accting and auditing expertise
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Wht requirement says auditor must understand the basis structure of a business in order to identify significant risks affecting the client?
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knowledge of business and its risks
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What requirements says that an auditor must be able to analyze the organization's internal controls to determine if there are weaknesses?
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internal auditing expertise
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What requirement says the auditor must understand the challenges posed in a system in which traditional source documents do not exist?
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understand the accting system complexity
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Who are the providers of assurance services?
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the public accting profession, the internal audit profession, and the governmental audit profession
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There are more than how many CPA firms in the US ranging sole-practitioners to large multinationals like the Big 4?
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45,00
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What firms provide a variety of services in the areas of assurance and FS services, tax planning and compliance, and consulting?
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CPA firms
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What has the SEC prohibited accting firms from doing? Such restriction on services has not been specified by who?
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providing most consulting services to public companies tha they audit; the AICPA or regulatory authorities for public accting firms that do not audit SEC registered clients
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The organizational hierarchy of CPA firms has been described as a ___ structure.
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pyramidal
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Describe the organizational hierarchy of CPA firms.
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partners or owners at top; then managers; seniors; staff auditors
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In the pyramid, who reviews the detailed audit work performed by staff auditors?
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managers
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In the pyramid, who performs the basic, detailed audit work?
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staff auditors
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In the pyramid, who is responsible for overseeing much of the day-to-day activities on a specific audit?
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seniors
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In the pyramid, who is responsible for the overall conduct of each audit?
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partners or owners
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Who may be involved in a number of audit engagements being conducted simultaneously?
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partners and managers
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Who are usually assigned to only one audit at a time?
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seniors and staff auditors
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What is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations that helps accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk mgmt, control, and governance processes?
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internal auditing
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Internal auditing-what kind of activity? designed to do what? Helps an organization accomplish what? By bringing a systematic, disciplined approach to do evaluate and improve the effectiveness of what?
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an independent objective assurance and consulting activity; add value and improve an organization's operations; its objectives; risk mgmt, control, and governance processes
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Internal auditors evaluate processes to do what?
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identify and manage risk, develop and implement effective internal controls
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Internal auditors assures who on the company's compliance with policies or regulatory requirements, or the effectiveness of processes and operations?
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mgmt and board of directors
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Internal auditors provide what services? Like what?
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consulting; analyzing problems and identifying potential solutions
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Internal auditors perform what kind of audits designed to evaluate what?
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operational; effectiveness, economy, and efficiency with which resources are employed
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The governmental auditing profession is employed by who?
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various federal, state, and local agencies
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Who performs all the types of audits that internal auditor perform? Including what?
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governmental auditors; compliance, operational, and performance audits
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Who has authority to set auditing standards for audits of public companies and to perform quality reviews of all registered CPA firms?
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PCAOB
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Who oversees the PCAOB and all companies publicly traded on the US capital markets and has the authority to establish GAAP for publicly traded companies and to prosecute companies who violate their laws?
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SEC
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Who has long served as the primary governing organization of the public accounting profession and provides a variety of continuing education programs and administers the Uniform CPA Exam?
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AICPA
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What was established by Congress in 1934 to regulate the capital market system?
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SEC
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Who is required to register with the SEC to gain access to the US capital market?
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PCAOB and all public companies
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Who has the authority to establish GAAP for publicly traded companies?
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SEC
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SEC has __ authority.
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prosecutorial
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What is the primary governing body of the public accting profession?
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AICPA
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Who continues to develop standards for audits of non-public companies?
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AICPA
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Who administers the Uniform CPA Exam?
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AICPA
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The State Boards of Accountancy are responsible for what?
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certifying and licensing CPAs in their state
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Who issued internal auditing standards and administers the Certified Internal Auditor program?
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the Institute of Internal Auditors
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What is the nonpartisan audit agency for Congress?
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US General Accounting Office
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Who dvelops auditing standards for governmental audits?
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GAO
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