Auditing Exam #1

Front 1

Attestation Services are

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Assurance Services resulting in a written communication that expresses a conclusion about whether a written assertion of another party is in compliance

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3 Types of Attestation Services are

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Audit of Historical Financial Statements
Review of Historical Financial Statements
Other Attestation Services

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Other Assurance Services are

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Anything that improves the quality of the information

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Public Accounting firms provide what 4 services?

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Assurance Service
Accounting and Bookkeeping Services
Tax Services
Management Consulting Services

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Assertions in the Definition of Auditing

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Existence or Occurrence
Completeness
Rights & Obligations
Valuations or Allocations
Presentation & Disclosure

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PCAOB was formed to:

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Register firms that prepare audit reports for public companies
Establish rules to govern auditing, quality control, ethics, and independence
Inspect, Investigate, Discipline and Sanction Audit Firms

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Audit Reports report on...

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Financial Statements and Related Statements (public and private)
The effectiveness of the entitiy's internal control over finacial reporting (SEC clients only)

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Audit Introductory Paragraph includes 3 thing which are...

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1) The CPA firm that has done an audit

2) A list of the financial statements that were audited

3) The Statements are the responsibility of Management and the auditors responsibility is to express an opinion on the statement bases on the audit

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Parts of an audit Report on Financial Statements are

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Report Title
Address
Intro Paragraph
Scope Paragraph
Internal Control Paragraph (SEC client only)
Opinion Paragraph
Name of CPA form
Audit Report Date

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Qualified Opinion

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Excludes a specific item from the opinion

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Adverse Opinion

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States that that financial statements are not presented fairly in accordance with GAAP

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Disclaimer of Opinion

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An opinion cannot be expressed

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Immaterial

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No effect on reasonable user

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Material

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Would affect some decisions

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Highly Material

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Major effect on financial statements

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Audit Reports report on...

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Financial Statements and Related Statements (public and private)
The effectiveness of the entitiy's internal control over finacial reporting (SEC clients only)

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Standard Audit Report is Issued when the following conditions have been met...

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N/A

Front 18

Audit Introductory Paragraph includes 3 thing which are...

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1) The CPA firm that has done an audit

2) A list of the financial statements that were audited

3) The Statements are the responsibility of Management and the auditors responsibility is to express an opinion on the statement bases on the audit

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Parts of an audit Report on Financial Statements are

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Report Title
Address
Intro Paragraph
Scope Paragraph
Internal Control Paragraph (SEC client only)
Opinion Paragraph
Name of CPA form
Audit Report Date

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Qualified Opinion

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Excludes a specific item from the opinion

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Scope Limitation-Client Imposed if limitation is Immaterial

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Unqualified

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Scope Limitation-Client Imposed if limitation is Material

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Qualified

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Scope Limitation-Client Imposed if limitation is Highly Material

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Disclaimer

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Scope Limitation-Beyond client or auditors' control if limitation is immaterial

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Unqualified (If alternate procedure can be performed)

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Scope Limitation-Beyond client or auditors' control if limitation is Material

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Qualified (If alternate procedure canNOT be performed)

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Scope Limitation-Beyond client or auditors' control if limitation is Highly Material

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Disclaimer

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Departure from GAAP if departure is immaterial

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Unqualified

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Departure from GAAP if departure is Material

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Qualified

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Departure from GAAP if departure is Highly Material

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Adverse

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Lack of Independence

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Disclaimer

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3 ways to handle reports involving other auditors

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1) Make no reference in the audit report
2) Modified wording of report (shared opinion of report)
3) Qualified Opinion-Material Scope Limitation

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Make no reference in the audit report to other auditors work is appropriate when...

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1) An immaterial opinion of the audit
2) Other auditor well known or closely supervised
3) Has thoroughly reviewed other auditors work

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Weakness in Internal Control if weakness is material you issue a

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Adverse

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If Scope restriction is material you issue a ...

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Disclaimer

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Independence Standards Board

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Formed by the SEC and AICPA

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4 Parts of Code of Professional Conduct

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1) Principles
2) Rules of Conduct
3) Interpretations
4) Ethical Rulings

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The 6 principles of Code of Professional Conduct

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1) Responsibility
2) Public Interest
3) Perform w/ Integrity
4) Objectivity
5) Due Care
6) Improve Quality of Service

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Rule 101-Independence

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Must be independence in Fact and in
Appearance

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Rule 102-Integrity and Objectivity

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shall be free of conflicts of interest and not knowingly misrepresent facts and subordinate his or her judgment to others

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Rule 201-General Standards include

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Professional Standards
Due professional Care
Planning and Supervision
Sufficient Relevant Data

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Rule 202-Compliance with standards

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A member performing auditing, review, compilation, management consulting, tax or other professional services shall comply with standards promulgated by bodies designated by council

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Rule 203-Accounting Principles

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Do not say the financial statements are presented fairly when their not.

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Rule 301-Confidential Client Information

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Do not disclose ANY confidential client information without the specific consent of the client

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Exceptions to the confidentiality rule are as follows...

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Financial Statements must be in accordance with GAAP
Information obtained by a CPA from a client is NOT privilege
Peer Review(only if done by AICPA, State Board, PCAOB)
Ethics Division-If under examination, division can examine working papers

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Rule 302-Contingent Fee

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A member in public practice shall not
(1) Perform for a contingent fee
(2) Prepare and original amended tax return for a contingent fee

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Rule 501-Acts Discreditable

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A member shall not commit an act discreditable to the profession

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6 Interpretations of Discreditable Acts

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1) Keeping clients records after client has asked for them
2) Discrimination and/or harrasment
3) Failure to follow standards in government audits or government regulations
4) Negligence in preparing finacial statements
5) Soliciting or knowing disclosing CPA exam questions
6) Failure to file a tax return or pat tax liability

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Rule 502-Advertising and other forms of Solicitation

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Members cannot use false, misleading or deceptive advertising

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Rule 503-Commission and Referral Fees

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No commissions for referrals for product or services when client is involved with firms financial statements
Must Disclose permitted commissions and referral fees.

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Rule 505-Form of Organization and Name

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No misleading firm names
ALL CPA owners must members of the AICPA to claim "Members of the AICPA"

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2 targeted features of tort reform

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(1) Joint and several liability
(2) Privity Rule

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2 factors that affect liability under common law

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(1) Degree of Negligence
(2) Privity of Contract

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Ordinary Negligence

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Lack of Due Care

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Gross Negligence

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A lack of even minimum care in professional duties

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Constructive Fraud

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Reckless Negligence

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Defenses Accountants can use

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1) No real loss suffered by plaintiff
2) Lack of duty of privity
3) Non negligent performance
4) Absence of casual connection
5) Contributory negligence

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Regulation S-X

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Rule for Financial Statements

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Regulation S-K

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Rule for all other Financial Disclosures

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Form 8-K

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Periodic Report of Special Forms

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Liability to 3rd parties occurs when...

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Audit is NOT done in accordance with GAAS