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23 Cards in this Set

  • Front
  • Back
attest engagements
Examinations, reviews, and the performance of agreed upon procedures to report on a subject matter, or an assertion of the subject matter, that is the responsibility of another party.

purpose of the audit

To provide reasonable assurance that financial statements that have been prepared by management follow GAAP or whatever is the correct reporting framework (e.g. Tax basis)

3 financial relationships of a covered member which may impair the independence of both the member and the firm:

1. All direct financial interests



2. All material indirect financial interests



3. A material joint closely held investment, that is held with an attest client (including an employee of the client with a key position)

partner equivalent
An employee that acts as a partner, in the sense that he or she has the ultimate responsibility for an attest engagement, or the authority to bind the CPA firm to conduct an attest engagement without partner approval.

PCAOB reports (what is publicly available?)

Content of most of the reports of the PCAOB are publicly available. However, the discussion of criticisms of the CPA firm's quality control system are not made public UNLESS the CPA firm doesn't address the criticism within 12 months of issuance.

International auditing standards (how they differ with U.S. standards)
The standards for documentation are less detailed than PCAOB standards. IFRS is considered to be more principles-based than US GAAP, so it generally required more professional judgment.
internal control (PCAOB vs International standards)
Audit of internal control is required under the PCAOB, but NOT under international standards
PCAOB membership
5 members, 2 of which must be (or have been) CPAs, and 3 others who have never been CPAs

independence impairment results (individual accountant employed in CPA firm vs. CPA firm vs. client)

-When the firm's independence is impaired with respect to a client, then attestation services cannot be provided for that client.



-When an individual's independence is impaired, sometimes all the CPA firm needs to do is keep that accountant off the specific attestation engagement. When the non-independent individual is a covered member, the situation may be different as it could impair the entire firm's independence.



-The CPA firm must be independent for all audit and other attest clients. It doesn't have to be independent for nonattest clients.

covered member (3-6 examples)
1. an individual on the attest engagement team



2. Someone in a position to influence the attest engagement




3. Partners or partner equivalents that do more than 10 hours of nonattest services for the client within the fiscal year.




4. The firm (including their employee benefit plans)




5. An entity whose operating, financial, or accounting policies can be controlled




6. Partners or partner equivalents connected to the lead attest engagement partner

6-7 steps to an audit
1. Plan the audit



2. Obtain an understanding of the client and its environment (including internal control)




3. Assess risks of misstatement and design further tests.




4.Perform tests of controls




5. Perform substantive procedures




6. Complete the audit




7. Issue the audit report

due care
A member should



-observe the profession's technical and ethical standards




-strive continually to improve competence and the quality of the services




-Practice critical review of judgment exercised by those assisting in the audit




-Consult with experts when the professional engagement exceeds the personal competence of the auditors (e.g. get a software guy in when auditing a software company)

period of professional engagement
Starts when a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client. It ends with the professional termination of the relationship, either through formal or informal notification, either by the auditor or the client. The period of professional engagement does not end with the issue of an audit report and then restart with the next year's audit engagement.
working papers (who has the right over it)
Either prepared by the auditor, or by the client at the request of the CPA. These are the property of the accountant, and should generally be kept confidential unless the client, or a court order, requests otherwise.
contingent fees rule
If the CPA firm performs any of the following services, it cannot accept a contingent fee:



-Audits or reviews of financial statements




-an examination of prospective financial information




-a compilation of a financial statement when the auditor's report does not disclose a lack of independence.

commissions and fees rule
An accountant can't recommend or refer to a client any product or service, or for a commission recommend or refer any of the client's products or services to someone else, or generally get a commission, if the accountant is involved in an attest engagement with a client. If the accountant receives another type of acceptable commission, then he or she will still need to disclose it to the client. Anyone else involved in the commission transaction (either as a payer or receiver of commission money) must disclose it too.
peer review



(what is it? engagement vs system review)

CPAs must have their accounting and auditing work reviewed by an independent party from time to time.



In a system review, the quality control standards work as the criteria for the review. It involves sampling the CPA firm's engagements, inquiring CPA personnel, and reviewing documentation of the firm's quality control system.




An engagement review is applicable in CPA firms that do not perform audits, but do perform other kinds of accounting work such as reviews and compilations. In an engagement review, the CPA firm's accounting work is sampled and evaluated.

Section 404
It relates to the audit of internal control. It is management's responsibility to establish adequate internal control, and the management is responsible for assessing its internal control. The auditors will attest to management's assessment of internal control.
elements of quality control (6)
1. Relevant ethical requirements



2. Monitoring




3. Engagement performance




4. Human resources




5. Leadership responsibilities for quality within the firm




6. Acceptance and continuance of a client relationships and specific engagements

How long do audit working papers need to be saved?
Seven years

audit partner rotation rules

The partner in charge of an audit, and the partner who is supposed to review the audit, can only do audit services for that client for 5 consecutive years.



Also, a CPA firm can no longer do the audit work for a client if the client has hired an employee of the audit firm to be its CEO, CFO, or CAO within the previous year.

inspection (in quality control)

A PCAOB engagement that focuses on a selected quality control issue (as opposed to an overall review of the firm)

PCAOB




(role, types of authority they can exercise)

The Public Company Accounting Oversight Board is supposed to oversee the audit of public companies that are subject to the securities laws.




The PCAOB can establish laws relating to auditing, quality control, ethics, independence, and other standards relating to the preparation of an audit report.