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140 Cards in this Set
- Front
- Back
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what is an audit?
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a methodical review and objective examination of an enterprise's financial statements
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who creates the financial statements of an enterprise?
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the management, not the independent auditor
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what are the responsibilities of company's management?
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financial statements and internal control
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what are the responsibilities of the auditor?
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expression of opinion
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the expression of an opinion by the independent auditor is known as the ______
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"audit function"
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the auditor's report gives ____ to the financial statements
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credibility "attest function"
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how many generally accepted auditing standards are there?
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ten
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what two things must an auditor be?
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independent and an expert
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what three things must an auditor be an expert in?
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1. accounting (knowledge of GAAP)
2. auditing (knowledge of GAAS) 3. industry (particular business) |
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what is professional skepticism?
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the auditor neither assumes management is dishonest nor assumes unquestioned honesty.
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the AICPA defines "fair presentation" as:
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the financial statements reflect the underlying transactions of the company in a manner that represents the financial statements within a range of acceptable limits
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What are Statements on Auditing Standards (SASs)?
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interpretations of GAAS
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who issues SASs?
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the Auditing Standards Board of the AICPA
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where are the SASs outlined?
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section AU of the AICPA Professional Standards
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who do SASs apply to?
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all audits of nonissuers and to the auditors of issuers to the extent not superseded by PCAOB auditing standards
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Audits of government organizations, programs, activities and of entities that receive gov funds should be conducted in accordance with ____
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generally accepted government auditing standards
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what does PCAOB stand for?
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public company accounting oversight board
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who are issuers?
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entities subject to the rules of the SEC (primarily public companies)
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who comprises the PCAOB?
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five full time, financially literate members
-only 2 CPAs -chair can be CPA if haven't practiced for 5 yrs -cant receive payments from public acc firm (unless fixed continuing payments) |
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public accounting firms must _________ in order to audit a public company.
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register with the PCAOB
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public accounting firms registered with the PCAOB are subject to:
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board inspection,
disciplinary proceedings, sanctions |
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THe PCOB has issued several of its own _______, which replace ASB standards for audits of issuers.
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Auditing Standards (AS)
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what does IAASB stand for?
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International Auditing and Assurance Standards Board
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IAASB is a ______ board of ______
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standard setting board of the International Federation of Accountants (IFAC)
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who establishes international standards on auditing?
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IIASB
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_____ is a worldwide organization that establishes and promotes adherence to high-quality professional standards and works toward the international convergence of such standards.
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IFAC
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Can ISAs issued by the IAASB oberride the local laws and regulations or national standards that govern the audits of historical financial statements in particular countries?
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no
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what does SSAE stand for?
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Standards for Attestation Engagements
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who issues SSAEs?
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AICPA
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what does SSARS stand for?
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Statements on Standards for Accounting and Review Services
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what was the accounting and review services committee established for?
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by the AICPA to establish standards for privately held companies not seeking audited statements
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who issues SSARS?
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the accounting and review services committee of the AICPA
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the _________ provides members with guidelines for behavior in the conduct of their professional affairs.
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the AICPA code of professional conduct
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who does the code of professional conduct apply to?
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all services performed in the practice of public accounting
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where is the code of professional conduct outlined?
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section ET of the AICPA professional standards
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a ________ system consists of policies and procedures designed, implemented, and maintained to ensure that the firm complies with professional standards and appropriate legal and regulatory reqs, and that any reports issued are appropriate in the circumstances
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quality control
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what does SQCS stand for?
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statements on quality control standards
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who issues SQCSs and what are they for?
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issued by the auditing standards board to provide guidance with respect to quality control
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where are SQCSs outlined?
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in section QC of the AICPA professional standards
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where does the SEC publish their regulations?
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in the Accounting Series Releases and Regulation S-K
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Final standards adopted by the PCAOB do not become effective until __________
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they are approved by the SEC
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what does IESBA stand for?
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International Ethics Standards Board for Accountants
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IESBA is a standards setting board of ______
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IFAC
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what does the IESBA do?
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establish the IFAC Code of Ethics for accountants
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Can an IFAC member body or firm issuing reports in accordance with International Auditing and Assurance apply less stringent ethics standards than those outlined in the IFAC Code of Ethics for Accountants?
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no
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what is the GAAS hierarchy - the three levels of auditing guidance?
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1. AICPA SASs and PCAOB Auditing Standards
2. Interpretive Publications 3. Other Auditing Publications |
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In the U.S., auditors are required to comply with _____ for audits of nonissuers, and _______ for audits of issuers
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nonissuers - SASs published by the ASB
issuers - PCAOB Auditing Standards |
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Are auditors allowed to departure from mandatory requirements of SASs or PCAOB ASs?
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yes, if they justify them
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when do SASs and PCAOB Auditing Standards apply?
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generally only in situations where auditing services are being rendered. However, a few SASs apply to other services, such as reviews of interim financial information and letters for underwriters
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what terms indicate an unconditional requirement in a standard, which must always be followed?
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"must" or "is required"
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which terms indicate a presumptively mandatory requirement?
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"should"
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when are departures from presumptively mandatory requirements allowed?
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as long as there is appropriate justification, performance of sufficient alternative procedures, and thorough documentation.
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do terms such as "may" "might" or "could" impose a professional requirement for performance?
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no
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what are interpretive publications?
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recommendations regarding how SASs should be applied in specific situations.
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are interpretive publications considered to be auditing standards?
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no
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what are examples of interpretive publications
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SAS interpretations
appendices to the SASs AICPA Audit and Accounting Guides AICPA auditing statements of position |
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how should the auditor treat interpretive publications?
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1. consider the guidance provided in performing an audit
2. be able to explain any departures, and how compliance with standards was otherwise achieved |
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what kind of authoritative status do publications such as auditing articles in the Journal of Accountancy, AICPA CPA Letter, CPE materials, and textbooks have?
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no authoritative status, but they may be helpful to the auditor.
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which standards are qualitative in nature and set minimum reqs for the auditing profession?
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GAAS
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how do auditing standards differ from auditing procedures?
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"procedures" - relate to acts to be performed
"standards" - deal with measures of audit quality and objectives to be achieved within an audit |
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what are the three kinds of GAASs?
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General standards
standards of fieldwork standards of reporting |
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what are the ten GAASs?
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Training
Independence Professional Care Planning and Supervision Internal Control, Entity, and Environment Evidence Accounting = gaap Consistency Disclosure Express Opinion |
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What are the types of General Standards Under GAAS?
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Training, Independence, and Professional Care
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What does the Training standard of GAAS mean?
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The auditor must have adequate technical training and proficiency to perform the audit.
the auditor must have the education in accounting, the practical experience in auditing. and the knowledge of the particular industry being audited |
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What does the Independence standard of GAAS mean?
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the auditor must maintain independence in mental attitude in all matters relating to the audit
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which standard is often called the cornerstone of the auditing profession?
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the independence standard
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what does independence in fact and in appearance mean?
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auditors must leave no doubt as to their independence in the mind of the general public. activities or relationships that even suggest or imply a possible lack of independence must be avoided by the auditor
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What does the professional care standard of GAAS mean?
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the auditor must exercise due professional care in the planning and performance of the audit and the preparation of the report
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_______ imposes a responsibility upon each person within an independent auditor's org to observe the standards of fieldwork and reporting.
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due professional care
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the exercise of due professional care implies that the auditor will obtain_________ to limit audit risk to a low level.
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sufficient appropriate audit evidence
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in due professional care, the high level of assurance expected to be obtained is referred to as _____; absolute assurance is not possible
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reasonable assurance
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what is the "average auditor" concept?
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auditor should do what the average auditor would do and never less, including review of work performed by assistants and maintaining an attitude of professional skepticism
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what are the standards of fieldwork under GAAS?
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Planning and Supervision
Internal Control, Entity, and Environment Evidence |
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What does the "Planning and Supervision" standard of GAAS mean?
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the auditor must adequately plan the work and must properly supervise any assistants
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What does the "Internal Control, Entity, and Environment" standard of GAAS mean?
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the auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statement whether due to error or fraud, and to design the nature, extent, and timing of further audit procedures
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the auditor must obtain a sufficient understanding of the entity and its environment to design the ________ of further audit procedures
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nature, extent, and timing
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strong controls imply the auditor will require ____ evidence from substantive procedures.
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less
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weak controls imply the auditor will require ____ evidence from substantive procedures.
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more
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can an auditor express an unqualified opinion on one of the financial statements while rendering a qualified opinion or disclaimer of opinion on another statement?
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yes
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the auditor may report on one basic financial statement and not the others, as long as __________
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access is not limited to information underlying the basic financial statement (limited reporting engagement)
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what does an unqualified opinion mean?
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the financial statements are presented fairly in all material aspects.
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how many paragraphs does a standard report for an unqualified opinion have?
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3
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the auditor's standard report for an unqualified opinion has all of the following:
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1. title - "independent"
2. addressee - company, stockholders/ BOD (not management) 3. introductory paragraph 4. scope paragraph 5. opinion paragraph 6. firm name 7. report date |
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what word must be included in the auditor's standard report title?
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independent
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the introductory paragraph for an unqualified opinion contains the following:
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1. statement that the financial statements as identified in the report were audited
2. statement that the financial statements are the responsibility of management and that the auditor's responsibility is to express an opnion |
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the scope paragraph of an auditor's standard report for an unqualified opinion contains the following:
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1. statement that audit was conducted in accordance with GAAS
2. statement that the audit was planned and performed to obtain reasonable assurance that the financial statements are free from material misstatement 3. statements that the audit included examining evidence on a test basis, assessing the accounting principles used and significant estimates made by management, and evaluating the overall presentation 4. a statement that the audit provides a reasonable basis for an opinion |
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the opinion paragraph of an auditor's standard report for an unqualified opinion contains the following:
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1. statement referring to the financial statements specifically identified in the intro paragraph
2. an opinion as to the fair presentation of the financial statements 3. a statement regarding conformity with U.S. GAAP |
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in the auditor's standard report, what should the report date be?
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dated on or after the date on which appropriate audit evidence, sufficient to support the opinion, has been obtained
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sufficient appropriate audit evidence includes evidence that:
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1. audit documentation has been reviewed
2. financial statements have been prepared 3. management has taken responsibility for the financial statements |
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the report date of a standard report shows the final date of _____
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the auditor's responsibility
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in an auditor's standard report, for comparative statements, the date appropriate for the _________ should be used.
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most recent audit
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PCAOB Auditing Standard No. 1 requires the auditor's report to include _________
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a reference to the standards of the PCAOB
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an auditors report on the financial statements of an issuer should also include identification of ____ from which the report was issued. generally, this info is included with ________
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city and state (our country);
included w/ the signature and date |
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can an auditor conduct the audit of a nonissuer in accordance with the auditing standards of the PCAOB?
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yes
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which paragraph mentions GAAS?
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scope
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which paragraph mentions GAAP?
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opinion
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what are the three major differences between the audit report under US auditing standards and International standards?
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1. ISA audit report includes expanded descriptions of managements and the auditors responsibilities
2. The ISA audit report should be addressed as required by the circumstances of the engagement and should name the location in the country or jurisdiction where the auditor practices 3. when an audit is conducted in accordance with BOTH the auditing standards of a specific jurisdiction and international standards on auditing, the auditor's report may refer to both the national auditing standards of that jurisdiction and the international standards ONLY IF there is no conflict between the two sets of standards that would impact the report and the audit report includes all elements required by the ISAs |
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what is a modified unqualified opinion?
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explanatory paragraph may be added to the unqualified report.
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a _____ opinion states that the financial statements present fairly, in all material respects, the financial position, results of operations, ad cash flows of the entity in conformity with US GAAP
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unqualified
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a ___ opinion states that, "except for" the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, result of operations, and cash flows of the entity in conformity with US GAAP
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qualified
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a ____ opinion states that the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with US GAAP
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adverse
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a ____ opinion states that the auditor does not express an opinion on the financial statements because he was not able to perform an audit sufficient in scope to render an opinion
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disclaimer of opinion
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what kind of opinion for a financial statement with a very material GAAP problem?
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adverse
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what kind of opinion for a financial statement with a very material GAAS problem?
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disclaimer of opinion
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what are examples of uncertainties?
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impairments, intangibles, lawsuits, warranties
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what is the management's responsibility in regards to uncertainties?
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1. estimate the effect of future events on the financial statements and record and present this estimate, OR
2. determine that a reasonable estimate cannot be made and make the required disclosures to that effect |
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what is the auditor's responsibility in regards to uncertainties?
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an assessment of whether the audit evidence that is or should be available is sufficient to support management's assertion regarding the uncertainty
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regarding an uncertainty, if managements analysis is supported and properly reported or disclosed, the auditor issues a _____ opinion
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unqualified
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regarding uncertainties, if the auditor is unable to obtain sufficient audit evidence involving an uncertainty, the auditor should express what type of opinion?
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qualified GAAS opinion or disclaim
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regarding uncertainties, if the auditor concludes that the financial statements are materially misstated due to a departure from GAAP, the auditor should express what type of opinion?
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qualified GAAp or adverse opinion
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how can the auditor modify the standard unqualified report to explain or emphasize a matter?
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1. modified wording - division of responsibility
2. explanatory paragraph |
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what is division of responsibility?
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the auditor's opinion is based in part on the report of another auditor.
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what instances require an explanatory paragraph?
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necessary and justified departure from GAAP
Going concern to emphasize a matter regarding financial statements a justified lack of consistency required SEC regulation has been omitted supplementary info required by GAAP has been omitted other info in a doc containing audited f/s is materially inconsistent w info appearing in financial statements |
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what is the general rule on position of explanatory paragraph for an unqualified opinion?
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follow the opinion paragraph
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what is the general rule on position of explanatory paragraph for a qualified opinion?
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precede the opinion paragraph
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what is the general rule on position of explanatory paragraph for an adverse opinion?
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precede the opinion paragraph
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what is the general rule on position of explanatory paragraph for a disclaimer of opinion?
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precede the opinion paragraph
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when can an explanatory paragraph be placed either before or after the opinion paragraph? (aka exception to the general rule)
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justified GAAP departure
emphasis of a matter |
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if there are other auditors working, after a decision is reached as to who acts as the principal auditor, they must further decide whether to:
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refer to their auditor in their report or to assume responsibility for the report themselves
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regardless of whether the principal auditor decides to refer to the auditor in the report or not:
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1. the other auditors remain responsible for their own work and report
2. the principal auditor must always be satisfied regarding the reputation and independence of the other auditor |
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when the principal auditor decides to mention the work done by other auditors, the report will express a _______
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division of responsibility
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where will a principal auditor mention a division of responsibility?
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all three paragraphs. (intro scope and opinion)
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in a division of responsibility, the name of the other auditor is not mentioned unless ______
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that auditor gives express permission and the report of the other auditor is presented
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the work done by the other auditors is expressed in terms of __________, and is set forth in the _____ paragraph.
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in terms of percentages, totals, or other appropriate criteria.
intro paragraph. |
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if the principal auditors decide not to make reference to other auditor, they must assure themselves of the _________ of the other auditor.
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independence, professional competency, and reputation
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if the principal auditors decide not to make reference to the other auditor, what steps should they take?
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1. visit with the other auditor and discuss the audit procedures
2. review the audit program, audit documentation, and evaluation of int control performed (PCAOB rules have specific additional reqs regarding documentation that the principal must obtain, review, and retain) |
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if the principal auditors decide not to make reference to the other auditor, what do they do if the other auditor's opinion is qualified?
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the principal auditors must decide whether the subject of the qualification is material in relation to the consolidated statements, and, if not, they need not make reference in their report to the qualification.
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if adherence to GAAP would make the financial statements more misleading than they would be under another accounting treatment, what should the auditor do?
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express an unqualified opinion and add an explanatory paragraph either before or after the opinion paragraph
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if there is a justified departure from GAAP, what should the explanatory paragraph say?
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contain a description of the departure, its approximate effects (if possible), and the reasons why adherence to GAAP would make the FSs misleading.
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when is the auditor responsible for evaluating aggregate audit evidence to determine whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time?
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in every audit engagement
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if there is substantial doubt about going concern, the auditors would state their concerns where?
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in an explanatory paragraph after the opinion paragraph of their unqualified report.
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the going concern period should not exceed _____ from the date of the financial statements being audited
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one year
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what does ISA 570 require for the time period to assess the entity's ability to operate as a going concern?
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consider same period that was used by management in making its assessment. must be at least, not limited to, a year form the balance sheet date. auditor also required to inquire of management regarding conditions or events beyond the period of assessment that may cast significant doubt about the entity's ability to continue as a going concern.
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to evaluate a company's going concern, the auditor should examine the evidence obtained from the following procedures:
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A - Analytical procedures
D - Debt compliance M - Minutes I - Inquiry of client's legal counsel T - Third parties - confirm details of financial support arrangements S - Subsequent events review |
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what are the differences between U.S. and international standards on what procedures to use to determine a company's going concern?
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isa 570 - consider the going concern assumption throughout the engagement (when planning and performing audit procedures and in evaluating the results of audit procedures)
u.s. - don't require specific procedures, but instead require auditor to consider whether the results of the audit procedures performed identify conditions |
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what are the conditions and events that may be indicative of substantial doubt of a going concern?
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F - financial difficulties
I - Internal matters N - negative trends E - external matters |
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what kinds of financial difficulties would be indicative of substantial doubt of a going concern?
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loan defaults, dividend arrearanges, denial of usual trade credit, debt restructuring, noncompliance with capital requirements, new financing sources or methods, disposal of substantial assets
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what kinds of internal matters would be indicative of substantial doubt of a going concern?
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work stoppages, labor difficulties, substantial dependence on a particular project, uneconomic long-term commitments, significant revision of operations
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what kinds of external matters would be indicative of substantial doubt of a going concern?
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legal proceedings, new legislation, loss of a key franchise, license, or patent, loss of a principal customer or supplier, natural disasters
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when an auditor believes that there is substantial doubt about an entity's ability to continue as a going concern, the auditor is required to consider management's plans for dealing with the conditions or events that led to the auditor's belief, including:
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plans to borrow money or restructure debt,
plans to sell assets plans to delay or reduce expenditures plans to increase ownership equity (must include both intent and ability to carry out the planned procedures) |
