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GAAS General Standards
- The auditor must have adequate technical training and proficiency to perform the audit.
- The auditor must maintain independence in mental attitude in all matter relating to the audit.
- Professional Care
- The auditor must exercise due professional care in the planning and performance of the audit and the preparation of the report.
GAAS Standards of Fieldwork
- Planning and Supervision
- The auditor must adequately plan the work and must properly supervise any assistants.
- Internal Control, Entity, and Environment
- 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 statements whether due to error or fraud, and to design the nature, extent, and timing of further audit procedures.
- The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.
GAAS Standards of Reporting
- Accounting = GAAP
- The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP).
- The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
- When the auditor determines that informative disclosures are not reasonably adequate, the auditory must so state in the auditor's report.
- Express Opinion
- The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report.
Do weak internal (client) controls result in adverse opinon?
No, not by itself. Weak controls imply the auditor will require more evidence from substantive procedures.
What portions of ACDO are explicit?
- Accounting = GAAP: must state (explicit)
- Consistency: silence ok (implicit)
- Disclosure: silence ok (implicit)
- Express Opinion: must state (explicit)
Sections of Auditor's Standard Report (unqualified opinion)
- Introductory Paragraph
- Scope Paragraph
- Opinion Paragraph
- Firm Name
- Report Date
Required Components of Standard Audit Report intro and scope paragraphs (unqualified opinion)
RAPMEAM x 2
- A statement that the financial statements are the responsibility of management and that the auditor's responsibility is to express an opinion
- A statement that the audit was conducted in accordance with United States GAAS
- A statement that the audit was planned and performed to obtain reasonable assurance that the financial statements are free from material misstatement.
- 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
What are the major audit report differences under ISA (International Standards on Auditing)?
- 1. Expanded descriptions on management's and auditor's responsibilities.
- 2. Addressed as required by engagement and should name location in the country or jurisdiction the auditor practices.
- 3. If conducted by standards of jurisdiction and ISA, auditor may refer to both only if there is no conflict.
What type of opinion is issued if there is an immaterial problem?
What type of opinion is issued if there is a material problem with GAAP conformity?
Qualified "except for"
What type of opinion is issued if there is a material problem with adherence to GAAS?
Qualified "except for"
What modification is made to the report for a material problem with a conformity for GAAP?
Modify opinion paragraph (except for).
What modification is made to the report for a material problem with adherence to GAAS?
Modify Scope and Opinion paragraphs (except for).
What type of opinion is issued if there is a very material problem with conformity with GAAP?
What type of opinion is issued if there is a significant problem with adherence to GAAS?
What type of opinion is issued if the financials are false, fraudulent, deceptive, or misleading?
None - Withdraw.
What are the procedures to assess an entity's ability to continue as a going concern?
- Analytical procedures
- Debt Compliance (review debt agreements)
- Minutes (stockholder and BOD meetings)
- Inquiry (legal counsel)
- Third parties (financial support)
- Subsequent (events review)
What are the conditions and events that may be indicative of substantial doubt of a entity's ability to continue as a going concern?
- Financial difficulties
- Internal matters
- Negative trends
- External matters
What are mitigating factors to relieve an auditor's substantial doubt about an entity's ability to continue as a going concern?
- Plans to borrow money or restructure debt
- Plans to sell assets
- Plans to delay or reduce expenditures
- Plans to increase ownership equity
What is the subsequent period?
The period between the date of the financial statements and the date of the auditor's report.
What subsequent events is the the auditor responsible to investigate?
- Post balance sheet transactions
- Representation letter (CEO/CFO) whether events require adjustments or disclosure
- Examine latest interim financials
The six interrelated elements of quality control
- Human resources
- Engagement/client acceptance and continuance
- Leadership responsibilities
- Performance of the engagement
- Ethical requirements
What are the elements of understanding a client's business for a compilation?
- Staff qualifications
- Transaction types and frequency
- Accounting basis used to prepare the financial statements
- Form of the accounting records
- Financial statements' form and content
What are the key components of a compilation report?
- CAR MR ARSOM
- State that the financial statements have been compiled
- state that the accountant has not reviewed or audited the financial statements
- Management Responsibility paragraph
- Accountant's Responsibility paragraph
- state that the accountant's responsibility is to conduct the compilation in accordance with SSARS issued by the AICPA
- state that the objective of a compilation is to assist management
What are the performance requirements for a Review of Financial Statements?
- U LIAR CPA
- Understanding with client should be established
- Learn and/or obtain sufficient knowledge of the entity's business
- Inquiries should be addressed to appropriate individuals
- Analytical procedures should be performed
- Review--other procedures should be performed
- Client representation letter should be obtained from management
- Professional judgment should be used to evaluate results
- Accountant (CPA) should communicate results
What are the key elements to reporting on a review?
- AM I SAD MR FIRSALA
- Include a statement that a review includes primarily applying analytical procedures to management's financial data and making inquiries of company management.
- Include a statement that a review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole, and that, accordingly, the accountant does not express such an opinion.
- Management's Responsibility Paragraph states that management is responsible for the preparation and fair representation of the financial statements and maintaining internal control
- Accountant's Responsibility Paragraph states that the accountant's responsibility is to conduct the review in accordance with SSARSs issued by the AICPA and require that the accountant perform procedures to obtain limited assurance that there are no material modifications.
The eleven attestation standards include
- Five General Standards:
- Training and proficiency
- Performance/due professional care in planning and performance
- Professional, adequate knowledge of subject matter
- Your belief that the subject matter is capable of evaluation against criteria that are suitable and available to others
- Two Fieldwork Standards
- Planning and supervision
- Appropriate, sufficient evidence to provide a reasonable basis for the conclusion
- Four Reporting Standards:
- Identify the Subject matter or assertion being reported on
- Disclose Significant reservations about the engagement
- Express conclusions about the subject mater or the assertion
- Restrict use of the report.
What are the Conditions of a agreed-upon procedures engagement?
- I AM SURE
- Independence of the practitioner
- Agreement of the parties
- Measurability and consistency
- Sufficiency of the procedures
- Use of the report is restricted to specified parties
- Responsibility for the subject matter
- Engagements to perform agreed-upon procedures on prospective financial statements
When is an accountant required to comply with Statements on Standards for Accounting and Review?
- When submitting unaudited financial statements.
- Submission is defined as: presenting to a client or third parties financial statements the accountant has prepared. An accountant who reproduces client-prepared.
What are the financial statement assertions?
- Rights and obligations
- Valuation and allocation
- Understandability and classification
How is audit risk determined?
- AR = RMM x DR
- RMM = IR x CR
- AR = IR x CR x DR
- AR: Audit Risk
- RMM: Risk of Material Misstatement
- DR: Detection Risk
- IR: Inherent Risk
- CR: Control Risk
What is Detection Risk?
The risk that the auditor will not detect a material misstatement that exists in a relevant assertion.
What is Inherent Risk?
The susceptibility of a relevant assertion to a material misstatement assuming there are no related controls.
What is Control Risk?
The risk that a material misstatement that could occur in a relevant assertion will not be prevented or detected (and corrected) on a timely basis by the entity's internal control.
What are the three fraud risk factors?
- Rationalization/Attitude (ethics & integrity)
What are the three types of fraud?
- Fraudulent financial reporting (lying)
- Misappropriation of assets (stealing)
- Corruption (cheating)
What is the Evidence Hierarchy?
- AEIO - U know it
- A auditor peronal knowledge & observation
- E external evidence
- I internal evidence
- O oral evidence by client
What are the 10 GAAS?
- TIP PIE ACDO
- General Standards
- T - training
- I - independence
- P - professional care
- Standards of Fieldwork
- P - planning and supervision
- I - internal control, entity, & environment
- E - evidence
- Standards of Reporting
- A - accounting = GAAP
- C - consistency
- D - disclosure
- O - express opinion
What are the features of strong internal control?
- PAID TIPSP - prenumbered documents
- A - uthorization of transactions
- I - independent checks
- D - documentation
- T - timely & appropriate performance reviews
- I - information processing controls
- P - physical controls
- S - segregation of duties
What are the management assertions?
- COVER UC - completeness
- O - cut-offs
- V - valuation, allocation, & accuracy
- E - existence & occurence
- R - rights & obligations
- U - understandibility & classification