2 Professional Standards

Question 1

Standards (3 types)

Answer 1

Standards = to guide performance AND provide criteria to measure it

1) Engagement Performance Requirements (Auditing, Attestation & Engagement)
2) CPA Firm Requirements (Quality Control)
3) CPA Individual Person Standards (Ethics)

Question 2

1) Auditing Standards (3 types)

Answer 2

3 Sets of Auditing Standards

a) AICPA (for nonpublic)
b) PCAOB (for public)
c) IAS (International)

-States also regulate CPAs within their jurisdiction

Question 3

A) AICPA GAAS

Answer 3

-AICPA’s Auditing Standards Board (ASB) issues Statements on Auditing Standards (SAS)

Generally Accepted Auditing Standards = Used to be 10 standards, now they are “Principles Underlying an Audit” there are 5

1) Purpose = provide opinion on the financial statements, whether they follow the financial reporting framework
2) Premise = management is responsible to prepare fair financial statements in accordance with framework and provide auditor with all info
3) Personal Responsibilities of Auditor = having competence and capability to perform audit ethically with professional skepticism
4) Auditors Action in Performing = Express an opinion based on reasonable assurance that financial statements are free from material misstatement.
5) Reporting Results of an Audit = written report of opinion

Question 4

B) PCAOB Auditing Standards

Answer 4

-PCAOB Standards are structured around the 10 GAAS that AICPA used to be structured around

3 categories, 10 Standards

1) General Standards = Auditor training, Auditor independence, Auditor professional care
2) Standards of Fieldwork = Audit planning, understanding internal controls, sufficient evidence obtained
3) Standards of Reporting = Accordance with GAAP, inconsistency with prior period, informative disclosures considered adequate by default unless otherwise stated, report has opinion/says opinion cannot be expressed for X reasons

Question 5

Auditor Responsibility to Detect Misstatement

WHY are auditors responsible for this?

Answer 5

An auditor cannot have reasonable assurance unless there is low risk of material misstatement. So they need to detect misstatements.

Errors = unintentional misstatements or omissions of amounts or disclosures in financial statements

Fraud = intentional acts that cause misstatement, (financial reporting or misappropriation of assets) difficult to detect because it often involves concealment.

-Auditor is also responsible to detect noncompliance with laws with a direct effect. Or if noncompliance with other-laws has a material effect on financial statements.

Question 6

Auditor Reports

HOW are nonpublic companies reports addressed to stockholders?

Answer 6

Standard Report = unmodified/unqualified opinion, audit was adequate in scope and financial statements present fairly the financial position. No exceptions, no modifications.

Nonpublic Company Report = Title includes the word Independent, addressed to the person who got the auditors. 1) Intro sentence 2) Management Responsibility = financial statement are management’s 3) Auditor’s Responsibility = to follow GAAS, obtain reasonable assurance using audit evidence 4) Opinion = 1 sentence “in conformity with GAAP.” “in all material respects” (note about “related party transactions”)

Public Company Report = Integrated audit that includes assurance on both statements and internal controls. Can report either separate or joint. If just report on financial statements, final paragraph may refer to internal control. 1) Intro sentence 2) Management Responsibility 3) Auditor’s responsibility to follow “PCAOB US” NOT “GAAS”

Question 7

Attestation Standards

Answer 7

More general attestation standards, the Accounting Standards Board (ASB) creates SSAEs that provide lots of attest standards

Statement on Standards for Attestation Services (SSAE1) = general framework for the attest function

—(Figure 2.6)—

Question 8

Quality Control in CPA Firms

Question 9

Regulation of Accounting Firms

Question 10

IASB