A6 - Accounting and Review Service Engagements, Interim Reviews, and Ethics and Professional Responsabilities Flashcards
(100 cards)
1
Q
What are the duties of the PCAOB?
A
- Register public accounting firms that prepare audit reports for issuers
- Establish rules relating to the preparation of audit reports for issuers; and
- Conduct inspections, investigations, and disciplinary proceedings concerning registered public accounting firms.
the Board does not prosecute suspected criminal violations by registered public accounting firms.
1
Q
How many members does the PCAOB has?
A
The PCAOB has 5 members:
1. 2 must be CPAs
2. 3 members cannot be CPAs.
2
Q
What engagement type provides limited assurance?
A
A review engagement under SSARS or SSAE is the only engagement where the accountant express limited assurance
3
Q
What are the characteristics of a review engagement under SSARS?
A
- only for Nonissuers
- Require independence
- Requires inquiries of management and analytical procedures.
- Increase attention where there is increased risk
- CPA expresses a conclusion, not an opinion
- Reviews historic F/S of nonissuer
- Requires Engagement letter
- Review is substantially less in scope than an audit
- Statement that no opinion will be expressed
- Management Rep letter
- Representation should have same date as review report
- F/S and accounting records are provided
4
Q
What is a compilation engagement under SSARS?
A
Service performed to apply accounting and financial expertise to assist management of a company in presenting their financial statements in an accurate manner. It’s used to present to third parties such as a bank.
5
Q
What are the characteristics of a compilation engagement?
A
- F/S include an indication that “No assurance has been provided.”
- Independence is not required of the practitioner. If not independent, that must be disclosed in a separate paragraph (no reasons required).
- No inquiry or analytical procedures performed
- One paragraph report
- Only performed for nonissuers
6
Q
What is the practitioner not required to do in a review engagement under SSARS?
A
- Substantive testing procedures
- Testing of internal controls
- Assessment of risk of fraud
7
Q
When is a preparation engagement apply?
A
An accountant in public practice is engaged to prepare financial statements but is not engaged to perform an audit, review, or a compilation on those financial statements. This is a nonattest service.
8
Q
What are key characteristics of a preparation engagement?
A
- Independence is not required.
- No assurance is provided. Each page of the F/S must include a footnote saying “no assurance has been provided.”
- Engagement letter required
- Accountant is required to perform the following to prepare the F/S:
- Obtain knowledge and understanding of financial reporting framework and significant accounting policies
- Use documentation provided by management - Not report is required
9
Q
What documentation should the accountant retain in the workpapers of a preparation engagement?
A
- copy of engagement letter
- Copy of financial statements
- Any significant findings or issues.
10
Q
What does the integrity principle of the AICPA code of conduct describes?
R
O
D
I
S
I- Integrity
P
A
what is right and what is just
11
Q
What does the objectivity principle of the AICPA code of conduct describes?
R
O - Objectivity
D
I
S
I
P
A
State of mind that requires impartiality, intellectual honesty, free from conflict of interest. It applies to every role in the accounting profession even if it’s not attest work. Free from bias.
12
Q
What does the independence principle of the AICPA code of conduct describes?
R
O
D
I - Independence
S
I
P
A
About your financial interests, any conflicts that you have with the client material or immaterial, direct or indirect. Only those doing attest related engagement have to be independent in fact and appearance. (Club membership stock ownership does not apply for this rule)
13
Q
What does the due care principle of the AICPA code of conduct describes?
R
O
D - Due care
I
P
I
A
Member should observe the following:
1. profession’s technical and ethical standards,
2. strive continually to improve competence
3. Continually improve the quality of service
4. discharge professional responsibility to the best of the member’s ability
5. Involves adequate planning and supervision of the engagement.
14
Q
What would happen if proper due care is not applied?
A
If due care is not applied, this will lead to negligence.
15
Q
What does the responsibilities principle of the AICPA code of conduct describes?
R - Responsibilities
O
D
I
S
I
P
A
- Members should exercise sensitive (being aware of how actions appear to a non-accountant) professional and moral judgement
- Members should co-operate with other members to improve the art of accounting, maintaining public confidence.
16
Q
What does the public interest principle of the AICPA code of conduct describes?
R
O
D
I
S
I
P - Public interest
A
Members should act in a way that:
1. serves the public interest
2. honors the public trust
3. demonstrates commitment to professionalism
17
Q
What is consider a member in public practice?
A
A member engaged in auditing, tax, or consulting for a client
18
Q
What are considered members in business?
A
Members are employed or engaged on a contractual or volunteer basis in executive, staff, governance, advisory, or administrative role in various areas (e.g., public sector, education, non-for-profit organizations and regulatory professional bodies)
19
Q
What are threats to compliance with the fundamental principle?
A
- adverse interest threat
- Advocacy threat
- Familiarity threat
- Management participation threat
- self-interest threat
- self-review threat
- Undue influence threat
20
Q
What should the auditor do if unable to state in each page of the preparation engagement that no assurance has been provided?
A
The auditor should perform the following:
1. Issue a disclaimer that makes clear that no assurance is provided on the F/S
2. Perform a compilation engagement
3. withdraw from the engagement and inform mgmt the reasons
21
Q
How can the auditor report unaudited prior period F/S when reporting comparative F/S?
A
The auditor could perform the following:
1. Reissue the prior period F/S with the current period audited F/S, or
2. Include in the current year audit report an “other matters” paragraph explaining the responsibility assumed for the prior period F/S
22
Q
If the prior period F/S are not re-issued, what information is included in the other matter paragraph?
A
- Services performed in the prior period (review or compilation)
- date of the prior report
- Any material modifications described in the report
- A statement that the service was less in scope than an audit and does NOT provide the basis for expressing an opinion on the F/S.
23
Q
What are the ethical principles under GAGAS (SIPPO)?
A
S - Serving the public interest
I - Integrity
P - Proper use of government information, resources, and positions
P - Professional behavior
O - Objectivity
24
What does serving the public interest under GAGAs refers to?
S - Serving the public interest
I
P
P
O
defined as the collective well-being of the community of people and entities served by the auditor
25
What does integrity under GAGAs refers to?
S
I - Integrity
P
P
O
Conducting work with an attitude that is objective, fact-based, nonpartisan, and nonideological with regard to the audited entities and users of the auditor's report.
26
What does objectivity under GAGAs refers to?
S
I
P
P
O - Objectivity
independence of mind and appearance when providing audits, maintaining an attitude of impartially, having intellectual honesty, and being free of conflicts of interest.
27
What does proper use of government information, resources, and positions under GAGAs refers to?
S
I
P - Proper use of government information, resources, and positions
P
O
auditor is to use government information, resources, and positions for official purposes and not inappropriately for the auditor's personal gain
28
What does proper use of professional behavior under GAGAs refers to?
S
I
P
P - Professional behavior
O
Auditor's honest effort in performance of professional services in accordance with the relevant technical and professional standards.
29
What is the partner and concurring partner rotation period to not impair independence in an issuer?
partners should rotate off the audit every 5 years or failure of the audit partner to rotate off the audit engagement after no more than 7 years impairs independence.
30
What is the rotation rule for partner and concurring partner for nonissuers?
Small firms or nonissuers with fewer than 5 clients and fewer than 10 partners may be exempted from the partner rotation requirement.
31
What are the reasons footnote disclosures are included in additional paragraphs in a compilation?
1. Lack of independence (no reasons required, but if given, must disclose all reasons)
2. A reporting framework different than US GAAP is used
3. Footnotes were omitted
32
What date is used for a compilation report?
The date of the completion of the compilation
33
What is the Accounting and Review Services Committee?
Authoritative body designed to promulgate standards concerning an accountant's association with unaudited F/S of a nonissuer (an entity that is not required to file F/S with an agency regulating the issuance of the entity's securities).
34
What are the characteristics of a review engagement under SSAE?
1. Used by Issuers
2. Require independence
3. Requires inquiries and analytical procedures.
3. Increase attention where there is increased risk
4. CPA expresses a conclusion, not an opinion
5. On subject matter or management's written assertion
6. Requires Engagement letter
7. Review is substantially less in scope than an examination
8. Statement that no opinion will be expressed
9. Written representation from responsible and engaging parties
10. Representation should have same date as review report
11. Inquire about subsequent events up to the date of the report
12. Identification of the measurement criteria to be used
13. Written assertion about the subject matter
35
What is the purpose of a review engagement under SSARS?
To perform certain procedures in order to provide limited assurance as to whether material modifications need be made for financial statements to be in accordance with the framework. Non-issuers financial statements that do not get audited.
36
What is the purpose of a review engagement under SSAE?
To evaluate subject matter against criteria in order to express a conclusion and provide limited assurance about whether any material modification should be made to the subject matter in order to be in accordance with the criteria. It's not related to financial statements.
37
What would the auditor do if the engaging party and responsible party refuses to provide a written assertion or written representation in a review engagement under SSAE?
The auditor should withdraw from the engagement
This is applicable to all attestation engagements.
38
What would the auditor do if the engaging party and responsible party are different and refuse to provide a written assertion in a review engagement under SSAE?
1. Auditor should disclose the refusal in the examination or review
2. The auditor should restrict the use of the examination/review to the engaging party
39
What would the auditor do if the engaging party is NOT the responsible party and the responsible party refuse to provide a written representation in a review engagement under SSAE?
1. The CPA should make inquiries and seek oral responses from the responsible party.
2. If satisfactory oral responses are obtained, the CPA should restrict (add an alert) the report to the engaging party.
40
What would the auditor do if the engaging party is NOT the responsible party and the responsible party refuse to provide a written representation or oral responses in a review engagement under SSAE?
This represents a scope limitation and the CPA should withdraw
41
What should the CPA do if he/she renders an unmodified conclusion in a review report under SSAE?
The CPA can report either on the subject matter or the responsible party's written assertion.
42
When does the CPA report a qualified (modified) opinion in a review report under SSAE?
1. if there are material misstatements but not pervasive
2. The conclusion is reported directly on the subject matter, NOT on management's assertions
3. There is a departure from reporting framework (e.g., US GAAP) and disclosure is inadequate
43
When does the CPA report an adverse (modified) opinion in a review report under SSAE?
1. when misstatement of the subject matter is both material and pervasive
2. Express the conclusion on the subject matter, not on management's assertions.
3. There is a departure from reporting framework (e.g., US GAAP) and disclosure is inadequate
44
When does the CPA refer to the work of the specialist in a review report under SSAE?
When the CPA is qualifying the conclusion. If unmodified conclusion, there is no reference to the specialist at all.
45
How are analytical procedures in a review engagement measured?
Analytical procedures are expressed as "quantitative procedures" (measured in quantity rather than quality). If an attestation review does not rely heavily on analytical procedures, then there is less reliance on the quantitative aspect of the subject matter.
46
What are the responsibilities of the PCAOB?
1. Register firms that will audit public companies
2. Establish PCAOB auditing standards
3. Inspecting firms that audit public companies
4. Investigations and disciplinary proceedings
47
What can the practitioner deliver to client under a preparation engagement under SSARS 21?
One or more financial statements with or without footnotes
48
What reports are required in a preparation engagement under SSARS 21?
Only the engagement letter is required.
A practitioner report is not required.
49
What should the financial statements include if prepared under a preparation engagement?
A footer on each page of the financial statements saying "No Assurance is Provided." These can be distributed to clients and third parties (e.g., bank).
50
When can the practitioner prepare the financial statements under a preparation engagement?
When the partitioner is not auditing, reviewing or performing a compilation on the same financial statements for the same period
51
When is the practitioner subject to peer review under SSARS 21?
When the practitioner is performing audits, review, and compilations. Preparations are not subject to peer review.
52
What management's responsibility should be documented in the engagement letter of preparation engagement under SSARS 21?
The accuracy of significant judgements to be used in the preparation of the financial statements.
53
What type of engagements are performed in a compliance attestation?
1. Agreed-upon procedures
2. Examination
CPA may NOT perform a review regarding compliance
54
What engagement requires management compliance with specified requirements and responsibility for internal controls over compliance?
1. Agreed-upon procedures
2. Examination
55
What opinion does the CPA provides in an examination engagement over compliance?
1. Entity complied with specified requirements, in all material respects, or
2. Management's assertion is fairly stated
No opinion on internal controls over compliance
56
How can the CPA obtain an understanding to complete a compliance attestation engagement?
1. Interviews with legal counsel
2. Consideration of relevant laws
3. Consideration of knowledge obtained from prior engagements.
57
What modifications for opinion are rendered in an examination of compliance attestation?
1. Disclaimer - scope limitation (e.g., management refusal to provide written representation, unable to find appropriate evidence to support the misstatement)
2. Adverse (non-compliance with specified requirements
3. Qualified (scope limitation or non-compliance, if material but not pervasive)
An explanatory paragraph (before the opinion) should be added to the report
58
What is the purpose of the compliance engagement?
Considered attestation engagements because the accountant is attesting on whether the accountant is compliant with the subject matter or any laws and regulations. Follows SSAE standards
59
How is an engagement to prepare financial statements treated?
It is treated as non-attest service, and it's performed as long as the practitioner is not also performing a review, compilation or audit on the same financial statements for the same period.
60
How often does PCAOB conducts inspections for those firms that audit more than 100 issuers?
Annually
61
How often does PCAOB conducts inspections for those firms that audit less than 100 issuers?
at least once every three years
62
Who has oversight of the PCAOB (non-for-profit) inspection process?
The SEC (governmental agency). PCAOB reports to the SEC.
63
What is directly assessed during a PCAOB inspection?
1. Auditing and quality control standards
2. Compliance with independence standards
3. Ethical requirements
64
What is the process to issue the inspection report in the PCAOB inspection?
1. PCAOB drafts inspection report to include findings and identified deficiencies
2. CPA responds to draft report and PCAOB may revise it based on responses
3. PCAOB finalizes report and issues it publicly.
4. PCAOB monitors the firm's remediation efforts to address identified deficiencies.
65
Are the portions of the report where detail criticism or potential defects in the firm's quality control also public in the inspection report?
No, detail criticism or potential defects on the firm's quality control system may remain nonpublic if the firm addresses those issues to the PCAOB's satisfaction within 12 months.
66
What's the timeframe a CPA firm has to report PCAOB of a change in name, structure, or withdraw from registration?
The CPA firm has within 30 calendar days of the occurrence of the event to file a special report with the PCAOB
67
Is the CPA required to be independent if not in public practice?
No, only those doing attest related engagements (audits, special reports, examinations, agreed-upon procedures, and reviews) need to be independent in fact and appearance.
68
What type of procedures are performed in a review engagement under SSARS for a nonissuer?
1. CPA reads F/S and agrees accounting records
2. Read board meeting minutes, stockholders minutes, committee minutes
3. Analytical procedures are performed to identify unusual transactions (e.g., compare current F/S to prior period, compare ratios developed by client to CPA's expectations, compare disaggregated data from current to prior period)
4. Inquires of management about financial reporting issues (e.g., procedures for recording transactions, significant journal entries, adjustments, subsequent events). Only from internal parties, no external (e.g., legal counsel).
5. No substantive auditing procedures are required. CPA does not need to corroborate evidence that the accounting records agree with the F/S.
6. Should consider reasonableness and consistency of responses from inquiry. Must be documented and presented to client in the mgmt rep letter.
7. No transactions or account balances are tested in a review.
69
RODISIP = 7 principles of professional conduct of the AICPA code of conduct
R = Responsibility principle
O = Objectivity
D = Due care
I = Independence
S = Scope and Nature
I = Integrity
P = Public interest
70
What is the objective of the interim financial statements review?
To report whether material modifications should be made to conform with GAAP. No opinion given.
71
What standards rule the interim financial statements review?
PCAOB standards
72
How to determine that the interim financial statement was not audited?
Each page of the interim F/S should be marked "unaudited"
73
How is a standard unmodified review report structured?
A review report has 4 paragraphs:
1. Introduction
2. management responsibility
3. CPA or auditor responsibility
4. Conclusion that expresses negative assurance (limited assurance)
74
What should the auditor do if the interim financial statements are not prepared in accordance with the applicable reporting framework?
The auditor can modify the standard review report if modification is sufficient. The auditor includes an additional paragraph describing the nature of the departure. If not sufficient, the auditor should withdraw.
75
What should the auditor do if comparative information is presented that has NOT been reviewed?
The auditor should indicate that does not assumes any responsibility for it.
76
What does disaggregated data means?
Disaggregated means lower levels. Example, not grand total of revenue but revenue by geographic territory, by product line.
77
What does the scope and nature principle of the AICPA code of conduct describes?
R
O
D
I
S - Scope and nature of services
I
P
Members should practice in firms with good quality control procedures to ensure services are performed properly and less chance of negligence. Use of professional judgement to determine conflict of interest with the client
78
What is the General Standard Rule?
Perform the services when you're competent and have the technical expertise
79
What is the Accounting Principle Rule?
Sometimes we say in our opinion in the report "the client did not follow GAAP maybe because using GAAP will give them a misleading result," but normally we say we follow GAAP.
80
What is the Confidential Client Information General Rule?
We're not suppose to reveal our client information without their permission (general rule), we have to keep the confidentiality but sometimes we have to disclose in case of a subpoena, investigation by the AICPA or any ethics committee.
81
What is Act Discreditable Rule?
This means to behave well in the profession because as CPA you have to stand and hold yourself above the standards.
82
What are examples that support the Act Discreditable Rule?
1. Do not hold any client record hostage if you want to get payment from the client for services
2. You don't file your taxes.
3. negligence in preparation of F/S or tax returns - failure to follow standards
4. Improperly limiting our liability or own negligence in the engagement letter (we should be accountable for our negligence)
5. False advertising
6. Improper retention of client records
7. Removing client files from a firm after quite.
83
What is Advertising and Other Forms of Soliciting Rule?
No harassment, the advertisement should not be misleading or defrauding people.
84
What is the Commission and Referral Fee Rule?
Contingent fee and commissions are prohibited if the arrangements involves certain attest clients. If any, if it's allowed under any circumstances, then you have to disclose these commissions.
85
What is Form of Organization and Name Rule?
It should not be misleading and most of the owners must be CPAs. May use name of past owners, and must be members of the AICPA.
86
What should the accountant do If compiled financial statements are omitting substantially all GAAP disclosures?
The accountant should not issue a report as the compiled financial statements that omit substantially all GAAP disclosures are not comparable to financial statements from prior periods that include the disclosures.
87
What should the auditor do if comparative F/S include prior year F/S but audit report is not presented?
If prior year F/S are included in the comparative F/S but the predecessor report is not provided, the auditor performs the following:
1. Includes an other-matters (explanation) paragraph in the current year audit report
2. States that prior year F/S where audited by the predecessor auditor
3. Provides the opinion rendered by the predecessor auditor. If modified, reasons for modification.
4. Date of predecessor auditor's report.
88
What would the auditor do after reviewing the F/S of the company and noticing that are not in conformance with the appropriate reporting framework?
The auditor should recommend the company to revise the F/S to be in conformance with the reporting framework.
89
Is independence impaired if the CPA provides non-audit services to an audit client?
No, independence is not impaired provided the audit committee is aware and approved the non-audit services.
90
What are considered non-audit services?
Tax compliance, tax planning, and tax advice
91
What should the register firms report to the audit committee?
1. Critical accounting policies and practices to be used.
2. alternative accounting treatments discussed with management.
3. Material written communications between the audit firm and management. Includes schedules of unadjusted audit differences
92
Is the accountant responsible for controlling a restricted-use report?
No, the client can document the alert in the emphasis of matter paragraph, but the accountant is not responsible for controlling a client's distribution of the restricted-use report.
93
What are the procedures performed in an examination of compliance?
1. Sufficient and appropriate evidence should be obtain to provide reasonable assurance
2. Examination planned to detect intentional and unintentional noncompliance
3. Understanding of relevant internal control over compliance sufficient to plan engagement and assess risk.
94
What understanding of control risk is used in an examination of compliance?
1. Determine types of non-compliance
2. consider matters affecting the risk of noncompliance
3. Design test of noncompliance
4. Written representation from mgmt regarding fulfillment of pre-conditions.
95
Is management required to provide a written representation in an examination of compliance?
Yes, management is required to provide a written representation in the opinion rendered. If management refuses to provide written representation, this is a scope limitation and the practitioner should qualify or disclaim the opinion.
96
What is the "time-out" period of the lead and concurring partner?
5 year "time-out" period before returning to an engagement
97
Who is a covered member?
1. Individual on attest engagement
2. Individual in a position to influence the attest engagement
3. Lead Partner, concurring partner, and any individual who provides more than 10 hrs of non-attest services to the attest client within any fiscal year (annual period).
4. Partner in the office in which the lead attest engagement partner primarily practices in connection with the attest engagement
5. The firm, including firm's employee benefit plans
6. Individual who can control operating, financial, or accounting policies
98
What is the cooling-off period required before a member of an issuer's audit engagement may begin working for a registrant in a key position (e.g., CEO, CFO, or controller)?
A cool-off period of 1 year is required before a member of an issuer's audit engagement team may begin working for a registrant in a key position.
99
What are exceptions to the Confidentiality Client Information Rule?
Disclose client information in the following instances:
1. In compliance with an issued subpoena or summons
2. As part of a quality review of the member's professional practice authorized by the AICPA
3. In response to inquiries made by the ethics division of the trial board of the AICPA.
