AUD CH 1 - Auditing Standards & Engagement Planning Flashcards Preview

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Basic Types of Audits

1. Compliance Audit

2. Operational Audit

3. Financial Statement Audit (AFRF: Gen / Special Purpose)


What were are the clarity standards designed to do?

- Make the GAAS easier to follow & understand

- Increase convergence with ISA (int'l Standards on Auditing)


Which entities do the clarity standards apply to?

Non-Issuers (non-public)

* PCAOB (public) has NOT adopted the clarity standards


Who issued the clarity standards?

Auditing Standards Board (ASB) of the AICPA


What are the two levels of requirements for audits under GAAS?

1. Unconditional Requirement ("must", "is required to")

2. Presumptively Mandatory Requirement ("Should".... if depart, must document reason)

*apply to both issuers and non-issuer audits


Clarity Project new terminology


2. Emphasis of Matter paragraph

3. Other Matter paragraph

4. Group Financial audits (division of responsibility)


Clarity Project new requirements

1. evaluate the acceptability of the AFRF (needs of users, meeting those needs, if most app. Framework)

2. apply Quality Control procedures at engagement level

3. Mgmt now has 2 major responsibilities


Clarity Project new format for each standard

1. Introduction (purpose & scope)

2. Objectives (what req. are expected to achieve, plan/performing audit, eval if obtained SA evidence)

3. Definitions

4. Requirements (presumptively mandatory & unconditional requirements)

5. Applications and Other Explanatory Material (further guidance, ICORRIIA)


Significant Finding

the inability to achieve an audit objective, which the auditor must document


The only exceptions for requirements under clarity standards

1. an entire section of GAAS does not apply (i.e. no internal audit dept.)

2. no audit evidence because it does not exist (i.e. req. to communication SD and MW's)


Which entities do the 10 GAAS apply to?

Public Entities (issuers) – PCAOB

* 10 GAAS were integrated into the AICPA clarity project's "objectives" (non-issuers)


What are the categories of the 10 GAAS?

1. General Standards (apply from acceptance to completion "TIP")

2. Fieldwork Standards (apply only to planning/gathering evidence "PIC")

3. Reporting Standards (apply only to manner for writing the audit report "ANOE")


What are the 10 GAAS considered?

the overall measure of the quality of the auditor's performance





T- Training and proficiency

I – Independence (immaterial indirect is OK // I&O)

P – due Professional Care


P - Planning and supervision

I - Internal controls (RMM & det. N,T, E of Audit Procedures)

C - Corroborative audit evidence


A - Accounting principles conform with GAAP

N - No new accounting principles applied (consistency)

O - Omitted Informative Disclosures – None

E – Expression of an Opinion


What is the purpose of the 2nd Fieldwork Standard – Internal Control?

auditor must obtain sufficient understanding of the entity and the environment (I/C) to:

1. assess RMM (fraud or error)

2. design the nature, timing, and extent of further audit procedures


Reporting Standards (10 GAAS) overall definition

- preparation and content of the audit report

- GAAS audit to check for GAAP


Which standards are implicit or explicit in the Reporting Standards (10 GAAS)?

1. Accounting Principles in conformity with GAAP (EXPLICIT)

2. No new accounting principles applied – consistent (IMPLICIT)

3. Omitted informative Disclosures – adequate? (IMPLICIT)

4. Expression of an Opinion (EXPLICIT)


General Standards (10 GAAS) overall definition

qualification of the auditor and quality of the work (TIP)


Fieldwork Standards (10 GAAS) overall definition

1. how audit is planned

2. how evidence is accumulated and evaluated


Statements on Auditing Standards (SAS)

SAS are interpretations of GAAS issued by the Auditing Standards Board (ASB) of the AICPA


Attestation Engagements


C – Complications (unless lack of independence is indicated)

A – Agreed Upon Procedures (or other leading to findings)

R – Reviews

E – Examinations (Audits)

S – Special Reports

*are all considered ASSURANCE services as well


Engagements in which independence is not required

- Compilations (when lack of Independence is indicated)

- Taxes

- Consultations

- Other non attest services such as bookkeeping or payroll

* these are not considered assurance services either


Circumstances in which audit can be performed WITHOUT independence

1. GAAS allows auditor to accept the engagement


2. Auditor is required by law or regulation to accept the engagement


Assurance Services (defined by AICPA Special Committee on Assurance Services)

aka Elliott Committee

- INDEPENDENT professional services that improve the quality of information, or its context, for decision makers


Assurance Services (definition)

an engagement in which an accountant issues a report designed to enhance the degree of confidence of third parties and management about the outcome of an evaluation or measure of F/S (subject matter) against an AFRF (criteria)

*all attestation engagements (ERAS) are considered assurance services


2 Key preconditions for an audit

1. Acceptability of the financial reporting framework being applied (adequate accounting records for evidence)

2. Management accepts responsibility (integrity, fair pres., DIM, & no client-imposed scope limit)


What should an auditor look for during a reaudit or first-year audit?

Read most recent F/S And the Predecessors report:

Opening balances

Disclosures (Contingencies And Commitments)



What should an auditor request if there is a predecessor auditor?

The auditor should request that management authorize the predecessor to allow the successor to:

1. review PA's documentation (If modified opinion, evaluate effect on current period Financial statements)

2. respond to inquiries by the successor (RID-C)



*Inquiries of predecessor Auditor*

Reasons for change of Auditor

Integrity of management

Disagreements during audits

Communication with Management for those charged with governance (DISAPPROVE)



*Should be communicated to those charged with governance – (rid-C)*

Disagreements with management

Illegal acts (Noncompliance)

Significant accounting policies

Adjustments (Adjusting JE's & Reclassifying JE's)

Prior discussions with management Before acceptance

Problems during audit (Obtaining evidence & Employee cooperation)

Responsibilities Of the auditor under GAAS

Other info regarding responsibilities

Views of other accountants (Contacted by management)

Estimates (& Process Used)