Becker AUD 6.5 - Quality Controls Standards Flashcards Preview

AUD CPA Review - (Becker, Roger, Wiley, NINJA) > Becker AUD 6.5 - Quality Controls Standards > Flashcards

Flashcards in Becker AUD 6.5 - Quality Controls Standards Deck (23):
1

The AICPA Code of Professional conduct requires quality control systems to be in placed for CPA firms that does what type of services?

(1) Auditing service
(2) Attestation service
(3) Accounting and review services

2

What is a Quality control system used in CPA firms?

Policies and procedures to make sure that the CPA firms are complying with

Professional standards
Legal and regulatory requirements

in what they do and to make sure the CPA firms are issuing the proper reports in appropriate situations.

3

What are the 6 elements of Quality control used in a CPA firm?

Hint: Help Me

(1) Human Resources

(2) Engagement / client acceptance and continuance (to accept client or withdraw)

(3) Leadership Responsibilities to quality

(4) Performance of engagement

(5) Monitoring

(6) Ethical Requirements

4

What's difference between GAAS standards and Quality control standards?

GAAS
= the individuals conduct in audit engagement

Quality Control Standards
= Conduct of all professional activities in CPA firm's practice as a whole. (This includes audit, attestation, compilation, reviews, agreed-upon procedures, tax return prep and planning, etc.)

5

True or False:

(1) Quality control standards only affects the performance of each audit, NOT the the performance of the entire audit practice as a whole.

(2) Quality control deficiencies or noncompliance with firm's quality control standards do necessarily indicate lack compliance with GAAS (or other professional standards) for any one specific engagement.

(1) FALSE.

Quality control standards only affects the performance of each audit, NOT the the performance of the entire audit practice as a whole.

(2) FALSE
Quality control deficiencies or noncompliance with firm's quality control standards DO NOT necessarily indicate lack compliance with GAAS (or other professional standards) for any one specific engagement.

This because: Quality control deficiency in ONE ENGAGEMENT not imply that firm's entire quality control system is insufficient.

6

What kind of CPA firm engagements' that can be applied under quality control standards for engagement?

(1) Financial statement audits
(2) Review of interim F/S
(3) Government financial audits performed in accordance with GAAS.

7

What is the name of the team in the CPA firm that implements Quality control procedures that are applicable to the audit engagement?

Engagement Team

8

Engagement provides what type of information that is important about the integrity of the audit engagement team?

Hint: it has something that deals not having a dependence on something.

Independence

Engagement team (covered members) must provide information that any member of its team (covered have independence) in order to properly do the audit.

If present info about someone who is not independent, this lack of independence will be addressed via get that non-independent staff person out of the engagement.

9

What is the purpose to apply quality controls on audit engagements?

To provide REASONABLE ASSURANCE that:

a) Audit COMPLIES (follows) with PROFESSIONAL STANDARDS and APPLICABLE legal and regulatory requirements to do the audit properly.

b) Auditor issues the appropriate report.

10

What is the Engagement partner's role in implementing and maintaining Quality controls in the audit engagement?

Engagement Partner = Leads the audit engagement team.

* He/she is responsible for the overall quality of engagement
* Can delegate responsibilities to other engagement team members on quality control
* Can rely on CPA firm's quality control systems' policies and procedures.

11

Name first 4 tasks of what the Engagement partner should do to maintain quality control in audit engagement?

(1) Remain alert for EVIDENCE on team members' NON-COMPLIANCE with ETHICAL REQUIREMENTS and take APPROPRIATE ACTION to resolve these.

(2) Form conclusion on compliance with INDEPENDENCE REQS.

(3) Be satisfied that CPA firm has followed PROCEDURES on CLIENT ACCEPTANCE and CONTINUANCE.

(4) Be satisfied that ENGAGEMENT TEAM and any EXTERNAL specialists have Competence/Ability to do the Audit and able to issue the APPROPRIATE AUDIT REPORT

12

Name the next 4 tasks of what the Engagement partner should do to maintain quality control in audit engagement?

(5) Take responsibility for Direction, Supervision, and Performance of engagement team and the Auditor report

(6) Take responsibility that Reviews are done in accordance with Firm's policies and procedures.

(7) Be satisfied through review of audit documentation and discussion with Engagement Team that

SUFFICIENT APPROPRIATE AUDIT EVIDENCE to support CONCLUSIONS REACHED and REPORT to be issued.

(8) Take RESPONSIBILITY for Engagement Team's undertaking appropriate consultation on DIFFICULT or CONTENTIOUS MATTERS.

13

What is an Engagement Quality Control Review (EQCR)?

When do you do an engagement quality control review?

(1) EQCR = objective evaluation on Engagement team's judgments in the audit and Engagement team's conclusions reached to create Audit Report (audit opinion)

(2) Only do the Quality control review of audit when required by Firm's Policies and procedures.

14

Who is the Engagement Quality control Review?

Can be a partner,
Other person in firm,
Suitably qualified external person
Or team of such individuals

Not part of the Engagement team / outside the engagement team that has Sufficient/Appropriate experience / authority to

Do Objective Evaluation on Audit Team's Judgments and conclusions.

[In short]: experienced, authoritative person outside Engagement team to evaluate audit team's judgments and conclusions.

15

When should Engagement Quality control review be completed?

Completed before engagement partner releases the audit report.

16

What are the 4 Procedures done in a Engagement Quality Control review?

Engagement Quality Control review does the following:

(1) Discuss with Engagement Partner on Significant findings

(2) Read F/S and PROPOSED audit report

(3) Review Audit documentation related to significant judgments and conclusions

(4) Evaluate conclusions reached in formulating audit report and consider the appropriateness of audit reports contents.

17

What is the effect on the audit report when the engagement quality control review is completed after the Auditor's report date and additional evidence / procedures were required to be done?

Change the Auditor's report date when additional evidence has obtained or additional procedures completed.

Other words, push the Auditor report date later after additional evidence gathered / additional procedures performed.

18

US Auditing Standards vs ISAs:

What is the difference between ISA 220 and US Auditing standards on Quality Control review and the auditor report date?

(1) Per ISA 220: Quality control review must be done before dating the Auditor report.

There is NO CHANGING THE AUDITOR REPORT.

(2) US Auditing standards: Quality control review is an independent review done outside of the Audit engagement and outside of Audit report date being selected.

When Quality control review results in having to do more audit evidence / procedures, then change the Auditor report date.

19

(1) What is a Peer review?

(2) In Peer Review, how often is it done?

(3) What are results of Peer Review?

(1) One CPA firm reviews another CPA firm's compliance with its quality control system. The CPA firm reviewer determines and report whether the CPA firm (under review)

* Has Developed adequate policies and procedures for Quality control elements
* And CPA firm is following these quality control policies

(2) It is done every 3 years for CPA firms that are AICPA members.

(3) Results = after review complete:

Issue report with conclusion and recommendations (corrective actions).

If CPA firm not correct the deficiencies in quality control polices/procedures, CPA firm gets sanctions.

20

What are the ethical requirements in quality control policies and procedures?

To ensure that the CPA firm is truly independent (in fact and appearance) of the audit client in engagement, have integrity to professional responsibilities, and maintain objective in discharging professional responsibilities. This done to maintain public confidence in the profession.

21

True or False:

(1) Independence encompasses impartiality and freedom from any obligation to our interest in client.

(2) Independence requirements should be communicated to firm personnel.

(3) Threats to independence should be only identified, evaluated, not taken appropriate action.

(4) At least annually (per year), all firm personnel subject to independence requirements should confirm their independence in writing (paper or electronic form).

(5) The Firm's quality control system does not have to address requirements for rotation of personnel.

(1) True

(2) True

(3) False.
Threats to independence should be only identified, evaluated, and taken appropriate action.

(4) True

(5) False.
The Firm's quality control system should to address requirements for rotation of personnel.

22

Give 4 examples of maintaining independence in audit engagement team.

(1) Maintain records showing which Audit staff used to work for which audit client company or have relatives in key positions in audit client companies.

(2) Notify personnel the names of Publicly-held audit clients (publicly traded companies; issuer companies)

(3) Confirm with staff that prohibited relationships do not exist. Other words: confirm with staff that each staff does not have a relationship with a key person in an audit client.

(4) Emphasize independence of mental attitude in training and supervision.

23

True or False:

(1) Audit firms auditing public companies cannot provide other types of services, such as

Bookkeeping
Financial info systems design/implementations,
Appraisal/valuation services,
Actuarial services
Internal audit outsourcing services,
Management/human resource functions,
investment services,
legal services,
expert services (not audit-related)

(2) Only non-audit services is okay to public companies is tax services only if pre-approved by audit committee and disclosed to invests in periodic reports

(3) Proposed tax services and related fees must be communicated to audit committee orally.

(4) Audit firms can audit public companies that have a CEO, CFO that used to work for the CPA / audit firm.

(5) The lead partner and reviewing partner in audit engagement team must rotate off the audit every 3 years.

(6) Per SEC rules, Lead partner and review partner are subject to a 3-year time out period before returning to do another audit engagement.

(7) All other audit partners must rotate off the audit every 7 years and are subject to a 2-year time out period (2-year break period of doing no audit work)

(8) Audit firms may NOT enter contingent fee arrangements such as a fee is given depending on result of services performed with audit clients.

(9) Audit firms may not provide audit clients any tax services that focus on confidential or aggressive tax transaction

(10) Audit firms may not provide any taxers to public companies' corporate officers or corporate officers' family members.

(11) (CPA Pass key): Per SOX, Audit firms can provide tax return preparation, tax, planning and tax services to the company's employees. Not corporate officers.

(1) True:
Per PCAOB rules, when auditing the public company, only do the Audit engagement. Cannot do any other type of service because it may impair independence and may result in F/S material misstatements.

(2) True

(3) False.
Proposed tax services and related fees must be communicated to audit committee orally.

(4) False.
Audit services cannot audit public companies that have CEOS and CFOS that used to work for the CPA firm.

(5) False.
Rotate every 5 years.

(6) False.
Lead Partner and Review Partner in audit engagement team must have 5-year time out period (5-years do not any audit work) before returning to do more audit work.

(7) True.
All other audit partners have 7-year rotation
Subject to 2-year time out (take a break) period.

(8) True.
Contingent fees are not allowed esp. when auditing a PCAOB public company.

(9) True.
Confidential or aggressive tax transactions is a BIG RED FLAG for doing something unethical in auditing public companies.

(10) True.
If do tax service to public companies' corporate officers and corporate officers' family members, then you are breaching your independence in audit engagement.

(11) True.
Per SOX, routine tax return preparation, tax planning, and employee personal tax services for the corporation are not prohibited.