Chapter 2 Flashcards
(23 cards)
External auditors
- “independent auditors”
- Not employees of the entity
- Audit financial statements for publicly traded and private companies, partnerships, municipalities, individuals, etc.
- To sign an audit opinion an external auditor must be a certified public accountant (CPA).
CPA in GA
- 4-year college degree
- 24 hours in business courses
- 30 hours in Accounting (above 2000)
- 150 semester credit hours of education at an accredited college or university
- 1 year FT professional experience
- Pass the Uniform CPA Examination
CPA Exam
Consists of 4, 4-hour sections:
- Auditing and Attestation (AUD)
- Business Environment and Concepts (BEC)
- Financial Accounting and Reporting (FAR)
- Regulation (REG)
- You must pass all four sections within 18 months, earning a minimum score of 75 on each part.
Internal auditors
- Employees of individual companies, government agencies, and other entities.
- Director of internal auditing (sometimes called the chief audit executive, or CAE) is usually a major job title.
- The Institute of Internal Auditors (IIA) is the primary organization supporting internal auditors.
Government auditors
Work for the Georgia Department of Audits and Accounts
Forensic Auditors
- The Association of Certified Fraud Examiners (ACFE) is the primary organization supporting forensic auditors.
- An individual interested in becoming a CFE must pass the Uniform CFE Examination.
Types of Audits
- Financial Statement -Audits
- Internal Control Audits
- Compliance Audits
- Operational Audits
- Forensic Audits
- Other services: Assurance services, attest services, tax prep and planning services, management advisory, and compilation and review services (write-up work).
Big 4
-Deloitte
-EY
-KPMG
PWC
National firms:
RSM
Grant Thornton
BDO
Audit team
- Partner
- Manager
- Senior
- Staff
During the economic boom of the late 1990s and early 2000s, accounting firms aggressively sought opportunities to…
market a variety of high-margin non-audit services to the entities they audited.
- Independence standards in force at the time allowed auditors to perform many such services, including information systems design and implementation and internal audit services, even for public company auditees.
- The consulting revenue of the largest public accounting firms grew very rapidly, until in many instances consulting revenues from auditees far exceeded the fee for the external audit.
Enron
In October 2001, an investigation quickly uncovered massive financial deception that had been going on for several years. Arthur Andersen, immediately became embroiled in the controversy, because the firm had failed to report the vast extent of Enron’s improper accounting. Andersen stopped providing audits of public companies and began to dismantle its business in August 2002, after the firm was federally indicted and subsequently convicted on charges of obstruction of justice relating to the Enron situation.
Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act (2002)
- Started a process of broad reform in corporate governance practices that would affect the duties and practices of public companies, financial analysts, external auditors, and securities exchange markets.
- Effectively transferred authority to set and enforce auditing standards for public company audits to the Public Company Accounting Oversight Board.
- Mandated that the SEC impose strict independence rules, prohibiting auditors from providing many types of nonaudit services to public company auditees.
- Imposed several other important mandates, including that audit firms rotate audit partners on audit engagements every five years, and that public companies obtain an integrated audit.
SEC - Securities Exchange Commission
- Administers Securities Act of 1933 – regulation of initial public offerings (S forms).
- Administers Securities Act of 1934 - ongoing reporting by public companies (10K, 10Q, 8k).
PCAOB - Public Company Accounting Oversight Board
- Created by Sarbanes-Oxley Act of 2002
- Oversight of Audits of Public companies
- Oversight of Auditors of public companies
- Writes AS – Audit Standards
AICPA - American Institute of CPAs
-Oversight of Audits of Private companies
-Oversight of Auditors of private companies
-Oversight of CPA Exam
Includes the Auditing Standards Board (ASB) – writes AU or AU-C – auditing standards for audits of private companies.
IAASB - International Auditing and Assurance Standards Board
Issues ISA – International Standards on Auditing – converged with AU
FASB - Financial Accounting Standards Board
Writes ASC – Accounting Standards Codification – U.S. GAAP
IASB - International Accounting Standards Board
Writes International Financial Reporting Standards (IFRS)
Auditing standards are created by:
- Auditing Standards Board (Part of AICPA) – AU (AU-C) – Non Public companies
- PCAOB – AS – Public companies
- IAASB – ISA – International companies
General Standards
T – Training
I – Independence
P – Due Professional Care
Standards of Field Work
P – Planned
I – Internal Control
E – Evidence
Standards of Reporting
A – Accordance
C – Consistently
D – Disclosures
O - Opinion
