Other Auditing Standards Flashcards by Frank Smith

What are GAGAS?

Generally Accepted Government Auditing Standards

Also called Government Auditing Standards (GAS)

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What is another name for GAGAS?

The Yellow Book

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What is a main factor of consideration in determining materiality levels for governmental compliance audits?

Grantors’ needs – other users’ needs are secondary

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What is The Compliance Supplement?

Includes compliance requirements for many federal government programs

Issued by the Office of Management and Budget (OMB)

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What are the ethical principles underlying GAGAS?

(1) public interest
(2) integrity
(3) objectivity
(4) use of gov’t info and resources
(5) professional behavior

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What is generally incorporated into GAGAS?

AICPA fieldwork and reporting standards (with related SASs) unless specific exceptions are made in GAGAS

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What is covered by OMB Circular A-133?

Audits of states, local governments, and nonprofit organizations

These audits are in accord with OMB Circular A-133 and the “Single Audit Act”

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What is the threshold in OMB Circular A-133 requiring an audit for state or local governments?

Only states and local governments who expend (not merely receive) over $500,000 of federal rewards meet the threshold

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How many different compliance requirements are contained under OMB Circular A-133?

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What are the first five compliance requirements of A-133?

(1) which goods/services can be purchased with federal funds
(2) which costs can be federally reimbursed
(3) requirements on time between cash receipt and disbursement
(4) Davis-Bacon act (requires prevailing regional wage for construction projects)
(5) eligibility of recipients of financial aid

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What are the second five compliance requirements of A-133?

(6) equipment & real property management
(7) how much entities should contribute their own funds
(8) period of federal funds’ availability
(9) procurement, suspension, & debarment
(10) the program’s income

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What are the last four compliance requirements of A-133?

(11) requirements on how real property can be acquired and prior residents relocated
(12) specific reports to be filed
(13) monitoring of sub-recipients
(14) special tests & provisions

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How does the auditor’s concern for materiality differ in A-133 than in ordinary GAAS?

He considers materiality in relation to each individual program, not just to the entity as a whole

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What is the PCAOB?

Public Company Accounting Oversight Board

Established by Sarbanes-Oxley Act of 2002 (SOX)

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What is the role of the PCAOB?

(1) Registering public accounting firms
(2) Setting standards for public company audits
(3) Performing inspections for public accounting firms
(4) Enforcing compliance with SOX

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Who approves the auditing standards which the PCAOB adopts?

SEC

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What does SOX forbid for audits?

It forbids public accounting firms from providing a number of nonaudit services to clients whom they are auditing
-e.g. bookkeeping services for accounting records, valuation, actuarial services, management or HR, etc.

What does SOX require for audits?

Rotation of the lead audit partner (for a particular firm being audited) at least every five years

Which other conflicts of interest does SOX forbid?

If one of the client’s officers was employed with the audit firm and participated in the audit in the previous fiscal year, then that client cannot be audited

What are the responsibilities of the audit committee, as determined by SOX?

They appoint and oversee the external auditor

-includes handling disagreements between management and the external auditor and permitting nonaudit services

When does the PCAOB require the auditor to complete his final audit file?

Within 45 days of the report release date

How long does the PCAOB require workpapers to be retained?

7 years from the report release date

What is an engagement completion document?

A document required by the PCAOB to include all significant findings or issues in an external audit of a public firm

What is ICFR?

Internal Control over Financial Reporting

What is the auditor's objective in an audit of ICFR?

To express an opinion on ICFR's effectiveness for a given point in time and taken as a whole

In what way is an audit of ICFR more extensive than an ordinary audit for financial statements?

ICFR can have a material weakness even if financial statements are not materially misstated This is because testing ICFR involves testing the effectiveness of controls over ALL relevant assertions

How do integrated audits of ICFR and financial statements reduce the auditor's work?

Tests of controls can be reduced somewhat by fulfilling two purposes at once, but substantive tests generally cannot

What should be an auditor's general strategy for conducting an audit of ICFR?

A top-down approach: first assessing financial statement-level controls, then entity-level controls, etc.

By what standard should an auditor evaluate the severity of a control deficiency?

By a "prudent official" standard: whether the detail and degree of assurance provided by the controls would satisfy a prudent official

What three things are accounting changes?

Changes in: - accounting principle - accounting estimates - the reporting entity Correction of errors in old financials is not an "accounting change"

What qualifies as a change in accounting principle?

A change between generally accepted accounting principles -May be because old principle is no longer generally accepted (or not) Change in method of applying a principle

What does not count as a change in accounting principle?

Adoption of principle to record transactions for first time Adoption of principle to record effects of transactions that were previously immaterial

What is the only justification for changing accounting principles?

Required by new pronouncements Entity can justify it by proving it is preferable

How are changes from unacceptable to generally accepted accounting principles reported?

As a correction of previous errors NOT as change in accounting principle

How should an auditor treat a change in estimate caused by a change in principle?

As a change in principle

How should an auditor treat a change in reporting entity?

As a change in principle, except when it results from a particular event (e.g. purchasing a subsidiary), in which case it doesn't even need to be included in the audit report

What is the distinction between a review and an audit?

A review is usually for interim purposes and does not gather a sufficient basis to express an opinion on material errors

What are required audit procedures in interim reviews?

(1) disaggregated revenue comparison (e.g. revenue reported by month or by business segment) (2) Reconciliation (between accounting records and financial statements) (3) Fraud inquiry

What should be included in a report for an interim review?

(1) statement that review complied with relevant standards (2) statement of info reviewed (3) description of procedures (4) statement that scope is significantly less than ordinary audit; therefore no opinion (5) whether the auditor is aware of any necessary material changes to effect conformity with GAAP

What should each page of interim financial information be marked with?

The word "unaudited"

What else should the auditor review, if it is presented along with financial statements?

Quarterly information If an auditor audits financial statements but cannot review the corresponding quarterly information, his report should say so

What is the role of the engagement quality reviewer?

To discuss with the engagement team about the engagement, and to review their documentation