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Flashcards in Sampling and communications II Deck (21):

The date of the management representation letter should be coincide with the date of the auditor's report

auditor's report is generally after than the balance sheet date.


The auditor should obtain ADDITIONAL representation from management regarding issue specific to the entity's F.S

Possible topics are
1. the impact of a new accounting principle
2. impairment of assets
3. intent to hold debt securities to maturity
4. obsolescence of inventory
5. restriction on cash
6. plans to discontinue a line of business


The representation letter typically include info in FOUR categories

1. F.S


Purpose of representation letter

1. to confirm representations explicitly or implicitly given to the auditor
2. to indicate and document the continuing appropriateness of such representation.
3. to reduce the possibility of misunderstanding concerning matters that are the subject of the representation.


Management representations should be obtained about

1. uncorrected misstatements identified by the auditor
2. the absence of unrecorded transaction
3. instances of IMMATERIAL fraud involving employees who have SIGNIFICANT role in internal control ( immaterial fraud involving either management or employee who have significant roles in internal control MUST be included; for other employees, only material fraud would be included in the presentation letter)


The following types of loans do NOT impair auditor's independence

1. Fully-collateralized (全额抵押的) automobile loan within the normal course of business.
2. loans of the surrender value under terms of an insurance policy(保险剩余价值)
3. borrowing fully materialized by cash deposits at the same financial institution (同一金融机构现金抵押贷款)
4. 信用卡或信用卡取现不超过$10,000



Sarbanex-Oxley Act 2002, 要求公共注册会计公司保存审计文件及相关信息长达七年。

The AICPA code of professional conduce, which is followed when auditing NONISSUER, 不需要auditor轮换。


雇佣审计人亲属与以下职位会影响auditor's indepence

1. cashier
2.internal auditor
3. accounting supervisor
4. inventory warehouse supervisor
5. purchase agent


Any DIRECT financial interest in a client IMPAIRS independence, even if it is immaterial.

A material illegal act may require disclosure in or adjustment to the F.S, whereas an IMMATERIAL illegal act may NOT require disclosure.


All audit, review, attestation, tax and significant non-audit services(internal control) Must be preapproved by the audit committee, even if provided on a recurring basis.

Non-audit services that do NOT EXCEED 5% of total revenue from an audit client do NOT require audit committee preapproval as long as the services are brought to the audit committee's attention and approved before the completion of the audit.


Premitted tax service include
1. tax compliance
2. tax planning
3. tax advice

PCAOB prohibits tax service include
1. tax service related to 机密 or 激进 tax transaction
2. tax service to 公司官员 or audit client or 公司官员的直系亲属


The following situation IMPAIR independence with respect to an employee benefit plan

1. any DIRECT financial interest or a MATERIAL indirect financial interest in the plan or the plan sponsor.
2. Connection to the plan or the plan sponsor as a promoter, underwriter, investment advisor, voting trustee, director, officer, or employee.
3. An accountant or a member of the accounting firm maintain financial records for the employee benefit plan.


Under IFAC code of ethics, an auditor MAY provide internal audit services (e.g internal audit outsourcing service)

U.S ethical standards 不允许auditor提供 internal audit outsourcing service.


Direct financial interests are
1. stock ownership, even if owned in a blind trust
2. financial interest in a client through a partnership and the member is a general partner
3. financial interest in a TRUST when the member is the trustee

INDIRECT financial interest are
1. Member owns shares in a MUTUAL FUND that invests in the attestation client
2. Member owns a direct financial interest in Company A and Company A has a direct financial interest in the attestation client.


Exercise due professional care in the performance of professional services.
1. the member must process the same degree of skill commonly possessed by others in the field
2. the member must act as a reasonably prudent accountant would
3. the member must CRITICALLY REVIEW WORK done by those assisting in the engagement at every level of supervision

Exercise of due care dictates consultation or referral when a professional engagement EXCEEDS the CPA's personal competence.

Which applied to
1. consulting with experts

Which NOT applied to
1. obtaining specialty accreditation.


Independence is NOT required for

1. compilation engagement
2. tax return preparation
3. consulting services


Independence NOT impaired

1. by being a member of or an honorary trustee for a non-for-profit group
2. membership in the same trade association (e.g country club) 除非the member serves in a management capacity.


Independence is ONLY required for audit and other attestation services.

A CPA is NOT in public practice would NOT perform audits or attestation service, hence NOT required to be independence.
CPA, no matter in public practice or not, all need to be integrity and objective.


Contingent fee
1. Audit and review of financial statement
2. Examination of prospective financial info
3. prepare, amend tax return or claim tax refund for contingent fee.

1. Fee are NOT regarded as being contingent when they are fixed by courts or other public authorities or in tax matter.
2. Compilation of F.S if the member include a statement that the member is NOT independent.


Independence is impaired if

The CPA's
1. spouse
4. children
Are employed by the client in a position that is audit sensitive (ie. internal auditor, cashier, accounting supervisor, etc)


The auditor do NOT provide tax service of
1. related to contingent fee arrangement
2. related to confidential transaction
3. related to aggressive transaction
The auditor do NOT provide tax service to
1. the corporation officers of audit client (CEO. CFO. COO)
2. immediate family member of corporation officers

Proposed tax services and related fee MUST be communicated to the auditor committee in WRITING.
The potential effects of the services on the firm's independence should be discussed with the audit committee.