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Flashcards in SSARS and SSAE Deck (21)
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1

Agreed-Upon Procedures Engagement

A practitioner may perform an agreed-upon procedures attest engagement on prospective financial statements provided the following conditions are met:
•The practitioner and the specified parties agree upon the procedures to be performed by the practitioner.
•The specified parties take responsibility for the sufficiency of the agreed-upon procedures for their purposes.
•The prospective financial statements include a summary of significant assumptions.
•Criteria to be used in the determination of findings are agreed upon between the practitioner and the specified parties.
•Other conditions as listed in AT 301.52.

2

Sections of SOX



Section 404 of Title IV of the Sarbanes-Oxley Act (SOX) dictates that each annual report filed with the SEC contain an internal control report. This report states the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting. It also includes an assessment of the effectiveness of the internal control structure and procedures.

Section 402 of Title IV of the Sarbanes-Oxley Act (SOX) dictates that it is unlawful for any issuer to extend or maintain credit in the form of a personal loan to or for any director or executive officer of that issuer.

Section 403 requires disclosures from a person who is directly or indirectly a beneficial owner of more than 10% of any class of any security registered pursuant to Section 12 of the Securities Exchange Act of 1934.

Section 406 requires disclosure of whether or not the issuer had adopted a code of ethics for senior financial officers (and if not, why not). Any change in or waiver of this code requires disclosure as well.

3

Which of the following actions would violate Title III, Section 303, of the Sarbanes-Oxley Act? -

The payroll clerk of an issuer company did not answer questions about fraud truthfully during an interview with the auditor, at the instruction of the CFO.

Title III, Section 303 of SOX deals with any action taken to fraudulently coerce, manipulate, or mislead the auditor. It prohibits any director or officer from acting in this manner, as well as anyone acting under their direction. Refusal to answer auditor questions honestly could be considered an attempt to mislead the auditor.

The other answer choices refer to independence issues. SOX Title II contains independence rules.

4

Title IV of SOX 2002

Title IV of Sarbanes-Oxley requires that the financial statements reflect all material correcting adjustments, material off-balance-sheet transactions, arrangements, obligations, and other relationships, and that pro forma information, if included, does not contain untrue statements or omissions of material facts.

5

The IESBA Code of Ethics for Professional Accountants establishes ethical requirements for professional accountants through which of the following?

A.
Conceptual Framework

The International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants only establishes a conceptual framework. They have not issued Rules or Interpretations (or Rulings). The conceptual framework promotes compliance with five fundamental principles of professional ethics: integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.

6

Standard Audit REport

1.The introductory paragraph, which states: ◦that the financial statements identified were audited and
◦the entity's name on the financial statements

2.The management's responsibility paragraph, which: ◦states that the financial statements are the responsibility of management and
◦includes the design, implementation, and maintenance of internal controls

3.The auditor's responsibility paragraph, which states that the audit: ◦was conducted in accordance with U.S. (or other country's) generally accepted auditing standards,
◦was planned and performed to obtain reasonable assurance that the financial statements are free from material misstatements, and
◦includes examining evidence, assessing principles and significant estimates, and evaluating overall statement presentation

4.The opinion paragraph, which states that the financial statements are: ◦presented fairly,
◦presented in all material respects, and
◦in conformity with U.S. (or other country's) GAAP


The auditor's report would be inappropriate if it referred to the CPA's assessment of sampling risk factors.


7

Which of the following procedures would an auditor most likely perform to obtain assurance that slow-moving and obsolete items included in inventories are properly identified?

A: Examining an analysis of inventory turnover.

An analysis of inventory turnover would reveal to the auditor how often the inventory sells, or turns over, in a period of time. It would assist with identifying slow-moving and obsolete items that are included in the inventory and help the auditor find evidence to support management's assertion of valuation.

Testing shipping and receiving cutoff procedures, confirming inventories at locations outside the entity's premises, and tracing inventory observation test counts to perpetual listings would all help the auditor determine the completeness of the physical inventory.

8

QUALITY CONTROL SYSTEM

(Hint - 7 SQCS)

The elements of a CPA firm's quality control system are identified in Statement on Quality Control Standards (SQCS) 7 as:

•leadership responsibilities for quality within the firm,
•relevant ethical requirements,
•acceptance and continuance of client relationships and specific engagements,
•human resources,
•engagement performance, and
•monitoring.

Policies and procedures for assigning personnel to engagements ensure that only technically trained and proficient personnel perform the audit work.

Audit risk, materiality, and statistical sampling techniques are considered in the planning and performance of an audit of financial statements. Compliance with laws and regulations is an audit objective.

9

Under the Statements on Auditing Standards (SASs), the auditor should adopt reasonable procedures to retain and access audit documentation for a period of time sufficient to meet the needs of his or her practice and to satisfy any applicable legal or regulatory requirements for records retention. Such retention period, however, should not be fewer than how many years following the report release date?

Five

10

Single Audit Act

A Federal act requiring entities that expend federal assistance equal to or in excess of $750K annually, to have a program-specific or entity-wide audit that complies with the act.

11

Program-specific Audit

A governmental audit used in situations when no overall opinion is rendered in the financial statements. A program-specific audit must follow specialized rules designed for the particular type of program involved.

12

Statements on Auditing Standards (SAS)

Standards issued by the Auditing Standards Board (ASB) of the AICPA

(Not a PCAOB thing!)

13

Statements on Standards for Accounting and Review Services (SSARS)

Standards established by the AICPA to regulate the provision of services to privately held companies not seeking audited financial statements.;

AICPA

14

Statements on Standards for Attestation Engagements (SSAE)

Standards issued by senior technical bodies of the AICPA regarding attest engagements, including engagements w/r/t AUP, fin. forecasts and projections, pro forma financial statements, internal control over financial reporting, compliance, and MD&A.

AICPA

15

Financial Forecast

vs.

Financial Projection

FF: A financial statement that reflects the expected financial results of a future period based on expected conditions and expected courses of action

FP: reflects the financial results of a future period based on hypothetical assumptions.

16

Data Extraction Programs

Data extraction programs have the following advantages:
•They allow the CPA a high degree of independence.
•They reduce the CPA's required level of EDP expertise and training.
•They access a wide variety of client records interchangeably without special programming and only a limited knowledge of the client's hardware and software features.
•They allow the CPA to totally control program execution.
•They use the speed and accuracy of the computer.

17

A CPA is reporting on comparative financial statements of a nonissuer. The CPA audited the prior year's financial statements and reviewed those of the current year in accordance with Statements on Standards for Accounting and Review Services (SSARS). The CPA has added a separate paragraph to the review report to describe the responsibility assumed for the prior year's audited financial statements. This separate paragraph should indicate:

the type of opinion expressed previously.

18

An auditor should perform the following procedures in relation to contingencies:

•Read available interim financial information
•Inquire of management the following: ◦Whether any substantial contingent liabilities or commitments existed at the date of the balance sheet being reported on or at the date of inquiry
◦Whether there was any significant change in the capital stock, long-term debt, or working capital to the date of inquiry
◦The current status of items, in the financial statements being reported on, that were accounted for on the basis of tentative, preliminary, or inconclusive data
◦Whether any unusual adjustments had been made during the period from the balance sheet date to the date of inquiry
•Read available minutes
•Inquire of legal counsel
•Obtain a letter of representation
•Observe event in subsequent periods
•Scan records for unusual transactions

19

Entity-level controls include:

controls related to the control environment,
controls over management override,
the company's risk assessment process,
centralized processing and controls, including shared service environments,
controls to monitor results of operations,
controls to monitor other controls, including activities to monitor the internal audit function, the audit committee, and self-assessment programs,
controls over the period-end financial reporting process, and
policies that address significant business control and risk management practices.

20

PPS Sampling

In probability-proportional-to-size sampling, the projected error is equal to the actual sample error when the book value of the item sampled is equal or greater than the sampling interval.

In this instance, the book value is $10,000. The sampling interval is $5,000, so the actual error of $2,000 ($10,000 - $8,000) specifies that the projected error is also $2,000.

Book Val - Audit Val = Projected Error
10K - 8K = 2K

21

Which of the following best describes the reason an auditor performs a walkthrough of transactions from inception through financial statement presentation?
I.To ensure that the single transaction type involved in a walkthrough is properly recorded in the general ledger
II.To determine if a necessary control is missing or ineffective
III.To determine the different types of significant transactions handled by the process

II and III

While an auditor performing a walkthrough of transactions from inception through financial statement presentation could provide the auditor with all of the above, the nature of the walkthrough is meant to help the auditor to understand the full process (item III) and determine the effectiveness of controls (item II).

An auditor is not expected to perform a walkthrough of each and every transaction type unless all controls are deemed ineffective (and as such, control risk is high).

During a walkthrough, the auditor questions the company's personnel about their understanding of what is required by the company's prescribed procedures and controls. These probing questions, combined with the other walkthrough procedures, allow the auditor to gain a sufficient understanding of the process and to be able to identify important points at which a necessary control is missing or not designed effectively. Additionally, probing questions that go beyond a narrow focus on the single transaction used as the basis for the walkthrough allow the auditor to gain an understanding of the different types of significant transactions handled by the process.