An engagement to express an opinion on management’s assertion that the square footage of a warehouse offered for sale is 150,000 square feet falls into the category of services beyond those on traditional historical financial statements.
Statements on Standards for Attestation Engagements -cover attest engagements.
Peer reviews essentially are:
Peer reviews essentially are evaluations of quality control.They are performed to meet the practice-monitoring requirements applicable to public accounting firms. They are not attest engagements.
The following procedure would be most effective in reducing attestation risk?
Examination of evidence.. To express an opinion, the practitioner must gather sufficient evidence to reduce attestation risk to an acceptably low level.
Which of the following is NOT an attestation standard?
A sufficient understanding of internal control shall be obtained to plan the engagement-no such thing needed.
Advising management in the selection of a computer system to meet business needs is what kind of service?
Advisory services are consulting services and therefore not within the scope of the SSAEs.
An attest engagement is one in which a CPA is engaged to
an attest engagement is one in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about subject matter that is the responsibility of another party.
In performing an attest engagement, a CPA typically
Expresses a conclusion about a written assertion.
True or False: An auditor’s responsibilities for audited financial statements are confined to the expression of the auditor’s opinion.
TRUE. GAAS require the audit report to state whether the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework.
Two principal conceptual differences exist between the attestation standards and GAAS, what are they?
First, the attestation standards provide a framework for the attest function beyond historical financial statements.
Second, the attestation standards accommodate the growing number of attest services in which the practitioner expresses assurance below the level that is expressed for the traditional audit (an opinion).
Notes that are included with financial statements are the responsibility of the
The notes are considered part of the basic financial statements. Because management has the primary responsibility for the financial statements, it also has the primary responsibility for the fairness of information included in notes.
The SEC requires that the management of an issuer (public company) report the nature of disagreements with former auditors by filing:
The SEC requires that the management of an issuer (public company) report the nature of disagreements with former auditors by filing Form 8-K. Such disclosure inhibits management from changing auditors to gain acceptance of a questionable accounting principle. Also, a potential auditor must inquire of the predecessor auditor before accepting an engagement (AU-C 210). Thus, the inquiry provides an opportunity to confirm the information given in the 8-K report. However, confidential client information may only be communicated with the client’s consent.
Who establishes generally accepted auditing standards?
Auditing Standards Board and the Public Company Accounting Oversight Board
The Sarbanes-Oxley Act prohibits audit firms from providing consulting, legal, internal auditing, and other specified services to issuer audit clients. Moreover, any other service may be prohibited by the PCAOB. Audit firms may provide other nonaudit services, such as:
conventional tax planning and compliance services, to issuer audit clients. However, the audit committee must preapprove these other nonaudit services to be provided by the auditor.
Users of an issuer’s financial statements demand independent audits because
Management may not be objective in reporting. Management and financial statement users may have an adversarial relationship because their interests in the firm are different. The independent auditor provides assurance that the financial statements are not biased for or against any interest.
An audit’s primary objective is to:
An audit’s primary objective is to provide assurance to the external users of financial statements that they present fairly, in all material respects, the financial position, results of operations, and cash flows of the company. Users include creditors, investors, and potential investors.
CPA firms should have policies and procedures to determine whether to accept or continue a client or to perform a specific engagement. The firm’s policies and procedures should provide reasonable assurance that it:
(1) has considered the integrity of the client and the risks involved,
(2) is competent,
(3) has the necessary capabilities and resources, and
(4) is able to comply with applicable requirements
Independent CPAs perform audits on the financial statements of issuers. This type of auditing can best be described as
A discipline that attests to financial information presented by management.
Professional skepticism is an attitude that includes:
(1) a questioning mind,
(2) alertness to conditions that may indicate material misstatement, and
(3) critical assessment of audit evidence.
The independent auditor may make suggestions about the form or content of the financial statements or draft them, in whole or in part, based on information from management’s accounting system. However, the auditor’s responsibility for the financial statements (s)he has audited is :
The independent auditor may make suggestions about the form or content of the financial statements or draft them, in whole or in part, based on information from management’s accounting system. However, the auditor’s responsibility for the financial statements (s)he has audited is confined to the expression of his or her opinion on them.
The presentation of the financial statements in conformity with GAAP is the responsibility of:
Generally accepted auditing standards are defined as:
SASs: Statements on Auditing Standards.
A financial projection is based on:
A financial projection is based on assumptions by the responsible party reflecting expected conditions and courses of action, given one or more hypothetical assumptions (a condition or action not necessarily expected to occur).
Financial forecast consists of prospective financial statements that:
consists of prospective financial statements that present an entity’s expected financial position, results of operations, and cash flows. Is based on assumptions reflecting conditions expected to exist and courses of action expected to be taken.
In an agreed-upon procedures engagement:.
the practitioner is engaged to report on the results of performing specific procedures agreed upon with specified parties. The report lists the procedures performed and provides the results of those procedures but provides no form of positive or negative assurance.
is an agreed upon procedures restricted?
An agreed-upon procedures report should have a statement restricting its use to the specified parties who agreed upon the procedures to be performed.
What are pro forma financial info?
Pro forma information shows what the significant effects on historical financial information would have been had a consummated or proposed transaction (or event) occurred at an earlier date. Examples of these transactions include a business combination, disposal of a segment, a change in the form or status of an entity, and a change in capitalization.
The party responsible for assumptions identified in the preparation of prospective financial statements is usually
Management is usually the responsible party, that is, the person(s) responsible for the assumptions underlying PFSs. However, the responsible party may be a party outside the entity, such as a possible acquirer.
What services, if any, may an accountant who is not independent provide?
Compilations, but not reviews. If an accountant is not independent, it needs to be stated in the report.
The AICPA bylaws designate the Accounting and Review Services Committee as:
The AICPA bylaws designate the Accounting and Review Services Committee as the senior technical committee authorized to issue pronouncements in connection with the unaudited financial statements or other unaudited financial information of a nonissuer.
SysTrust is designed
to increase the comfort of management, customers, creditors, bankers, and business partners with the systems that support a business or a particular activity. The CPA tests and expresses an opinion on management’s assertions or directly on the system concerning any or all of the following: online privacy, availability, security, processing integrity, and confidentiality.
What is the difference between assurance services and consulting services?
Assurance services differ subtly from consulting services because assurance services focus on improving information, whereas consulting services strive to provide advice. Also, assurance services often involve monitoring of one party by another (often within the same company) rather than the two-party arrangements common in consulting engagements.
The objective of assurance services is to?
The main objective of assurance services, as stated by the AICPA, is to provide information that assists in better decision making. Assurance services encompass audit and other attestation services but also include nonstandard services. Assurance services do not encompass consulting services.
One fundamental purpose of this assurance service is to assist the elderly and their families by
Reporting whether specified objectives are being met by caregivers
WebTrust requires from client management a
WebTrust was developed from the attestation standards and requires a written assertion by management. The written assertion relates to one or more of the principles of security, privacy, availability, processing integrity, and confidentiality. Consumers may access the examination report and CPA WebTrust principles and criteria through the entity’s web page.
SysTrust reports are always based on what?
SysTrust reports are always based on a period of time, not a particular moment in time.
If prior experience required to provide CPA ElderCare (PrimePlus) services?
Prior experience is not required because ElderCare (PrimePlus) services are relatively new to the CPA market. Personal skills and knowledge of issues are fundamental to providing this service to the elderly.
What services may be performed as a consulting service?
(1) analysis of an accounting system as an advisory service, (2) review of a client’s prepared business plan as a consultation, and
(3) preparation of information for obtaining financing as a transaction service. Other possible services are implementation services, staff and other support services, and product services.
Engagement letters for ElderCare (PrimePlus) services should be:
Engagement letters for ElderCare (PrimePlus) services should be tailored to the situation and contain many details including the form and frequency of financial reporting.
Quality control policies and procedures should be relevant, adequate, effective, and complied with. This statement is most closely associated with the quality control element of
Monitoring is concerned with providing reasonable assurance that policies and procedures related to the system of quality control are relevant, adequate, operating effectively, and complied with. The objectives of monitoring these policies and procedures are to evaluate (1) compliance with professional standards and legal requirements, (2) the design and effectiveness of the quality control system, and (3) whether appropriate reports are issued (QC 10).
The lead audit partner must rotate off the audit every:
every 5 years.
Quality control for a CPA firm, as referred to in Statements on Quality Control Standards (SQCS), applies to
applies to all audit, attest, accounting and review, and other services for which professional standards have been established by the ASB and the Accounting and Review Services Committee. The SQCS therefore do not apply to compliance with standards for consulting services and tax services, which are issued by different AICPA technical committees.
The engagement performance element of quality control includes policies and procedures that cover planning, performing, supervising, reviewing, documenting, and communicating the results of each engagement. Objectives of supervision include establishing procedures for:
(1) planning engagements,
(2) maintaining the firm’s standards of quality, and
(3) reviewing documentation of the work performed and reports issued.
Peer review is a necessary part of the practice-monitoring requirement for AICPA membership. A peer review of a firm enrolled in the AICPA Peer Review program may be performed by a review team organized by:
(1) a firm engaged by the reviewed firm or
(2) a state CPA society. Also, an association of firms may be authorized to aid its members by organizing review teams.
The quality control element of human resources requires:
The quality control element of human resources requires establishment of policies and procedures to provide reasonable assurance that only qualified persons with the required technical training and proficiency perform the work.
CPA firms should have policies and procedures to determine whether to accept or continue a client or to perform a specific engagement. The firm’s policies and procedures should provide reasonable assurance that:
(1) has considered the integrity of the client and the risks involved,
(2) is competent,
(3) has the necessary capabilities and resources, and
(4) is able to comply with applicable requirements (QC 10).
According to PCAOB quality control standards applying to an audit, the engagement quality reviewer evaluates
The documentation. The EQR process in an audit evaluates the significant judgments made. This involves discussions with the engagement partner and other team members and reviewing whether the documentation supports the conclusions reached and appropriate responses to significant risks.
The nature and extent of a firm’s quality control policies and procedures depend on:
The nature and extent of a firm’s quality control policies and procedures depend on a number of factors, such as the firm’s size, the degree of operating autonomy allowed, its human resources policies, the nature of its practice and organization, and appropriate cost-benefit considerations.
According to PCAOB quality control standards applying to audits, the engagement quality reviewer most likely
Must be an associated person of a registered public accounting firm. The objective of the reviewer is to evaluate the significant judgments made and the related conclusions reached. (S)he must be an associated person of a registered public accounting firm and may be from outside the firm. Moreover, the reviewer must have the competence to serve as a partner on the engagement and have independence, integrity, and objectivity. But an engagement partner on either of the two preceding audits ordinarily may not be the reviewer.
The in-charge auditor for an audit of an issuer most likely has a supervisory responsibility to explain to the staff assistants
How the results of various auditing procedures performed by the assistants should be evaluated. Assistants should be informed of their responsibilities and the objectives of the work they are to perform. They should be informed about the matters that affect the nature, timing, and extent of procedures, including how the results of tests should be evaluated (AS No. 10).
Assertions for Classes of Transactions & Events (CPA-CO)
Completeness Period Cutoff Accuracy Classification Occurrence
Account Balances at YE (RACE)
Rights and Obligations
Allocation and Valuation
Presentation & Disclosures (RACU)
Rights and Obligations and Occurrence
Accuracy and Valuation
Understandability and Classification