Unit 1-Engagement Responsibilities Flashcards
(91 cards)
0
Q
What is an attest engagement?
A
In an attest engagement a practitioner is engaged to issue or does issue and examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about the subject matter, that is the responsibility of another party
1
Q
What does SSAES, SAS, SSARS, and SSCS stand for?
A
Statement on standards for attestation engagements
Statements on auditing standards
Statements on standards for accounting and review services
Statements on standards for consulting services
2
Q
what are the 3 categories of the 11 attestation standards?
A
general standards
standards of field work
standards of reporting
3
Q
name the general standards of the attestation standards?
A
1) the practitioner must have adequate technical training and proficiency to perform the attestation engagement.
2) the practitioner must have adequate knowledge of the subject matter
3) the practitioner must have reason to believe that the subject matter is capable of evaluation against criteria that are suitable and available to users
4) the practitioner must maintain independence in mental attitude in all matters relating to the engagement
5) the practitioner must exercise due professional care in the planning and performance of the engagement and the preparation of the report
4
Q
Name the standards of field work of attestation standards
A
1) The practitioner must adequately plan the work and must properly supervise any assistants
2) the practitioner must obtain sufficient evidence to provide a reasonable basis for the conclusion that is expressed in the report
5
Q
name the standards of reporting of the attestation standards?
A
1) the practitioner must identify the subject matter or the assertion being reported on and state the character of the engagement in the report
2) the practitioner must state the practitioner’s conclusion about the subject matter or the assertion in relation to the criteria against which the subject matter was evaluated in the report
3) The practitioner must state all of the practitioner’s significant reservations about the engagement, the subject mater and if applicable, the assertion related thereto in the report
4) any restrictions on use
7
Q
compilation
A
disclaimer of any assurance- the accountant need not be independent
7
Q
examination/audit
A
positive assurance
8
Q
review
A
limited assurance- the accountant must be independent
9
Q
occurrence
A
recorded transactions and events actually occurred
10
Q
agreed upon procedures
A
results of procedures but no assurance- the practitioner must be independent
11
Q
completeness
A
all transactions and events that should have been recorded were recorded
12
Q
accuracy
A
amounts and other data were recorded appropriately
13
Q
cutoff
A
transactions and evens were recorded in the proper period
14
Q
classification
A
transactions and events were recorded in the proper accounts
15
Q
existence
A
assets, liabilities and equity interests exist
16
Q
rights and obligations
A
the entity holds or controls the rights to assets, and liabilities are its obligations
17
Q
valuation and allocation
A
assets, liabilities, and equity interests are included at appropriate accounts, and any valuation or allocation adjustments are appropriately recorded.
18
Q
occurrence and rights and obligations
A
disclosed transactions, events, and other matters have occurred and pertain to the entity
19
Q
classification and understandability
A
financial information is appropriately presented and described, and disclosures are clearly expressed.
20
Q
accuracy and valuation
A
information is disclosed fairly and at appropriate amounts
21
Q
assertions about classes of transactions and events for the period (income statement and statement of cash flows)
A
occurrence completeness accuracy cutoff classification
22
Q
assertions about account balances at the period end (the balance sheet)
A
existence
rights and obligations
completeness
valuation and allocation
23
Q
assertions about presentation and disclosers (notes to the financial statements)
A
occurrence and rights and obligations
completeness
classification and understandability
accuracy and valuation
24
ASB stands for?
Auditing Standards Board
25
The ASB's standards apply to whom?
to auits of nonissuers (nonpublic companies)
26
Audits of issuers are regulated by whom?
PCAOB- Public Companies Accounting Oversight Board
27
GAS
Government Auditing Standards- applies to audits of the federal government's programs. The Government Accountability Office) requires governmental auditors to follow the ASB standards, except otherwise provided in the yellow book.
28
What is the purpose of an audit?
The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial staements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework (GAAS). An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements.
29
What does CAVE CROC stand for?
Completeness
Accuracy
Valuation and Allocation
Existence
Cutoff
Rights and obligations
Occurance
Classification and Understanability
30
What are the assertions that are described in the PCAOB's AS No.15, Audit Evidence that are to be applied selectively to the financial statement transactions?
```
Existence or occurrence
Completeness
Valuation or Allocation
Rights and obligations
Presentation and disclosure
```
31
What is the Auditors Responsibility?
The auditors responsibility for the financial statements is confined to the expression of an opinion, but the auditor may make suggestions about the form or content of the financial statements or draft them based on managements's information
32
What are unconditional requirements?
The auditor must comply with an unconditional requirement whenever it is relevant. The word MUST indicates an unconditional requirement
33
What are Presumptively Mandatory requirements?
The auditor must comply with presumptively manadatory requirement whenever it is relevant except in rare circumstances. The word SHOULD indicates a presumptively mandatory requirement
34
What does the word MUST indicate?
Unconditional requirement
35
What does the word Should indicate
Presumptively mandatory requirements
36
What is a compilation of financial statements?
is the presentation in statement form of financial information that is the representation of management. The accountant expresses no assurance in a compilation report. it includes a ddisclaimer. it is neither an attest engagement nor an assurance engagement. the accountant need not be independent to compile financial statements
37
What is/happens in a review?
In a review of financial statements, the accountant makes inquiries, applies analytical procedures, and obtains managements reprsentations. These procedurs provide the accountant with a reasonable basis for expressing limited assurance. A review is an attest engagement and an assurance engagement
38
What is an agreed-upon procedure?
The practitioner is engaged by a client to assist specified parties to evaluation the subject matter or an assertion. The report is restricted to the specified parties who have agreed to the specific procedures and tatken responsibility for their sufficiency. The practioner provides neither possitive nor limited assurance. The practitioner must be independent
39
What are Prospective Financial Statements (PFS's)?
Prospective Financial Statements consist of financial forecasts or projections, including summaries of significant assumptions and accounting polices. The practitioner must be independent.
40
What is a financial forcast and financial projection?
A financial forecast and financial projection consists of PFS's that present, to the best of the responsible party's knowledge and belief, and entity's expected financial position, results of operations and cash flows. it is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take
41
How does a financial projection differ from a forecast?
A projection is based on the responsible party's assumptions reflecting conditions it expects would exist and the course of action it expects would be taken, given one or more hypothetical assumtions. A projection is sumetimes prepared to present one or more hypothetical courses of action for evaluation, as in response to a question such as, " what would happen if?" a projection may be expressed as a point estimate or a range
43
What is Pro Forma Financial Information (PFFI)?
PFFI 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
44
True or False, Practitioners may perform and examination of a nonissuer's internal control over financial reporting and express an opinion in coordination with the financial statement of the audit
True
45
True of False, Does the practioner need to be independent to perform an examination of a nonissuer's internal control over financail reporting and express and opinion in coordination with the financial statement audit?
True
46
What is Management's Discussion and Analysis (MD&A)?
MD&A is a written assertion that may be examined or reviewed by the practitioner. It may be presented in an annual report or other documents filed with the SEC. However, a report on a review engagement report cannot be filed with the SEC. The practitioner must be independent
47
What are assurance Services?
Assurance services are independent professional services that improve the quality of information, or its context, for decision makers. Information might be: financial or nonfinancial, historical or prospective, consist of data or relate to systems or be internal or external to the user. Assurance services include audit and other attestation services but also nonstandard services.
48
How does Assurance services differ from consulting services?
Assurance services:
1) focus on improving information rather than providing advice
2) usually involve situations in which one party wants to monitor another (often within the same entity) rather than the two-party arrangements commin in consulting engagements.
49
What si ElderCare services (PrimePlus)?
Eldercare services assess whether specified goals regarding care of the elderly are being met by various care givers. Services provided to the elderly include accumulation of information, financial management, and assessment of nursing care
50
What is CPA performance review?
This is a service that evaluates whether an entity's performance measurement system contains relevant and reliable measures for assessing 1) the degree to which the entity's objectives are achieved 2) how its performance compares with that of its competitors. This review provies investors, managers, or others with a comprehensive information base and more balance score card
51
What is healthcare effectiveness?
This service provies assurance about the effectiveness of halthcare services provided by HMOs, hospitals, doctors, and other providers.
52
What is SysTrust?
Thsi service assesses whether an entity's internal information systems provide reliable information for operating and financial decisions. Informations systems address 1) reporting concepts and systems, 2) transaction processing systems, 3) management reporting systems and 4) risks within a business. SysTrust is an assurance service developed under the AICPA attestation standards.
53
What are the suitable criteria for SysTrust and WebTrust?
```
online privacy
security
processing integrity
availability
confidentiality
```
54
Explain the suitable criteria for SysTrust and WebTrust, Online privacy?
personal information obtained is collected, used, disclosed, and retained as committed or agreed
55
Explain the suitable criteria for SysTrust and WebTrust, Security?
the system is protected against unauthorized access (both physical and logical)
56
Explain the suitable criteria for SysTrust and WebTrust, Processing integrity?
System process is complete, accurate, timely and authorized.
57
Explain the suitable criteria for SysTrust and WebTrust, Availability?
the system is available for operation and used as commited or agreed
58
Explain the suitable criteria for SysTrust and WebTrust, Confidentiality?
Informaiton designated as confidential is protected as committed or agreed.
59
What is WebTrust?
This service, developed under the AICPA attestation standards, provides internet users, including businesses and internet service providers, assurance about electronic commerce activities. The practitioner uses the same criteria as outlined for SysTrust
60
What are the six elements of a system of quality control?
- Leadership responsibilities for quality within the firm( the "tone at the top")
- Relevant ethical requirements
- Acceptance and continuance of client relationships and specific engagements
- Human resourses
- Engagement performance
- Monitoring
61
Explain the element of a system of quality control, leadership responsigilities for quality witin the firm ( the "tone at the top")
The firm should promote and internal culture recognizing that quaility is essential in performing engagements. This requires clear, consistent, and frequent actions and messages from all levels of management that emphasize quality control policies and procedures.
62
Explain the element of a system of quality control, Relevant ethical reuqirements
Policies and procedures should be established to provide reasonable assurance that te firm and personnel comply with relevant ethical requirements.
63
Explain the element of a system of quality control, Acceptance and continuance of client relationships and specific engagements
Policies and procedures should be established to provide reasonable assurance that the firm
a) has considered the client's integrity and has no information leading to a conclusion that the client lacks integrity
b) has the competence, capabilities, and resources to perform the engagement
c) Can comply with legal/regulatory and ethiccal requirements
64
Explain the element of a system of quality control, Human resources
Polices and procedures shold be established to provide reasonable assurance that the firm has sufficient personnel with the capabilities, competence, and commitment to eithical principles to a) perform engagements in accordance with professional standars and legal requirements and b) issure appropriate reports.
1) matters addressed include recruitment, hiring,determining competencies, assignment of personnel, development of personnel, performance evaluation, copensation and advancement
2) an engagement partner with the appropriate competence, capabilities and authority should be responsible for each engagement
65
Explain the element of a system of quality control, Engagement performance
Policies and procedures shold be established to provide reasonable assurance that engagements are consistently performed in accordance with professional standards and legal requirements and that the firm issues appropriate reports
66
Explain the element of a system of quality control, Monitoring
Policies and procedures should be established to provide reasonalble assurance that the policies and procedures relating to the system of quality control are relevant, adequate, operating effectively, and complied with in practice. Monitoring is an ongoing process and includes inspection and evaluation of prior engagements.
67
What is a system review?
it is an on-site review required for a firm that performs the highest level of services. It provides the reviewer with a reasonable basis for expressing an opinion on the firm's system of quality control
68
What is an engagement review?
is for a firm not required to have a system reveiw but not qualifying for a report review. It provides the reviewer with a reasonable basis for expressing limited assurance on whether 1) the financial statements or informaiton and the accountat's reports submitted materially conform with professional standards, and 2) the firm's documentation conforms with professional standards.
69
What are the Sarbanes-Oxley Act of 2002 standards that relate to the audits of public companies?
- a second partner review and approval is required of audit reports
- The lead auditor and the reviewing partner must be rotated off the audit every 5 years
- The accounting firm must supervise any associated person with respect to auditing or quality control standards
- Independence rules have been expanded by prohibiting the auditor from providing a variety of non audit services
- the clients CEO and CFo must certify the appropriateness of the financial statements and disclosures.
- Penalties for destroying documents to impede and investigation have been expanded.
- Management must assess the effectiveness of internal control and issue a report on its effectiveness
- The auditor must audit internal control and espress an opinion on its effectiveness.
70
Which of the following services, if any, may an accountant who is not indpendent provide?
a) Compiations but not reviews
b) reviews but not compilations
c) both compiltions and reviews
d) no services
A- the service if any, that may be provided by an accountant whis is not independent.
Attest services provide assurance and require the accountant to be independent. however, a compliation provides no assurance. Thus the accountant need not be independent. The rpeort describes the compilation service and disclaims and opinion or any other form of assurance on the financial statements. The accountant also states in the report aths is is not independent
71
The Party responsible for assumptions identified in the preparation of prospective financial statements is usually
a) the third party lending institution
b) the clients management
c) the reporting accountant
d) the clients independent auditor
b- Management is usually the responsible party, that is, the person responsible for the assumptions underlying prospective financial statements. However, the responible party may be a party outside the entity, such as a possible acquirer.
72
A financial forecast consists of prospective financial statements that present an entity's expected financial position, results of operations, and cash flows. a forcast
a) is based on the most conservative estimates
b) presents estimates given one or more hypothetical assumtptions
c) unlike a projection, may contain a range
d) is based on assumtions reflecting conditions expected to exist and courses of action expected to be taken
d- a forcase is based on " the responsible party's assumptions reflecting conditions it expects to exist and the couse of ction it expects to take
73
Which of the following presents what the effects on historical financial data might have been if a consummated transaction had occurred at an earlier date?
a) prospective financial statements
b) Proforma financial information
c) interim financial information
d) a financial projection
b-Pro forma information shows what the significant effects on historical financial informaiton would have been had a consummated or proposed transaction( or event) occured at an earlier date.
74
SysTrust is an assurance service designed to
a) increase the comfort of management and toehr stakeholders relative to an information system
b) provide and opinion on the firness of an information system's output
c) Provide the SEC with informaiton used to administer the securities laws
d) Allow a CPA to provide a consulting service to management relating to their ifnormation system
a-The objective of SysTrust is an attestation report on management's assertion about the reliability of an informaion system that supports a business or given activity. this assurance service is designed to increase the stakeholders' comfort relative to the system's satifiaction of the SysTrust principles- online privacy, security, processing integrity, availability, and confidentiality
75
An entity engaged a CPA to determine whether the client's web sites comply with defined WebTrust principles and criteria. In perfoming this engagement, the CPA should apply the provisions of
a) Statements on assurance Standards
b) statements on standards for attestation engagements
c) statements on standards for management consulting services
d) statements on auditing standards
b- an attest engagement invoves reporting on subject matter, or an assurance about subject matter, that is the responsibility of another party. When providing WebTrust assurnace, the accountant must address wirtten assertions by managements. Thus, statements on standards for attestation engagements are applicable.
76
A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm's standards of quality. To achieve this goal, the firm most likely would establish procedures for
a) evaluating prosepctive and continuing client relationships
b) reviewing documentation of the work performed and reports issured
c) requiring personnel to adhere to the applicable independence rules.
d) maintaining personnel files containing documentation related to the evaluation of personel
b- the engagement performance element of quality control includes polices and procedures that cover planning, performing, supervising, reviewing, documenting and communicating the results of each engagement. Objectives of supervison include establishing procedures for 1) planning engagements 2) maintaining the firms standards of quality, and 3) reviewing documentation of the work performed and reports issued.
77
According to the PCAOB quality control standards applying to an audit, the engagement quiality review evaluates
a) the documentation
b) only the uncorrected misstatements
c) the audit report but not the internal control report
d) only the assessment of risks identified by management
a-The EQR process in an audit evaluates the significant judgements 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
78
According to PCAOB quiality control standards applying to audits, the engagement quality review most likely
a) may provide concurring approval of issuance of the report even if she is aware of significant engagement deficiency.
b) must be an associate of a registered public accounting firm
c) must have integrity and objectivity but not independence
d) may be an engagement partner on a prior audit but not the current audit
b-the objective of the reviewer is to evaluate the significant judgments made and the related conclusions reached. she must be an associated person of a registered public accounting firm and may be from outside the firm. Moreover, the review must have the competence to serve as a parner on the engaement and have indpendence, integrity, and objectivity. but an engagement partner on either of the tow preceding audit ordinarily may not be the reviewer.
79
The examination report issued under the WebTrust service includes all of the following except
a) The CPA’s opinion on the subject matter or management’s assertion on the subject matter.
b) The CPA’s opinion on the value of the products offered at the web site.
c) A statement that the examination was made in accordance with the AICPA standards.
d) An introductory paragraph indicating the principle or principles of WebTrust being evaluated.
b-The CPA expresses an opinion relating to one or more of the following principles: security, privacy, availability, processing integrity, and confidentiality.
80
Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?
a) The relationship between financial statement assertions and audit procedures should be one-to-one.
b) Audit procedures should be developed in light of financial statement assertions about the financial statement components.
c) The auditor should resolve any substantial doubt about any of management’s relevant financial statement assertions.
d) Selection of tests of financial statement assertions should depend upon the understanding of internal control.
a-Some auditing procedures may relate to more than one assertion. But a combination of auditing procedures may be needed to test a single relevant assertion because audit evidence from different sources or of a different nature may be relevant to the same assertion. For example, when relating controls to assertions, the auditor may determine that multiple controls are needed to address a risk and the related assertion.
81
Which of the following is true regarding the SysTrust assurance service?
a) When expressing a qualified or adverse report, the practitioner should report on management’s assertion.
b) SysTrust is a consulting service designed to increase the comfort of management and other stakeholders about a company’s systems.
c) SysTrust reports are always based on a period of time, not a particular moment in time.
d) In a SysTrust engagement, a CPA expresses an opinion on the type and quality of information processed by a system.
c-System reliability is dynamic, not static. Thus, the report should be based on a span of time.
82
true or false?
| Statements on Auditing Standards (SASs) are generally accepted auditing standards.
true
83
true or false?
As part of the attestation procedures for examinations and reviews, the practitioner would not normally obtain a written assertion provided by the responsible party.
false
84
true or false?
SSAEs cover services for which explicit standards apply, for example, Statements on Auditing Standards (SASs), Statements on Standards for Accounting and Review Services (SSARSs), and the Statements on Standards for Consulting Services (SSCSs).
false
85
true or false?Attest engagements include reporting on findings based on agreed-upon procedures performed on the subject matter.
true
86
The securities of Donley Corporation are listed on a regional stock exchange and registered with the SEC. The management of Donley engages a CPA to perform an independent audit of Donley’s financial statements. The primary objective of this audit is to provide assurance to the
a) Board of directors of Donley.
b) Investors in Donley securities.
c) Regional stock exchange.
d) Securities and Exchange Commission
b-The securities of Donley Corporation are listed on a regional stock exchange and registered with the SEC. The management of Donley engages a CPA to perform an independent audit of Donley’s financial statements. The primary objective of this audit is to provide assurance to the
87
The authoritative body designated to promulgate standards concerning an accountant’s association with unaudited financial statements of an entity that is not required to file financial statements with an agency regulating the issuance of the entity’s securities is the
a) Auditing Standards Board.
b) Financial Accounting Standards Board.
c) Government Accountability Office.
d) Accounting and Review Services Committee.
d-
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.
88
Within the context of quality control, the primary purpose of continuing professional education (CPE) and training activities is to provide a CPA firm with reasonable assurance that personnel within the firm have
a) The ability to fulfill assigned responsibilities and the qualifications for advancement.
b) Knowledge required to perform a peer review.
c) Technical training that ensures proficiency as an auditor.
d) Professional education that is required to perform with due professional care.
a-According to QC 10, the firm should adopt policies and procedures to obtain reasonable assurance that personnel at all levels participate in general and industry-specific CPE and other professional development activities that enable them to fulfill responsibilities assigned and satisfy applicable CPE requirements of the AICPA and regulatory agencies. Furthermore, personnel chosen for advancement should “have the qualifications necessary for fulfillment of the responsibilities they will be called on to assume.”
89
Which of the following professional services would be considered an attestation engagement?
a) Providing financial analysis, planning, and capital acquisition services as a part-time, in-house controller.
b) Advocating on behalf of a client about trust tax matters under review by the Internal Revenue Service.
c) Preparing the income statement and balance sheet for one year in the future based on client expectations and predictions.
d) Advising management in the selection of a computer system to meet business needs.
c-Statements on Standards for Attestation Engagements (SSAEs) apply generally to performance of an examination, review, or agreed-upon procedures engagement to report on subject matter, or an assertion about it, that is the responsibility of another party. Accordingly, the SSAEs apply to engagements to assemble or report on prospective financial statements (PFSs) that reasonably might be expected to be used by third parties. PFSs present expected financial position, results of operations, and cash flows. They include forecasts and projections. A forecast is based on the responsible party’s assumptions reflecting the conditions it expects to exist and the course of action it expects to take. Furthermore, a review is not permitted to be performed with regard to a forecast or projection. However, a practitioner may compile, examine, or apply agreed-upon procedures to a partial presentation, that is, a presentation of prospective financial information that omits one or more items required by the minimum presentation guidelines for PFSs. Failure to present significant cash flows is such an omission, although a statement of cash flows is not required. Thus, preparing the income statement and balance sheet for one year in the future based on client expectations and predictions is an attestation engagement to assemble a partial presentation of a forecast. The presentation is not partial if the omitted information may be derived from the presentation (AT 101 and AT 301).
90
In connection with the element of monitoring, a CPA firm’s system of quality control ordinarily should provide for the maintenance of
a) Documentation to demonstrate compliance with peer review directives.
b) Documentation to demonstrate compliance with its policies and procedures.
c) A file of minutes of staff meetings.
d) Updated personnel files.
b-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. Documentation of monitoring includes procedures, evaluations, deficiencies, and the bases for taking or not taking further action. Documentation of all elements of quality control should be retained for a period of time sufficient to enable those performing monitoring procedures and a peer review to evaluate the extent of the firm’s compliance with its quality control standards, or for a longer period if required by law or regulation (QC 10).
91
Which of the following actions should a CPA firm take to comply with the AICPA’s quality control standards?
a) Use attributes sampling techniques in testing internal controls.
b) Establish procedures that comply with the standards of the Sarbanes-Oxley Act.
c) Consider inherent risk and control risk before determining detection risk.
d) Establish policies to ensure that the audit work meets applicable professional standards.
d-One of the elements of a system of quality control is engagement performance. Thus, policies and procedures should be established to provide reasonable assurance that (1) engagements are consistently performed in accordance with professional standards and legal and regulatory requirements and (2) the firm issues appropriate reports. Matters addressed include responsibilities for performance, supervision, and review.
