ACCT 6300 Final Exam Review
Instructor written questions
Audio Clip Link:
http://breeze.uhv.edu/p94729733/
Chapter 5
Auditors’ Report
 Ten GAAS: TIP PIE ACDO
 Types of Fraud and the fraud triangle:

Auditors’ Report

Five types of opinions
• standard unqualified
• modified unqualified
• ANGEL modifications still provide an unqualified
opinion
• Qualified: Material GAAP or GAAS problem
• Disclaimer: highly material GAAS problem
• Adverse: highly material GAAP problem
Auditors’ Report

Auditors’ Report
• Three standard paragraphs for standard
unqualified opinion: introductory, scope and
opinion.
• An explanatory paragraph (or languages) will be
added if a standard unqualified opinion cannot be
expressed.
• Position of the explanatory paragraph
• For qualified or adverse opinion: before the opinion paragraph
• For modified unqualified opinion: after the opinion paragraph
 However, the explanatory paragraph can be either before
or after the opinion paragraph: (a) Necessary GAAP
Departure,and (b) Emphasis of a matter.
Ten GAAS Mnemonics per Becker CPA
review: TIP PIE ACDO

Three general standards (TIP):
 Training
 Independence
 Professional Care

Three field work standards (PIE):
 Planning and Supervision
 Internal Control
 Evidence

Four reporting standards (ACDO)




Accounting=GAAP
Consistency
Disclosure
Opinion
Accounting Fraud

Types of Fraud
◦ fraudulent financial reporting (lying);
◦ asset misappropriation (stealing);
◦ corruption (cheating)

Fraud triangle
◦ pressure/incentive;
◦ opportunity;
◦ rationalization/attitude
Chapter 6
Auditors’ legal liability (exhibits 6.1 and
6.2 ; my extra notes)
 Regulatory obligations (general
requirements)

Auditors’ legal liability

An auditor(accountant) could be held liable for :
◦ breach of contract: privity relationship.
◦ ordinary negligence: missed certain information or
omitted a certain procedure
◦ gross negligence/constructive fraud: did not pay even
minimal care, fail to follow GAAS/GAAP
◦ fraud: fraudulent or deceitful behavior or actions

Disputes exist regarding whether an auditor
(accountant) should be liable for a third party for
ordinary negligence. Under common law, the courts
have applied different approaches (exhibit 6.2)
◦ Four approaches adopted in four classic court cases
 privity<near privity<foreseen<reasonably foreseeable
Statutory laws


Securities Act of 1933: IPO
Securities and Exchange Act of 1934:
subsequent trading
◦ Annual financial statements should be audited and
quarterly financial statements are reviewed

Insider trading:
◦ directors, officers, and >10% shareholders should
register with SEC and report their trading

Other laws: PSLRA, SOX, FCPA, and RICO
(just need to briefly know)
Chapter 7

Earnings management (EM)
◦ inflate/deflate Earnings or EPS

Materiality
◦ quantitative and qualitative factors

Restatements
◦ voluntary or requested by SEC

7 common EM techniques
(Shenanigans)
7 common EM techniques
1.
2.
3.
4.
5.
6.
7.
Recording Revenue too soon or of questionable quality
Recording bogus revenue
Boosting income with one-time gains
Shifting current expenses to a later or earlier period
Failing to record or improperly reducing liabilities
Shifting current revenue to a later period
Shifting future expenses to the current period as a special
charge
Items 1-5: inflate earnings through overstatement of revenue
and assets (1-3), or understatement of expense and
liabilities (4 and 5).
Items 6-7: deflate earnings through understatement of revenue
or overstatement of expense.
Chapter 8

GAAP vs. IFRS
◦ Rule vs. principle-based standards

CG worldwide
◦ Germany, China, India
IFCA code vs. AICPA code of professional
conduct: quite similar
 Differences between international and US
audit report

◦ True and fair vs. Present Fairly