AUDITING-INTERIM 1 (Chapters 1-4)-Identification
Other assurance services
Does not require a report, but is still focused on increasing quality of the information. Does not have to
be about another party's assertion of compliance with a specified criteria.
Non-assurance services
While the primary purpose of an assurance service is to improve the quality of information, the primary
purpose of a management consulting engagement is to generate a recommendation to management.
Quality of information is still important, but not the primary focus.
Examples: 1. Accounting and bookkeeping services
2. Tax services
3. Management consulting services
SysTrust
The AICPA and CICA jointly created SysTrust attestation service to evaluate and test system reliability in
areas such as security and data integrity.
WebTrust
The AICPA and CICA (Canadian Institute of Chartered Accountants) jointly created this service to assure
users that a Web site owner has met established criteria related to business practices, transaction
integrity, and information processes.
5 Principles developed by AICPA and CICA
1. Online privacy
2. Security
3. Processing integrity
4. Availability
5. Confidentiality
5 Types of Attestation Services
1. Audit of historical financial statements.
2. Audit of internal control over financial reporting.
3. Review of historical financial statements.
4. Attestation services on information technology.
5. Other attestation services that may be applied to a broad range of subject matter.
CPA Exam Sections
1. Auditing and attestation
2. Financial accounting and reporting
3. Regulation
4. Business environment and concepts
AICPA
American Institute of Certified Public Accountants, a voluntary organization of CPAs that sets
professional requirements, conducts research, and publishes materials relevant to accounting, auditing,
management consulting services, and taxes.
CAQ
Center for Audit Quality. An autonomous public policy organization with a mission to foster confidence
in the audit process and to make public company audits even more reliable and relevant for investors.
GAAS
Generally Accepted Auditing Standards. Developed and issued in the form of Statements on Auditing
Standards (SASs) and codified in AU-C sections in the Codification of Auditing Standards; often called
auditing standards.
ISAs
International Standards on Auditing (ISAs). Statements issued by the International Auditing and
Assurance Standards Board of the International Federation of Accountants to promote international
acceptance of auditing standards.
Peer review
The review by CPAs of a CPA firm's compliance with its quality control system
Principles
Framework helpful in understanding and explaining an audit; provide a structure for the Codification of
Statements on Auditing Standards
1. Obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, thereby enabling the auditor to express an
opinion on whether the financial statements are presented fairly, in all material aspects, in accordance
with an applicable financial reporting framework; and,
2. report on the financial statements, and communicate as required by GAAS, in accordance with the
auditor's findings
PCAOB
Public Company Accounting Oversight Board. Board created by the Sarbanes-Oxley Act to oversee
auditors of public companies, including establishing auditing and quality control standards and
performin inspections of registered accounting firms.
Quality control
Methods used by a CPA firm to ensure that the firm meets its professional responsibilities
SEC
Securities and exchange commission - a federal agency that oversees the orderly conduct of the
securities markets; the SEC assists in providing investors in public corporations with reliable information
upon which to make investment decisions.
SASs
Statements on auditing standards - pronouncements issued by the AICPA to interpret the principles
underlying generally accepted auditing standards
Size variations of CPA firms
1. Big Four
2. National firms
3. Regional and large local firms
4. Small local firms
Activities of CPA Firms
1. Accounting and bookkeeping services
2. Tax services
3. Management consulting services
3 influences on structure of CPA firms
1. the need for independence from clients
2. the importance of a structure to encourage competence
3. the increased litigation faced by auditors
Organizational structures
1. Proprietorship
2. General partnership
3. General corporation
4. Professional corporation
5. Limited liability company
6. Limited liability partnership
PCAOB
Public Company Accounting Oversight Board
Appointed and overseen by SEC
Conducts inspections of registered accounting firms and assess their compliance with the rules of the
PCAOB and the SEC
Annual inspections of accounting firms that audit more than 100 issuers and inspections of their
registered firms at least once every three years. Any violations could result in disciplinary action by the
PCAOB and be reported to the SEC and state accountancy boards.
SEC
An agency of the federal government, assists in providing investors with reliable information upon which
to make investment decisions. Companies planning to issue new securities must make a reques with the
commission (act of 1933)
Act of 1934: provides additional protection by requiring public companies and others to file detailed
annual reports with the commission.
Auditor related reports:
- Form S-1
- Form 8-K
- Form 10-K
- Form 10-Q
- Proxy Statement
Form S-1
Issuance of new securities
Form 8-K
Significant events
Form 10-K
Annual financial information
Form 10-Q
Quarterly financial information
Proxy Statement
Include information on fees a company pays to CPA firms, such as audit fees. This information can be
found on the SEC website.
AICPA - Establishing Standards and Rules
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. Consulting standards
5. Code of professional conduct
6. Writes and grades the CPA examination
Compilation and review standards
Compilation standards include an accountant helping a client prepare financial statements without
providing any assurance.
A review service would be an accountant performing an inquiry and analytical procedures that provide a
reasonable basis for expressing limited assurance on the financial statements.
Relation of U.S. and International Auditing Standards
1. International Standards on Auditing - Applicable to entities outside the US
2. AICPA Auditing Standards - Applicable to private entities in the US
3. PCAOB Auditing Standards - Applicable to US Public Companies and other SEC registrants
Generally Accepted Auditing Standards
1. General Qualifications and conduct
a. Adequate training and proficiency
b. Independence in mental attitude
c. Due professional care
2. Field work performance of the audit
e. Proper planning and supervision
f. Sufficient understanding of the entity, its environment, and its internal control.
g. Sufficient appropriate evidence
3. Reporting results
h. Whether statements were prepared in accordance with GAAP
i. Circumstances when GAAP not consistently followed
j. Adequacy of informative disclosures
k. Expression of opinion of financial statements
Principles in AICPA Auditing Standards
1. Purpose of an audit
2. Responsibilities
3. Performance
4. Reporting
Quality Control Elements
1. Leadership responsibilities ("tone at the top")
2. Relevant ethical requirements
3. Acceptance and continuation of clients and engagements
4. Human resources
5. Engagement performance
6. Monitoring