Chapter 2
Professional Standards
ACCT-4080
Chapter 2
1
1. Basis of Auditing




Objectives of auditing
Responsible parties involved in auditing
Similarities with other disciplines
Limitations of auditing
ACCT-4080
Chapter 2
2
2. Practice Standards


AICPA standards
Citation Methods




SAS Number
AU Section Number (AU-C)
Professional Standards, Vol. I and II (and III)
Sources of Auditing Standards


Statements on Auditing Procedures — SAPs (1-54)
Statements on Auditing Stds — SASs — AU (1- )
ACCT-4080
Chapter 2
3
2. Practice Standards (continued)

Sources of other Standards






ACCT-4080
Statements on Stds for Attestation
Engagements — SSAEs — AT
Statements on Stds for Accounting and Review
Services — SSARSs — AR
Consulting Standards — CS
Quality Control Standards — QC
Peer Review Standards — PR
Tax Practice Standards — TX
Chapter 2
4
2. Practice Standards (continued)

Sources




Personal Financial Planning Standards — PFP
Code of Ethics Standards — ET
AICPA Bylaws Standards — BL
Continuing Education Standards — CPE
ACCT-4080
Chapter 2
5
2. Practice Standards (continued)

International Standards







International Auditing and Assurance Standards Board — IAASB
(Part of IFAC)
International Auditing Standards (ISAs)
International Standards on Assurance Engagement (ISAE)
IFAC Code of Ethics
(International Financial Reporting Standards — IASB)
PCAOB Standards




2003 adopted 101 existing SASs
Auditing Standards – AS
Ethics and Independence Standards – IT
Quality Control Standards – QC
ACCT-4080
Chapter 2
6
2. Practice Standards (continued)

Clarity Project

Purpose:





Project started in 2004
AU sections renumbered to ISA numbers
New format for standards



to make standards easier to read, understand, and apply
to converge US GAAS with ISAs issued by IAASB
introduction, objective, definitions, requirements, application and other
explanatory material
Effective for audits of financial statements for years ending on or
after December 15, 2012
Primarily was issued as one SAS – SAS 122
ACCT-4080
Chapter 2
7
2. Practice Standards Terminology in auditing standards
Responsibility
Level
Meaning
Words to Indicate
Responsibility
Unconditional
Responsibility
Auditor must fulfill responsibilities
“Must”
“Is required”
“Shall” (PCAOB only)
Presumptively
Mandatory
Auditor must comply with requirements unless
auditor demonstrates and documents that
alternative actions were sufficient to achieve the
objectives of the standards
“Should”
Responsibility
to Consider
Auditor should consider; whether the auditor
complies with the requirements depends on the
exercise of professional judgment in the
circumstances
“Might”
“Could”
Other phrases
ACCT-4080
Chapter 2
8
2. Practice Standards –
The GAAS Hierarchy
Category
Status
Audit Guidance
1. Standards
Auditors should be prepared to justify departures
from these standards.



GAAS principles (10 stds/prin)
SASs
Other standards from PCAOB,
GAO, SEC
2. Interpretative Publications
Recommendations on the application of the
SASs. If not followed, the auditors should be
prepared to explain how they complied with the
SAS provisions addressed.



Appendices to SASs
Interpretation of SASs
Auditing guidance in AICPA
Audit and Accounting Guides
AICPA auditing Statements of
Position

3. Other Auditing
Publications
No authoritative status, but may help the auditor
understand and apply the standards






ACCT-4080
Chapter 2
Auditing articles
Continuing education
programs
Textbooks
Guidebooks
Audit programs
Checklists
9
2. Practice Standards (continued)
Summary of Practice Standards
Client
Public
Entities
(Issuers)
Private
Entities
(Nonissuers)
Governmental
Entities
Foreign
Entities
Rulemaking
body
Public Company
Accounting
Oversight Board
(PCAOB)
AICPA Auditing
Standards Board
(ASB)
U.S.
Government
Accountability
Office (GAO)
IFAC
International
Auditing and
Assurance
Standards Board
(IAASB)
Standards
Auditing
Standards (ASs)
Statements on
Auditing
Standards
(SASs)
Government
Auditing
Standards (The
“Yellow Book”)
International
Standards on
Auditing (ISAs)
ACCT-4080
Chapter 2
10
3. GAAS and Principles

General standards (responsibilities principle)




Fieldwork standards (performance principle)




adequate technical training
independence
due professional care
adequately planned & supervised
internal control
sufficient appropriate evidence
Reporting standards (reporting principle)




ACCT-4080
GAAP
consistency
adequate disclosure
opinion
Chapter 2
11
3. GAAS and Principles
Comparison of AICPA GAAS to Principles: Responsibilities
General Standards
1.
2.
Responsibilities Principle
Training and proficiency
Auditors are responsible for:
•competence and capabilities
Independence in mental attitude
3.
ACCT-4080
Due professional care
•ethical requirements
•professional skepticism and professional
judgment
Chapter 2
12
3. GAAS and Principles
Comparison of AICPA GAAS to Principles: Performance
Standards of Field Work
1.
2.
Performance Principle
Planning and supervision
To obtain reasonable assurance:
Understanding of entity and environment to
assess risk of material misstatement
3.
Obtain sufficient appropriate evidence
•Plan work and supervise assistants
•Determine and apply appropriate materiality
levels
•Identify and assess risks of material
misstatement based on understanding of
business and internal control
•Obtain sufficient appropriate evidence
ACCT-4080
Chapter 2
13
3. GAAS and Principles
Comparison of AICPA GAAS to Principles: Reporting
Standards of Reporting
Reporting Principle
Financial statements in accordance with
GAAP
• Express an opinion or state that an opinion
cannot be expressed
2.
GAAP applied consistently (only report if
not consistent)
3.
Adequacy of disclosures (only report if not
adequate)
• Opinion is based on conformity of financial
statements with applicable financial reporting
framework
1.
4.
Express or disclaim an opinion
ACCT-4080
Chapter 2
14
4. Evidence



SAS 122
3rd Standard of Field Work:
The auditor must obtain sufficient appropriate
audit evidence by performing audit procedures…
Definition

All the information used by the auditor in arriving at
the conclusions on which the audit opinion is based
ACCT-4080
Chapter 2
15
4. Evidence (continued)

Sufficiency and Appropriateness
 Interrelated




Sufficiency – quantity (affected by RMM and quality of evidence)
Appropriateness – quality (affected by its relevance and reliability)
Limitations (cost, persuasiveness)
Generalizations about reliability


ACCT-4080
Source – knowledge, location, reliability of ICS, direct/indirect, directly by
auditor
Nature – documentary form, originals, reliability of form (e.g., ability to
be altered, certainty of sender), document experts
Chapter 2
16
4. Evidence (continued)


Relationship between assertions and
evidence
Relevance of assertions
ACCT-4080
Chapter 2
17
4. Evidence (continued)

Types of Evidence

Underlying Accounting Data


Corroborating Information



ACCT-4080
journals, general and subsidiary ledgers, accounting manuals,
work sheets, spreadsheets, cost allocations, reconciliations, etc.
auditor’s direct personal knowledge
documentary evidence
 created outside and transmitted directly to auditor
 created outside and held by client
 created by and held by client
client representations
Chapter 2
18
4. Evidence (continued)

Types of Evidence (continued)







ACCT-4080
Physical evidence
Mathematical evidence
Oral evidence
Confirmations
Written representations
Analytical procedures
Electronic evidence
Chapter 2
19
5. Attestation Standards

Apply to attest services



ACCT-4080
affirm to be genuine
when a CPA expresses a conclusion about
the reliability of subject matter or an
assertion that is the responsibility of another
party
includes financial and nonfinancial services
Chapter 2
20
5. Attestation Standards

SSAEs apply to






ACCT-4080
forecasts and projections
pro forma information
internal control
compliance with laws, regs, contracts
MD & A
agreed-upon procedures
Chapter 2
21
6. Quality Control for Firms

AICPA





National Peer Review Committee (formerly known as
the Center for Public Company Audit Firms)
Private Companies Practice Section (PCPS)
PCAOB registration
PCAOB inspections
State level peer review

ACCT-4080
Quality Enhancement Program in Nebraska
Chapter 2
22
6. Quality Control for Firms



An audit firm must establish a system of QC to
provide it reasonable assurance that the firm will
comply with professional, regulatory, and legal
requirements
QC standards apply to all firms and all services
provided
Specific QC policies and procedures vary by firm
size
ACCT-4080
Chapter 2
23
6. Quality Control for Firms

AICPA Elements of Quality Control






ACCT-4080
leadership responsibilities
ethical requirements
acceptance and continuance of clients and
engagements
human resources
engagement performance
monitoring
Chapter 2
24
Review Questions for Discussion

Chapter 2
2.1
2.2
2.7
2.15
2.16
ACCT-4080
2.17
2.19
2.21
2.25
Chapter 2
25