Chapter 2
Professional
Standards
2-2
Authority of Organizations
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Public Company Accounting Oversight Board
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American Institute of Certified Public Accountants
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Auditing, Attestation, Quality Control, Independence,
Ethical Standards for audits of public companies
Auditing, Attestation, Quality Control, Independence
Ethical, Accounting and Review Standards for
engagements involving nonpublic companies
State Boards of Accountancy

License CPAs and CPA firms to practice in jurisdictions
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2-3
Generally Accepted Auditing
Standards--General Standards
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Adequate technical training and
proficiency
Independence in mental attitude is to be
maintained
Due professional care is to be
exercised
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2-4
Generally Accepted Auditing
Standards--Standards of Field Work
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Work is to be adequately planned and
properly supervised
Sufficient understanding of internal
control is to be obtained
Sufficient competent evidential matter
is to be obtained to afford a
reasonable basis for the opinion
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Generally Accepted Auditing
Standards--Standards of Reporting
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2-5
State whether the financial statements are
presented in accordance with GAAP
Identify circumstances in which such principles
have not been consistently applied
Informative disclosures are adequate unless
otherwise stated in the report
Report should clearly state the degree of
responsibility being assumed by the auditors by
expressing an opinion or stating that one cannot
be expressed, and the reason therefor
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2-6
The GAAS Hierarchy
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Auditor Responsibility for the
Detection of Errors and Fraud

Obtain information to assess the inherent risks and fraud risks
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2-7
Information about the company and its environment
Discussion among audit team members
Inquiries of management and others
Planning analytical procedures, including those involving revenue
Assess the risk of errors and fraud that may cause the financial
statements to contain a material misstatement.
Based on that assessment, plan and perform the audit to obtain
reasonable assurance that material misstatements, whether
caused by errors or fraud, will be detected (including those
procedures required by SAS No. 99.
Exercise due care in planning, performing and evaluating the
results of audit procedures, and the proper degree of
professional skepticism to achieve reasonable assurance that
material misstatements due to error or fraud will be detected.
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Auditor Responsibility for the
Detection of Illegal Acts
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2-8
Those that could have a direct and material
effect on financial statement amounts--same as
for errors and fraud. An audit obtains
reasonable assurance of detecting these types
of illegal acts.
Those with an indirect effect on financial
statement amounts:
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
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Be aware of possible occurrence.
If information comes to the auditor’s attention, apply
audit procedures directed at determining whether an
illegal act has occurred. An audit does not provide
assurance that indirect-effect illegal acts will be
detected.
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2-9
The Standard Auditors’ Report for
Nonpublic Companies
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Title
Addressee
Content





Introductory Paragraph
Scope Paragraph
Opinion Paragraph
Signature
Date
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The Standard Auditors’ Report-Introductory Paragraph
We have audited the accompanying balance sheet
of XYZ Company as of December 31, 20XX, and the
related statements of income, retained earnings, and
cash flows for the year then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an
opinion on these financial statements based on our
audit.
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2-11
The Standard Auditors’ Report—
Scope Paragraph
We conducted our audit in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
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2-12
The Standard Auditors’ Report-Opinion Paragraph
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of XYZ Company as of December 31, 20XX, and the results
of its operations and its cash flows for the year then ended
in conformity with accounting principles generally accepted
in the United States of America.
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2-13
The GAAP Hierarchy
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Authoritative Body Pronouncements
Pronouncements of Bodies Composed of
Expert Accountants, That Are Exposed for
Public Comment
Pronouncements of Bodies of Expert
Accountants That Are Not Exposed for Public
Comment
Widely Recognized Practices and
Pronouncements
Other Accounting Literature
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2-14
Public Company Audit Report




Title is “Report of Registered Independent
Public Accounting Firm”
Refers to standards of the PCAOB rather
than GAAS
Includes a fourth paragraph that refers to
report on internal control
City and State (or Country) of audit firm
must be included
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2-15
Applicability of SSAEs
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2-16
Elements of Quality Control
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Independence, Integrity, and Objectivity
Personnel Management
Acceptance and Continuance of Clients
and Engagements
Engagement Performance
Monitoring
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Regulation of the Public Accounting
Profession

Public Companies

Public Company Accounting Oversight Board &
the SEC

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2-17
Registration of public accounting firms that audit public
companies
Conduct inspections of public company practice of
registered public accounting firms
Nonpublic Companies

AICPA & State Boards of Accountancy

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Peer review for nonpublic practice segments
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2-18
International Audit Report

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
Contains expanded description of management’s
responsibility
Contains an enhanced explanation of the audit
process
May state “present fairly, in all material respects” or
“give a true and fair view”
Report may indicate that the financial statements
comply with the provisions of the country’s relevant
statutes or laws
Must include city of the auditors’ office
May be signed using the personal name of the
auditor or the audit firm or both
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