Term
| Client acceptance and continuance policies |
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Definition
FIRM
-the ability to meet reporting deadlines
-the firms's ability to staff the engagement
-independence can be achieved
CLIENT
-integrity of client management |
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Term
| Preconditions for an audit |
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Definition
Financial reporting framework must be applicable and acceptable
Management acknowledges and understands their responsibilities |
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Term
| Management's Responsibilities |
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Definition
-preparation and fair presentation of the FS
-DIM of internal controls
-Providing the auditor with: access to all information relevant to the prep of the FS, any other information the auditor may request, and unrestricted access to persons necessary |
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Term
| Communication with the predecessor auditor |
|
Definition
BEFORE the engagement acceptance:
(required, and client permission to contact them is required)
-mgmt integrity
-disagreements
-reason for change
-fraud, noncompliance, IC matters and their communication with management/governance
-fee payment problems
DURING the audit
-find evidence regarding the opening balances
-accounting policies to see if consistently applied
-planning documentation
-risk assessment procedures
-further audit procedures
-audit results
-matters of continuing audit significance |
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Term
|
Definition
contract between the client and the auditor. Terms of the engagement (beginning of the audit)
Includes:
-the objective of the audit
-managements's responsibilities
-auditor's responsibilities
-limitations of the engagement
-identification of applicable reporting framework
-expected form and content of any reports to be issued
Recurring audits should asses whether changes should be made/revisions to the letter. |
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Term
|
Definition
-permanent and current files
-docs supporting the auditor's report/opinion
-aid in training and in the conduct/supervision of the audit
- record of accumulated evidence
- shows accounting records reconcile with the FS
And experienced auditor with no previous connection to the engagement should be able to understand the work that was performed. |
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Term
|
Definition
Usually made up of three to five outside directors who are not employed by the company nor have a material interest in the company.
Function include:
- establishing control environment
- selecting/appointing the independent auditor
-reviewing auditor work
-reviewing the scope of the audit
-responding to auditor recommendations
-helping resolve disagreements |
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Term
| Items communicated to those charged with governance |
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Definition
Auditor's responsibility
May communicate about the planned scope and timing of the audit
Significant audit findings
- If governance is not involved in mgmt, even more things related to the audit should be communicated (things that hapened during the audit)
SOX requires these communications as well. |
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Term
| Form and timing of communication with those charged with governance |
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Definition
GR: may be oral or in writing. Written communications should contain a limitation on their use. Oral documentation should be documented. Nonissuers: should occur in a manner that allows appropriate action to be taken.
Issuers: communication should be made before the issuance of the auditor's report |
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Term
| AICPA independence rule applies to |
|
Definition
Audits and attestation services
Not required for compilations, consulting services, or tax work. |
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Term
| AICPA independence impaired when |
|
Definition
Direct financial interest or material indirect financial interest
Audit fees are outstanding for more than one year
CPA has a mgmt position with a client or is an employee. The spouse can be an employee, but not involved in mgmt
CPA makes hiring decisions (but can recommend job description, screen candidates, and advise on hiring)
Litigation (but not for an immaterial dollar amount unrelated to the audit |
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Term
|
Definition
| CPA general standards rule requiring proper education and training. The CPA need not be an expect/attain special accreditation, they can consult with experts. |
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Term
|
Definition
| general standards rule, the CPA must exercise the same skill a reasonably prudent accountant would. The CPA must critically review the work done by others |
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Term
|
Definition
Retaining client records after the client has demanded the return
discrimination in employment
failure to follow standards in audits
negligently making false or misleading journal entries
failure to timely file tax returns or remit payroll taxes
soliciting or disclosing CPA exam questions or answers
false, misleading, or deceptive claims about member's abilities to provide professional services
Disclosure of client information without consent |
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Term
AICPA Conceptual Framework Approach
Threats to Compliance |
|
Definition
Adverse Interest (opposing interests to client)
Advocacy (promotes interests of client)
Familiarity (become too sympathetic/accepting)
Management Participation
Self-interest (member benefits from a client's relationship)
Self Review(member will not appropriatley judge their own work)
Undue influence (member subordinates judgement to client because they are mean) |
|
|
Term
|
Definition
Records of issuer audits must be retained for seven years
Concurring Partners must review each audit report
Firm may not provide any other nonaudit/attest services except tax services (preapproved by the audit committee.
Audit partner lead and reviewing partner must rotate of the audit every five years.
Firm cannot have employed the (officer) of the client within the one year preceding the audit (cool down) (can't audit their own statements) |
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Term
| SEC partner rotation rules |
|
Definition
Lead partner and review partner: rotate off the engagement after 5 years, with 5 year time out period
Other audit partners must rotate off the engagement after 7 years and then are subject to a 2 year time out period |
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Term
| Impairment of independence for DOL emplyee benefit plan audit |
|
Definition
Any direct financial interest or material indirect financial interest
connection to the plan or the plan sponsor as a promoter, underwriter, investment advisor, voting trustee, director, officer, or employee.
An accountant or a member of the accounting firm maintains financial records for the plan
Not impair when:
employee/etc is now employed by the firm, but has disassociated with the plan and does not audit the period in which they were employed
Member was engaged by the plan sponsor during the period of the engagement with the plan
ACTUARY associated with the firm rendered services to the plan. |
|
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Term
| GAGAS new threats to independence |
|
Definition
Bias Threat: auditor's position is not objective
Structural Threat: audit organization's placement within the govt entity might impact the audit organization's ability to perform audit procedures and report objectively |
|
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Term
| Quality Control Standards |
|
Definition
HELP ME maintain good quality control
Human resources (hiring, review, and advancement)
Engagement/client acceptance and continuance(working with ethical clients)
Leadership Responsibilities (tone at the top)
Engagement Performance (consistently achieve a high level of performance)
Monitoring (control system is relevant, adequate, operating effectively, and complied with)
Ethical requirements (should maintain independence, integrity, and objectivity) |
|
|
Term
|
Definition
| outlines he scope of the audit engagement, the reporting objectives, timing of the audit, required communications, and the factors that determine the focus of the audit |
|
|
Term
|
Definition
| outlines the nature, extent, and timing of the procedures to be performed during the audit, including risk assessment, further audit procedures (tests of controls and substantive), and other procedures |
|
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Term
| Inherent limitations to internal control |
|
Definition
human error
management override
collusion |
|
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Term
| Five components of internal control |
|
Definition
| CRIME not to have good internal control Control Environment Risk Assessment Information and communication systems Monitoring (existing) Control activities |
|
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Term
| Existing Control Activities: to ensure management objectives are carried out. Key points include: |
|
Definition
PAID TIPS
Prenumbered documents
Authorization of transactions
Independent checks to maintain asset accountability
Documentation
Timely and appropriate performance reviews
Information processing controls
Physical controls for safeguarding assets
Segregation of duties (ARC: Authority, Recording, Custody) |
|
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Term
| Auditors responsibility of internal control AICPA nonissuer |
|
Definition
understand the five control components
evaluate the design and determine whether they have been implemented
assess risk
design appropriate procedures based on that risk |
|
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Term
|
Definition
COPAL
Control Group
Operators
Programmers
Analysts
Librarians |
|
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Term
| Manual or GAAT audit techniques |
|
Definition
IT audit techniques
"Around the computer": simple batch systems with good audit trails. Can be an insufficient audit procedure
GAAT= "Auditing through the computer" 6 types |
|
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Term
|
Definition
GAAT
electronically marks a transaction and allows the auditor to follow it through the client's system |
|
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Term
|
Definition
| an application program collect transaction data for the auditor. The auditor must be involved with the program design. |
|
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Term
|
Definition
| uses application program to process test data, the results of which are already known. Finds invalid employee numbers etc, excess pay rates, excess hours |
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Term
|
Definition
| test data is commingled with live data (clients's system, auditors data, online) client's system under the CPAs control |
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Term
|
Definition
| auditor reprocesses some or all the client's live data and compares the results |
|
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Term
| Generalized Audit Software Packages |
|
Definition
| allows the auditor to perform test of controls and substantive tests directly on the client's system |
|
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Term
| FS assertions made by management |
|
Definition
They COVER U
Completeness
cutOff
Valuation, allocation, and accuracy
Existence and occurrence
Understandability and classification |
|
|
Term
| Areas of presumed audit risk |
|
Definition
improper revenue recognition
management override of internal controls |
|
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Term
|
Definition
fraudulent financial reporting
misappropriation of assets
corruption |
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|
Term
| Disclosure of fraud to third parties |
|
Definition
normally, the auditor does not disclose fraud to third parties, unless there is a duty to disclose
-to the SEC (such as in form 8-K)
- successor auditor when they make inquiries
-in a response to a subpoena
-to a funding agency that receives governmental financial assistance |
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Term
|
Definition
RMM X DR
it is the risk that the auditor gives an unmodified opinion on statements that are materially misstated |
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|
Term
|
Definition
| susceptibility of an assertion to material misstatement assuming there are no related controls. Independent of the audit/auditor can not vary the level |
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Term
|
Definition
| the risk a material misstatement could occur and not be prevented or detected on a timely basis by an entity's internal control. Independent of the audit/auditor cannot change/auditor can rely on the system of controls more and decrease substantive testing if strong controls |
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Term
|
Definition
| risk that a material misstatement will not be found by an auditor. This related to the auditors procedures (can change NET) inversely related to assurance provided from substantive tests |
|
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Term
| Evidence hierarchy (most to least reliable) |
|
Definition
AEIO
Actual knowledge (observation)
External evidence
Internal Evidence
Inquiry |
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Term
| Risk assessment Procedures (required) |
|
Definition
obtaining an understanding of entity and environment (including internal control)
Assess the risk of material misstatement
Respond to assessed level of risk by changing procedures
Evaluate audit evidence |
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Term
|
Definition
| balances, transactions, and disclosures hve been recorded and included in the financial statements. Trace from even/document to the FS's (mainly a problem with expense and liability understatement) |
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Term
|
Definition
| transactions have been recorded in the proper accounting period |
|
|
Term
| Valuation,allocation, & accuracy |
|
Definition
| account balances, transactions, and disclosures are recorded fairly and at appropriate amounts |
|
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Term
|
Definition
| account balances exist and transactions have been recorded and disclosed that pertain to the entity. Vouch from FS's down to supporting docs and events. (mainly a problem with revenue and asset overstatement) |
|
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Term
| understandability and classification |
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Definition
| financial information is appropriately presented and described and disclosures are clearly expressed |
|
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Term
| In assessing the risk of material misstatement, the auditor should document the following |
|
Definition
Understanding of the entity and its environment including the components of internal control
ID'd risks and related controls
Risk assessment procedures performed
The auditor's risk assessment and the basis for this assessment |
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Term
| Combined approach (responding to assessed risk) |
|
Definition
Test of the operating effectiveness and substantive procedures are performed. The NET of substantive testing is affected by the operating effectiveness of ICs. This is when you use how affective a control is to know how much audit work should be performed. If you are going to rely on a control, it must be tested in that period.
Strong a control, the more it can be relied on, so less substantive testing.
Cannot rely on test of controls ALONE |
|
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Term
|
Definition
the amount of error or omission that would affect the judgement of a reasonable person (investor).
Materiality should be based on the smallest level of misstatement that could be material to any one of the financial statements. Quantitative and qualitative factors should be assessed. |
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Term
| reliance on internal auditors |
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Definition
| independent auditors cannot share responsibility for audit decisions, assignments, or issuing the report with a client;s internal auditors. They may help with routine tasks, but their competence and independence must be evaluated. |
|
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Term
|
Definition
| The auditor should understand the specialist's field of expertise, competence, capabilities, and objectivity to determine the possibility of using their work. They should not be referenced in an unmodified opinion, but if their work influences another opinion, they may be referenced in the report. |
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Term
| Related party transactions |
|
Definition
must be disclosed
Audit procedures include:
-evaluation of the company's procedures to identify and account for them
-inquiry of management regarding the names of all related parties
-reviewing of filings with the SEC
-review of material transactions for evidence with related parties |
|
|
Term
|
Definition
| qualified or adverse opinion |
|
|
Term
|
Definition
| except for qualified or disclaimer |
|
|
Term
| sufficient audit evidence |
|
Definition
determined by professional judgement
Influences:
RMM (more risk=more evidence)
quality of the evidence (low quality=more evidence)
Must be both reliable (AEIO) and relevant (related to a specific assertion) |
|
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Term
|
Definition
used to estimate a rate of occurrence. primarily used to test internal controls.
Discovery sampling
Stop and go sampling
Acceptance sampling |
|
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Term
|
Definition
estimates numerical value, typically used in substantive testing. Auditor estimates the population's true value by computing a point estimate of the population and a precision interval around the estimate.
Mean-per-unit
Ratio estimation
Difference estimation |
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Term
| PPS (proportional to size) sampling |
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Definition
| hybrid method of sampling that uses both attribute theory to express a conclusion in dollar amounts |
|
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Term
|
Definition
| the risk that the sample is not representative, and that the auditor's conclusion would have been different if they would have looked at the whole population |
|
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Term
| Risk of assessing control too low |
|
Definition
| a drawn sample will draw the the auditor to a level of reliance when a reliance should not exist. Over-reliance |
|
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Term
| Risk of assessing control risk too high |
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Definition
| when a sample will not support an auditor's planned level of reliance when reliance should/could be placed there. under-reliance |
|
|
Term
| Risk of incorrect acceptance |
|
Definition
| sample supports a balance as not being materially misstated where in fact it is materially misstated. not effective |
|
|
Term
| Risk of incorrect rejection |
|
Definition
| sample supports a balance as materially misstated when in fact it is not materially misstated. Not efficient |
|
|
Term
| Steps in the sampling process |
|
Definition
1) define the objective
2) define the population
3) define the sampling unit
4) define the attribute of interest
5) determine the sample size
6) select the sample
7)evaluate the sample results |
|
|
Term
| Types of sampling methods |
|
Definition
random selection: best method (used with a prenumbered population
systematic selection: Every nth item (ineffctive in a systematically ordered pop.)
Stratification: Divide the population into subpopulations based on strata
Block or cluster sampling: not allowed
PPS: every nth dollar, uses a random start, but does not test zero or negative balances |
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Term
| Example of attributes sampling |
|
Definition
Sample deviation = number of errors/sample size
Sample deviation rate + allowance for sampling risk = upper deviation rate
Upper deviation rate should be lower than tolerable rate to achieve a "good" result |
|
|
Term
|
Definition
same sample performs both test of controls and substantive test. This should be done when the auditor believes that there is an acceptably low risk that the deviation rate in the population exceed the tolerable rate.
Deviations from control procedures should be evaluated separately using appropriate risk levels |
|
|
Term
|
Definition
| used to evaluate the operating effectiveness of internal control in preventing or detecting material misstatements. used anytime control risk is assessed at less than maximum or IT exception |
|
|
Term
| Nature procedures (test of controls) |
|
Definition
The combination of procedures used to obtain sufficient evidence.
Examples:
-reperformance
-inspection
-observation
-inquiry |
|
|
Term
| Extent of procedures (test of control) |
|
Definition
how many procedures and how in depth they test controls. Should consider the following factors to determine the extent:
-frequency of the control
-length of time the auditor plans to rely on the control
-relevance and reliability of the evidence
-extent to which the auditor intends to rely on the operating effectiveness
-expected deviation rate |
|
|
Term
| Timing of test of controls |
|
Definition
test control at one point: evidence only for that point in time
Test controls throughout the period: evidence for effectiveness throughout the period |
|
|
Term
| If controls are found to not be operating effectively during a test of controls, the auditor can: |
|
Definition
1) test alternative controls
2) respond to the assessed risk of material misstatement with more reliable and extensive substantive procedures |
|
|
Term
|
Definition
| evaluations of financial information made by a study of the plausible relationships between financial and non-financial data. Comparing relationships, current period to prior periods, or use of ratio analysis |
|
|
Term
|
Definition
measures a firm's short term ability to pay its maturing obligations.
Working capital
Current ratio
Acid-test/quick ratio.
As these ratios increase, the entity's ability to meet its short-term obligations increases. |
|
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Term
|
Definition
measures how effectively an enterprise is using its assets.
AR turnover ratio
Inventory turnover ratio
operating cycle
Working capital turnover
Total asset turnover` |
|
|
Term
|
Definition
measures the success of an enterprise for a given period
Net profit margin
net operating profit margin percentage
gross profit margin percentage
return on total assets |
|
|
Term
| Long-term debt paying ability ratios |
|
Definition
measures of security for long-term creditors/investors
debt to equity
debt ratio (liabilities/assets) |
|
|
Term
|
Definition
are performed to detect material misstatement at relevant assertion levels.
Required for each material transaction class, account balance, or disclosure.
Two Types: test of details, analytical procedures |
|
|
Term
|
Definition
| provides evidence of completeness by going forward up the accounting cycle from transactions or source documents/journal entries to the ledger or financial statements |
|
|
Term
|
Definition
| provides evidence of existence or occurence by taking amounts on the financial statements or entries in the journal and taking it down to the source documents or actual assets. |
|
|
Term
| Common substantive audit procedures |
|
Definition
FIVE CARROT WARS
Footing, cross-footing, and recalculation
Inquiry
Vouching
Examination and inspection of client records
Confirmation
Analytical procedures
Reperformance
Reconciliation
Observation
Tracing
Cutoff Review
audit related accounts simultaneously
Representation letter
Subsequent event review |
|
|
Term
| Interim substantive procedures |
|
Definition
performing procedures at interim requires additional work to extend audit conclusions to period end.
should only be performed when the risk of material misstatement is low |
|
|
Term
| Confirmation of accounts receivable is required unless |
|
Definition
-receivables are immaterial to the company
-confirmation would be inneffective
-inherent and control risks are very low and evidence provides by other procedures sufficiently reduces audit risk |
|
|
Term
| Positive confirmations of AR |
|
Definition
the customer is required to return a statement to the auditor indicating that they agree with the amount. Should be sent when:
Large individual accounts
expected errors
items in dispute
weak internal control
old balances |
|
|
Term
| negative confirmation of AR |
|
Definition
are less effective than positive conformations
answer is requested only if their stated payable amount is incorrect, nonresponses are counted as correct.
May be used when:
-inherent and control risks are low
-large number of small balances are being confirmed
-no reason to expect that the recipients will ignore the confirmations |
|
|
Term
| Audit of cash: bank confirmations |
|
Definition
| should be sent to all banks with whom the entity has done business. bank transfer schedules, bank recs, and cutoff bank statements should also be used |
|
|
Term
|
Definition
fraud when a check drawn on one bank is deposited in another bank and no record is made of the first disbursement.
Detect by obtaining a bank transfer schedule and see is deposits and checks match up |
|
|
Term
|
Definition
| using today's cash receipts to cover up yesterday's theft. Prevented by the use of a lockbox system, and to detect it, perform a deposit slip test to see if there is a delay from depositing money to canceling AR and receiving of checks |
|
|
Term
|
Definition
auditor is responsible for evaluation of evidence to determine is :substantial doubt exists for the client to continue as a going concern.
FASB: issuance plus 1 yr
GASB: FS date plus one year
If this doubt exists,
Issuer- explanitory paragraph
Nonissuer- emphasis of matter paragraph
-should be added to the auditor's opinion. The words "substantial doubt" and "going concern" must be included
If |
|
|
Term
| Going concern audit procedures |
|
Definition
clients ADMITS the problems
Analytical procedures
Debt/loan agreements review
Minutes of the BoD
Inquiry of legal counsel
Third party confirmations of support arrangements
Subsequent events review |
|
|
Term
| Conditions that may indicate a going concern issue |
|
Definition
its not FINE
Financial difficulties
Internal matters (work stoppage, labor difficulties)
Negative financial trends
External matters (legal proceedings, legislation) |
|
|
Term
|
Definition
| both the intent to fix the client's own state and there ability to must be present. If the going concern problem is removed in a subsequent period, the paragraph need not be repeated |
|
|
Term
|
Definition
| exists when the design or operation of a control does not allow management or employees, in the normal course of their assigned functions, to prevent, or detect, or correct misstatements on a timely basis |
|
|
Term
|
Definition
| less severe than a material weakness, yet important enough to warrant attention by governance |
|
|
Term
|
Definition
| deficiency in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis |
|
|
Term
| Recognized subsequent event |
|
Definition
| conditions existed on or before the balance sheet date. These usually require adjustment in the financial statements |
|
|
Term
| Nonrecognized subsequent events |
|
Definition
| conditions existing after the balance sheet date. Usually require disclosure, but no financial statement adjustment |
|
|
Term
| Auditor responsibility for subsequent events |
|
Definition
From BS to audit report date: active responsibility PRIME
Post BS trnasactions
Representation letter
Inquiry
Minutes of committee meetings
Examining the latest available interim statements
After the audit report date, no responsibility, but cannot ignore information that comes to their attention, and may dual date the report to extend the responsibility for the one issue |
|
|
Term
| Subsequent discovery of facts |
|
Definition
| If we become aware of this, and know people are relying on it, advise the client immediately and diclose the information and impact on the financial statements. If they don't do this, notify governance, if still nothing, dissociate by notifying applicable regulatory agencies and any persons relying on the report. |
|
|
Term
|
Definition
| financial statements present fairly, in all material respects, the financial position, results of operations, and the cash flows of the entity, in conformity with the applicable reporting framework |
|
|
Term
| Order of the unmodified opinion |
|
Definition
MR DIM REPPORTS CRAME
Management
Responsibility for the
Design
Implementation and
maintenance of IC
Responsibility of Auditor is to
express an opinion
plan and
Perform the audit to
obtain reasonable assurance
risk of material misstatement
test internal control relevant to the F.
Statements
(but not for the purpose of expressing an opinion on the effectiveness of..)
Controls, but includes evaluating the
Reasonableness of
Accounting estimates by
management and
evaluation of the overall presentation |
|
|
Term
| Group audits, reference to the component auditor |
|
Definition
When making reference, should clearly indicate the component was audited by another auditor and include the magnitude of that portion. Name of the auditor may only be included if permission is granted and the report is published with this new report.
If the group auditor decides to assume responsibility for the work of the other auditor, then no reference should be made to the other auditor |
|
|
Term
| Emphasis of matter paragraph |
|
Definition
| included when required by GAAS or at the discretion of the auditor. Used when reporting on a matter that is appropriately in or disclose in the notes to the financial statements. Included immediately after the opinion paragraph |
|
|
Term
|
Definition
| included on the auditor's report when required by GAAS or auditor's discretion. refer to matters other than those presented or disclosed in the financial statements. Immediately after the opinion paragraph and after any emphasis of matter paragraphs. Any restriction of use is in other matters |
|
|
Term
|
Definition
| required by PCAOB for issuers in the auditor report or by the auditor discretion, immediately after the opinion paragraph |
|
|
Term
| GAAP Issues: Qualified and adverse opinion effect on the audit report |
|
Definition
Nonissuers: Auditor's responsibility paragraph is modified and the audiotr's report includes a basis for modification paragraph and a qualified or adverse opinion paragraph
Issuers: include an additional paragraph preceding the opinion and the opinion paragraph will be modified |
|
|
Term
GAAS Issues: Qualified opinion and disclaimers
Effect on the audit report |
|
Definition
NonIssuers: Auditors responsibility paragraph is modified and the suditors report will include a basis for modification paragraph and a qualified opinion or a disclaimer of opinion. A disclaimer will also modify the intro paragraph
Issuer: a paragraph preceding the opinion paragraph is added and the opinion paragraph modified. A qualified opinion will include a modified scope paragraph, disclaimer will omit the scope paragraph. A disclaimer will also modify the intro |
|
|
Term
| Change in opinion on comparative-presented financial statements |
|
Definition
a prior opinion may be changed
-if the updated opinion differs from the previous opinion, the auditor should disclose the reasons in an emphasis of matter or other matter paragraph, depending on if the problem was removed from the FS or if something was added to fulfill the inadequate disclosure. The paragraph should disclose the following:
DORCS
Date of previous audit report
opinion previously issued
reason for the change
changes
statement that this new opinion is different |
|
|
Term
| Form AP and filing deadline |
|
Definition
must file with the PCAOB for each audit report issued. (required for public company/issuer)
give a variety of information about the client, and must be filed by the 35th day after the audit report is first filed i a document with the SEC OR within 10 days if the audit report is included in a registration statement |
|
|
Term
Integrated audits for issuers
Top down approach |
|
Definition
Large accelerated and accelerated filers
Top- consider the overall risk at eh financial statement level
-consider controls at an entity level
-focus test of controls on accounts, disclosures, and assertions for which there is reasonable possibility of material misstatement |
|
|
Term
| Opinion on internal control/report in an integrated audit |
|
Definition
audit must exoress an opinion on the company's internal control over financial reporting in an intergrated audit.
The report may be combined with the report on the financial statements, or it may be presented separately, with each report having "pointers" to the other |
|
|
Term
| Modified audit opinions on internal controls (integrated audit) |
|
Definition
scope limitation: disclaim or withdraw
material weakness: adverse opinion, and the opinion paragraph on the report should include:
-definition of material weakness
-statement that material weakness has been ID'd
- identification of the material weakness described in management's assessment of IC
ALL OR NOTHING: no qualified opinions on internal control
Also should not report on the absence of control deficiencies |
|
|
Term
| Statements on standards for attestation engagements SSAE apply to |
|
Definition
-examination (positive opinion)
-review (negative assurance)
-agreed-upon procedures engagement (no assurance, with list of findings)
Independence is required |
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Term
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Definition
hypothetical "what it" assumptions are put to use in the FS.
Reports on these should be for restricted use only |
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Term
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Definition
| financials based on the expected conditions and expected courses of action of a business (best guess). These reports may be available for general use with warnings that these results may not be achieved |
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Term
Agree upon procedures
Required conditions |
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Definition
I AM SURE I can do agreed upon procedures
Independence
Agreement of parties on procedures
Measurability and consistency
Sufficiency of procedures
Use of the report is limited
Responsibility either of the client or a third party for assertions
Engagement (must include a summary of significant assumtions) |
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Term
| Statements on standards for accounting and review services |
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Definition
SSARS provides guidance with respect to preparations, compilations, and reviews of the financial statements of nonissuers.
All SSARS engagements require an engagement letter
"CPR" |
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Term
| General inquiries made during an engagement |
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Definition
Accounting principles and practices
Procedures for transactions
How footnote info is accumulated
Changes in business or accounting
Subsequent events
FS presented in accordance with the applicable framework
Actions authorized by the BoD
Any unusual or complex transactions
Significant transactions near the end of a period
Status of uncorrected misstatements
Fraud or suspected fraud
Communications with regulatory agencies
Litigation, claims, and assessments
Disclosed all known instances of noncompliance
Accounting estimates made |
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Term
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Definition
no independence required, attest, not assurance (no assurance provided)
The CPA presents in the form of financials, information that is management's representation.
Procedures include undersanding the client's business and industry and also reading the FS to detect obvious clerical errors and mistakes related to GAAP.
Issue a compilation report |
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Term
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Definition
non-attest service, no assurance provided, it does not require independence.
CPA prepares the financial statements in accordance with a specified financial reporting framework.
Need to understand client's business and industry, and prepare the financial statements.
Each page should state "no assurance is provided" or issue a disclaimer of of opinion that makes it clear no assurance was provided |
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Term
| Procedures for interim review of financial statements (PCAOB) |
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Definition
U LIAR CPA
Understanding with client
Learn entity and environment, including IC
Inquiries internally/externally
Analytical procedures
Review-other procedures
Client rep letter
Professional judgement to evaluate results
Accountant communicates results |
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Term
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Definition
comfort letters are provided to an underwriter or other party just before the registration of a client's securities
-CPA is required to perform a review of the interim financial information
-restriction on the use of the letter
-negative assurance is provided for most financial information
-positive assurance is provided on the CPA's independence and compliance of the financial statements with Securities Acts (assuming FS were audited) |
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Term
| Comparative reporting with increases and decreases in service levels |
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Definition
Increase in level of service=the prior year report should be updated and issued as the last paragraph of the current period report
Decrease=-(to compilation) issue a compilation report and ass a paragraph to the report describing the responsibility for the prior period statements. And a statement that no review procedures were performed after that date. Or
- issue two separate reports
- issue a combined report presenting both full reports and in the review report state the date from which no further procedures were performed |
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Term
| Ethical principles (GAGAS) |
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Definition
serving the public interest
integrity
objectivity
proper use of government information, resources, and positions
professional behavior |
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Term
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Definition
entities that receive and spend $750,000 in federal financial awards in a fiscal year.
-entity wide audit or
-program specific ausit is they only have one federal program and they are not required to have a financial statement audit.
Audit report includes (on top of GAGAS opinion and reports): compliance opinion, internal controls report over compliance applicable to each major program, and a schedule of findings and questioned costs. |
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Term
| reporting on special purpose frameworks |
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Definition
Report elements: non-GAAP titles
emphasis of matter that the statments are in a SPF
other matter paragraph if the report has limited use (contractual or regulatory) |
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