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19 Cards in this Set
- Front
- Back
- 3rd side (hint)
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MAJOR PROVISIONS OF THE SARBANES-OXLEY ACT OF 2002 (SOX)
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1. Requirement of CEO/CFO certification of financial statements
2. Requirement of auditor examination of company internal controls 3. Creation of the Public Company Accounting Oversight Board (PCAOB) to serve as an auditing profession "watchdog" 4. Prohibition of certain client services by firms conducting a client's audit |
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PROHIBITED SERVICES TO AUDIT CLIENTS (SOX)
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SOX prohibits professional service firms from providing any of the following services to an audit client:
1. bookkeeping and related services 2. design or implementation of financial information systems 3. appraisal or valuation services 4. actuarial services 5. internal audit outsourcing 6. management or human resources services 7. investment or broker/dealer services 8. legal and expert services (unrelated to the audit) Any services in which the auditors may be making management decisions or auditing their own firm's work |
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ALLOWED SERVICES TO AUDIT CLIENTS
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1. Tax services (with some restrictions) and other non-prohibited services if the audit committee has approved them in advance
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AUDITING STANDARDS (PURPOSE)
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Serve as a guideline for and a measure of the quality of the
auditor's performance. They help ensure that financial statement audits are conducted in a thorough and systematic way that produces reliable conclusions. Set by PCAOB (overseen by the SEC) |
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HOW DO AUDITING STANDARDS DIFFER FROM AUDITING PROCEDURES?
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Auditing standards differ from audit procedures in that "procedures" relate to acts to be performed, whereas "standards" deal with quality of the performance of those acts and objectives of the procedures. The STANDARDS help ensure the quality of the auditor's PERFORMANCE.
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WHAT GROUP PROMULGATES AUDITING STANDARDS FOR AUDITS OF PUBLIC COMPANIES?
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GAAS (Generally Accepted Auditing Standards) were adopted by PCAOB (Public Company Accounting Oversight Board) overseen by the SEC.
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WHAT GROUP ESTABLISHES AUDITING STANDARDS FOR NONPUBLIC COMPANIES?
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AICPA'S Auditing Standards Board (ASB)
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WHAT ARE THE 3 AUDITING GENERAL STANDARDS OF GAAS?
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1. COMPETENCE: Auditor must have adequate technical training and proficiency to perform the audit
2. INDEPENDENCE: Auditor must maintain independence in mental attitude in all matters relating to the audit 3. DUE PROFESSIONAL CARE: Auditor must exercise due professional care in the performance of the audit and the preparation of the report |
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WHAT ARE THE 3 AUDITING STANDARDS OF FIELD WORK IN GAAS?
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1. PLANNING AND SUPERVISION: Auditor mus adequately plan the work and must properly supervise assistants.
2. RISK ASSESSEMENT: Auditor must obtain sufficient understanding of the entity and its environment, including internal control, to assess the risk of material misstatement of the F/Ss, whether due to error or fraud, and to effectively plan the nature, time, and extent of further audit procedures. 3. AUDIT EVIDENCE: Auditor must obtain sufficient appropriate evidence in order to afford a reasonable basis for an opinion. |
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WHAT ARE THE 4 AUDITING STANDARDS OF REPORTING IN GAAS?
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1. GAAP - Are F/Ss in conformity with GAAP?.
2. CONSISTENCY - Have GAAP been consistently applied (implicit reporting)? 3. ADEQUATE DISCLOSURE - Are disclosures adequate (implicit reporting)? 4. REPORT CONTENT - Report must express or disclaim an opinion |
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WHAT ARE THE CLASSIFICATIONS OF THE GAAS?
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1. 3 General Standards - deals with auditor's qualifications and quality of his/her work.
2. 3 Standards of Field Work - relate to the actual conduct of the audit. 3. 4 Standards of Reporting - relate to principles, how the principles are applied, disclosures and degree of responsibility of the auditor. |
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NAME THE 6 MANAGEMENT ASSERTIONS ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT
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1. OCCURRENCE - transactions and events that have been recorded have occurred and pertain to the entity
2. COMPLETENESS - all transactions and events that should have been recorded have been recorded 3. AUTHORIZATION - all transactions and events have been properly authorized 4. ACCURACY - amounts and other data relating to recorded transactions/events have been recorded appropriately 5. CUTOFF - transactions/events have been recorded in the correct accounting period 6. CLASSIFICATION - transactions/events have been recorded in the proper accounts |
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NAME THE 4 MANAGEMENT ASSERTIONS ABOUT ACCOUNT BALANCES AT THE PERIOD END
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1. EXISTENCE - assets, liabilities, and equity interests exist
2. RIGHTS AND OBLIGATIONS - the entity holds or controls the rights to assets, and liabilities are the obligations of the entity 3. COMPLETENESS - all assets, liabilities, and equity interests that should have been recorded have been recorded 4. VALUATION AND ALLOCATION - assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustemnts are appropriately recorded. |
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NAME THE 4 MANAGEMENT ASSERTIONS ABOUT PRESENTATION AND DISCLOSURE
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1. OCCURENCE AND RIGHTS AND OBLIGATIONS - disclosed events, transactions, and other matters have occurred and pertain to the entity
2. COMPLETENESS - all disclosures that should have been included in the financial statements have been included 3. CLASSIFICATION AND UNDERSTANDABILITY - financial information is appropriately presented and described, and disclosures are clearly expressed 4. ACCURACY AND VALUATION - financial and other information are disclosed fairly and at appropriate amounts |
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WHAT ARE THE PRIMARY SOURCES OF INFORMATION THAT AUDITORS CAN ACCESS TO GAIN AN UNDERSTANDING OF THE CLIENT'S BUSINESS?
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1. Client's ERM model
2. Client Personnel 3. Corporate charter, board and committee minutes 4. Prior year working papers (anchoring could be a problem = over relying) 5. Study AICPA industry ACCT & Auditing practices 6. Read general business news 7. Read client-specific news articles, industry publications, etc. |
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WHAT ARE THE CHARACTERISTICS OF AUDIT EVIDENCE THAT MUST BE SATISFIED (HIERARCHY) ?
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1. Auditors' direct PERSONAL KNOWLEDGE - see it with your own eyes (observe PPE, inventories)
2. EXTERNAL documentary EVIDENCE - originates from outside firm (A/R confirmations, bank confirmations) 3. EXTERNAL / INTERNAL DOCUMENTS - info comes to you from outside firm - within the client (vendor invoices for purchases) 4. INTERNAL documentary evidence - produced inside client (client sales invoices) 5. VERBAL and WRITTEN representations (management representations - memos) 1 = More reliable 5 = Less reliable |
CH. 4 - AUDIT EVIDENCE
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WHAT IS PROFESSIONAL SKEPTICISM?
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Auditor's questioning, evaluative attitude toward management's assertions and audit evidence, applied to:
1. Management's assertions without sufficient corroboration 2. Financial trends need investigation 3. Documents are checked for authenticity or alteration 4. Ask questions, get answers, then verify the answers -------------------------------- A potential conflict of interest always exists between the auditor and the client. |
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WHAT IS THE PURPOSE OF CORPORATE GOVERNANCE MECHANISM?
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The main purpose of business is to create value for their stakeholders. Corporate governance is necessary, through which managers are overseen and supervised. Help ensure the proper stewardship over an entity's assets. Checks and Balances - monitor to protect shareholders' interests. Board of Directors and Audit Committee participates.
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HOW IS CORPORATE GOVERNANCE STRUCTURED?
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1. Mngmt and BOD
2. Business Objectives and Strategies 3. Business Processes (includes all business transactions within a business - financing, purchasing, HR mngmt, inventory mngmt, revenue processes) 4. Performance Measurement and Assessment 5. External Financial Reporting |
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