General Standards under GAAS Training & Proficiency Independence Profesional Due
Care (TIP) Fieldwork Standards (GAAS) Planning Internal Control Collaborative evidence (PIC) Reporting Standards (GAAS) Accounting Principles in confiormity with GAAP [Explicit] No new Accounting Principles applied (consistency) [Implicit] Omitted Informative
Disclosures - None [Implicit] Expression of Opinion [Explicit] (ANOE) What at the generally accepted auditing standards (GAAS) used for? GAAS are used as overall measures of the
quality fo the auditor's performance. How should independence be maintained by the CPA engaged in providing attestation services? In mind and appearance No direct and indirect material financial interest Act with integrity and objectivity Which of the following elements underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting? Materiality and relative risk RMM(IR x CR) This is also known as Risk of Material Misstatement (RMM), which represents the magnitude of misstatements or ommissions resulting from Inherent Risk and Control Risk. HINTS: element = A part or aspect of something, esp. one that is essential or characteristic. Fieldwork & reporting standards: PICANOE Internal control and Corroborating evidence = Fielwork standards (PIC), not elements Quality control = related more directly to the General standards (TIP) than fieldwork & reporting (PICANOE) What services is most directly designed to improve the quality of information or its context for decision makers? What services require the auditor to be independent? Auditor must be independent for Attestation services: Examinations (Audits - Reasonable Assurance) Reviews (Limited [Negative] Assurance) Agreed-Upon Procedures (Summary of Findings) Special Reports (can be Examinations or Reviews) (ERA'S) An attitude that includes a questioning mind and a critical assessment of audit evidence. The auditor assumes that the client and its management is neither honest or dishonest. Training and Proficiency (GAAS) The audit must be performed by a person or persons having adequate technical training and proficiency as an auditor. In all matters relating to the assignment, an independence in mental attitude must be maintained by the auditor or auditors. Due Professional Care (GAAS) Due professional care must be exercised in the performance of the audit and the preparation of the report. How should a CPA demonstrate due professional care in his/her work?
What level of assurance is intended to be obtained by the auditor when engaged in an audit of financial statements? What is reasonable assurance in a financial statement audit? Reasonable assurance is the high, but not absolute, level of assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Planning and Supervision (GAAS) The auditor must adequately plan the work and must properly supervise any assistants. The auditor must obtain a sufficient understanding of the entity and the environment, including its internal control, to assess the risk of material misstatement (RMM) of the financial statements whether due to error or fraud and to design the nature, extent, and timing of further audit procedures. Corroborative Audit Evidence (GAAS) The auditor must obtain sufficient appropriate (corrobative) audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. If relying on an IC, then reduce Substanative Testing in order to reduce detection risk. Accounting Principles in Conformity with US GAAP (GAAS) The report must state whether the financial statements are presented in conformity with U.S. Generally Accepted Accounting Principles (GAAP). NOTE: Departures from GAAP must be justified in order to have an unqualified opinion. These departures can be justified IF there is clear evidence that presenting the information under GAAP would result in misleading the users of the financial statements. Examples are new transactions that have yet to be addressed by GAAP or theapplicable reporting framework. No New Accounting Principles Applied - Consistency (GAAS) The report must identify thos circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. Omitted Informative Disclosures - None (GAAS) Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. NOTE: This is implied in the report. Expression of an Opinion (GAAS) The report must contain either an expression of opinion regarding the financial statements, taken as a whole1, or an assertion to the effect that an opinion cannot be expressed.2 When an overall opinion cannot be expressed, the reasons thererfore should be stated.3 In all cases where an auditor's name is associated with fianncial statements, the report should contain a clear-cut indication of the character of the auditor's work, if any, and the degree of responsibility the auditor is taking. NOTE: 1We do not render piecemeal opinions on financial statements. They must be taken as an whole. 2We either render or disclaim an opinion. 3If we disclaim our opinion, we must state the reasons in the "Disclaimer". How did the "clarity" standards affect the 10 GAAS standards? Under the clarity standards, the 10 GAAS were re-positioned into objectives. Each AU-C nows states an objective AND the overall objective of the auditor. What are the overall objectives under the clarity standards? The overall objectives are to ensure that xxxx Which type of entities does an auditor use the clarity standards in planning and performing an audit engagement? The clarity standards are applicable to the non-issuers. Recall that the clarity standards replaced SAS. What are the overall objectives of the auditor under each clarity standard (AU-C)? To 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 prepared, in all material respects, in accordance with an applicable reporting framework. To report on the financial statements, and communicate as required by SASs, in accordance with the auditor's findings. (Recall DISAPPROVE) What does the "objective" in a clarity standard (AU-C) assist the auditor with? Planning and performing the audit to achieve the overall objectives.1 Determing whether the audit procedures in addition to those are necessary when the auditor determined that performing the required procedures will not meet the objective during the engagement. Evaluating whether the auditor obtained the sufficient appropriate audit evidence to as a reasonable basis for the opinion. 1 Overall objectives refer to the auditor's responsibility to provide reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements, and communicate as required by SASs, in accordance with the auditor's findings. Objective within a clarity standard refers to the goal to be fulfilled for compliance with GAAS in the individual SAS. Explain "overall objectives" versus "objective" in the clarity standards. Overall objectives refer to the auditor's responsibility to provide reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements, and communicate as required by SASs, in accordance with the auditor's findings. Objective is specified within the clarity standard, which specifies the goal to be fulfilled in the individual SAS in order for the auditor to comply with GAAS. What is the purpose of the clarity project? To enable the auditor to show that the audit engagement was conducted in compliance with GAAS through documentation to indicate that all of the objectives of the applicable standards have been achieved. By complying with GAAS, this means the auditor performed all of the unconditionally and presumptively required audit procedures. Describe the format of the new clarity standard (AU-C) Introduction - purpose & scope Objective - what needs to be fulfilled in order to comply with GAAS Definitions - terminology Requirements - areas that we must or should apply the standard (unconditional & presumptively mandatory) Application & Explanatory Materials - suggest how to achieve the objective through the requirements (unconditional & presumptively mandatory) on significant areas to ensure compliance with the standard Describe "unconditionally" and "presumptively mandatory" requirements Both are under the old SAS and the new clarity standards (AU-C). Apply for both Public and Non-Public audits. Unconditionally required = auditor MUST / SHALL / IS REQUIRED to comply Presumptively mandatory = auditor SHOULD comply Under which circumstances can the auditor depart from requirements set forth in the auditing standards (SAS and AU-C)? An entire section of GAAS does not apply, such as the section on reliance on the work of internal auditors not being applicable when the client does not have an internal audit department A specific requirement does not apply because the condition it is intended to provide audit evidence in relation to does not exist, such as the requirement to communicate significant deficiencies and material weaknesses in internal control when no such weaknesses exist When can the practitioner depart from a requirement in the SAS or AU-C? If the requirement is presumptively mandatory AND the auditor documents the justification for the departure and describes how the other procedures were sufficient to achieve the objectives of the requirement. How does the practitioner demonstrates that s/he exercised professional judgment in the engagement? By applying professional judgment throughout the audit and documenting the judgment to enable an experienced auditor to understand the significant judgments made in reaching conclusions. What does an auditor's professional skepticism indicates? Having an attitude of professional skepticism indicates the auditor is aware of the possibility that the financial statements are materially misstated and will be alert to indications where:
Identify the type of requirement when a standard includes a requirement for the auditor to consider a procedure. Presumptively mandatory because all the auditor has to do is consider the procedure or item being referenced. Requiring an auditor to consider does not mean a requirement to perform the procedure. Which of the following best describes what is meant by generally accepted auditing standards?Answer and Explanation: The correct answer is b. Measures of the quality of the auditor's performance. The auditing standards are applied to ensure that the audit performed is of good quality and reliable.
What is the meaning of the generally accepted auditing standard that requires that the auditor be independent?What is the meaning of the generally accepted auditing standard that requires the auditor to be independent? (1) The auditor must be without bias with respect to the client under audit. (2) The auditor must adopt a critical attitude during the audit. (3) The auditor's sole obligation is to third parties.
Who sets generally accepted auditing standards?In the United States, the standards are promulgated by the Auditing Standards Board, a division of the American Institute of Certified Public Accountants (AICPA).
What is the purpose of auditing standards?Auditing standards are guidelines applied by auditors in deciding whether financial statements have been prepared according to GAAP.
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Which of the following underlies the application of generally accepted auditing standards particularly standards of field work and reporting?
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