auditing april 1, 2015 1 chapter two the cpa profession just skim the section on generally accepted...
TRANSCRIPT
Auditing April 1, 2015 1
Chapter TwoThe CPA Profession
just skim the section on
Generally Accepted Auditing Standards
Page 32-36
Auditing April 1, 2015 2
Auditing April 1, 2015 3
What are the characteristics of a Limited Liability Company, an LLC?
Timothy
Auditing April 1, 2015 4
LLC
Taxed like a general partnership Limits the owners’ personal liability
similar to a corporation
Auditing April 1, 2015 5
What are the characteristics of a Limited Liability Partnership, an LLP?
Meredith
Auditing April 1, 2015 6
LLP
Taxed like a general partnership Partners are not personally liable for
negligent acts of other partners and employees not under their supervision
Partners are personally liable for their own actions and the negligent acts of employees under their supervision
Auditing April 1, 2015 7
GAAS GAAP
Which refers to Accounting Standards ?
Which refers to Auditing Standards ?
Emily
Auditing April 1, 2015 8
Name of the organization(s) which creates Accounting Standards ?
Name of the organization(s) which creates Auditing Standards ?
Adrian
Auditing April 1, 2015 9
GAAP FASB primary source
GAAS PCAOB (public companies)
aicpa ASB (private companies)
Auditing April 1, 2015 10
Auditing April 1, 2015 11
FASB CodificationASU Accounting Standards Updates
Effective July 1, 2009, changes to the source of authoritative U.S. GAAP, the FASB Accounting Standards Codification, are communicated through an Accounting Standards Update (ASU). ASUs will be published for all authoritative U.S. GAAP promulgated by the FASB,
Auditing April 1, 2015 12
FASB Accounting Standards Codification
The Codification is the single source of authoritative nongovernmental U.S. GAAP. The Codification is effective for periods ending after September 15, 2009. All previous level (a)-(d) US GAAP standards issued by a standard setter are superseded. Level (a)-(d) US GAAP refers to the previous accounting hierarchy.
All other accounting literature not included in the Codification will be considered nonauthoritative.
Auditing April 1, 2015 13
Organizations
Securities Exchange Commission
Public Companies Accounting Oversight Board
Financial Accounting Standards Board
American Institute of Certified Public Accountants
State Board of Accountancy
California Society of CPAs
Auditing April 1, 2015 14
Organizations
SEC
PCAOB FASB
American Institute of Certified Public Accountants
California Board of Accountancy
Auditing April 1, 2015 15
GAAPFASB
FAS
ASC 310-10-25-3
ASU
GAAS **public** **private**
PCAOB AICPA
AS SAS
Auditing April 1, 2015 16
David
What is the Sarbanes Oxley Act of 2002?
Auditing April 1, 2015 17
What is the overall objective of an audit?
Pei
Auditing April 1, 2015 18
Overall Objective
AU-C Section 200 Overall Objectives of the Independent Auditor and Conduct of an Audit in
.11 The overall objectives of the auditor, in conducting an audit of financial statements, are to
a. 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 presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and
b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor's findings.
Auditing April 1, 2015 19
Objectives
AU-C 200 Overall Objective of the Independent Auditor and Conduct of an Audit in Accordance with Generally Accepted Auditing Standards
AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement
AU-C 500 Audit Evidence
AU-C 700 Forming an Opinion and Reporting on Financial Statements
Code of Professional Conduct Objectivity and Independence
Auditing April 1, 2015 20
What is the objective of AU-C 315?
Juancarlos
Auditing April 1, 2015 21
AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement
.03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.
Auditing April 1, 2015 22
AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained
.03 The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks.
Auditing April 1, 2015 23
What is the objective of AU-C 500?
Peter
Auditing April 1, 2015 24
AU-C 500 Audit Evidence
.04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.
Auditing April 1, 2015 25
What is the objective of AU-C 700?
Levi
Auditing April 1, 2015 26
AU-C 700 Forming an Opinion and Reporting on Financial Statements
.10 The objectives of the auditor are to a. form an opinion on the financial statements based on an evaluation of the audit evidence obtained, including evidence obtained about comparative financial
statements or comparative financial information, and
b. express clearly that opinion on the financial statements through a written report that also describes the basis for that opinion.
Auditing April 1, 2015 27
Auditing April 1, 2015 28
Auditing April 1, 2015 29
What are the four paragraphs in an unmodified opinion?
Bart
Auditing April 1, 2015 30
Independent Auditor’s Report
Report on the Financial Statements
Management’s Responsibility for the Financial Statements
Auditor’s ResponsibilityBasis for XXXX Opinion (if a modified opinion)
Auditor’s Opinion Emphasis-of-Matter / Other-Matter
Signature of the Auditor (city, state and date)
Auditing April 1, 2015 31
In which paragraph does the auditor “express an opinion” regarding the financial statements?”
John
Auditing April 1, 2015 32
Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC
Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
Auditing April 1, 2015 33
Which paragraph discusses
“the degree of responsibility the auditor is taking ?”
Jeanette
Auditing April 1, 2015 34
Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
Auditing April 1, 2015 35
Which paragraph discusses
“management’s responsibility ?”
Algernon
Auditing April 1, 2015 36
Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
Auditing April 1, 2015 37
Which paragraph
“describes the characteristics of the auditor’s work?”
Priya
Auditing April 1, 2015 38
Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
Auditing April 1, 2015 39
Julia
Where in the auditor’s report does it state whether the financial statements are presented in accordance with generally accepted accounting principles
Auditing April 1, 2015 40
Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
Auditing April 1, 2015 41
What four different opinions can an auditor can issue for an audit ?
Jordan
Auditing April 1, 2015 42
AUDIT REPORTS handouts
Unmodified-fairly presented Qualified -fairly presented ‘except for’ a very
limited number of conditions where the statement’s don’t conform to GAAP
Qualified -fairly presented ‘except for’ a very limited number of situations where the audit procedures were unable to satisfy GAAS
Adverse -don’t conform to GAAP
Disclaimer -Scope limitation – unable to audit
Auditing April 1, 2015 43
AU-C 220 Quality Control of ..Leadership ResponsibilitiesEthical Requirements
Responsibilities The public interest
Integrity Objectivity and independence
Due care
Acceptance and Continuation of clientsAssignment of Engagement TeamsEngagement Performance
direction, supervision & performance
ReviewConsultationEngagement Quality Control ReviewMonitoringDocumentation
Auditing April 1, 2015 44
Important
Selected Objectives Unmodified Auditor’s Report Management’s Assertions p. 59
Auditing April 1, 2015 45
Objectives
AU-C 200 Overall Objective of the Independent Auditor and Conduct of an Audit in Accordance with Generally Accepted Auditing Standards
AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement
AU-C 500 Audit Evidence
AU-C 700 Forming an Opinion and Reporting on Financial Statements
Code of Professional Conduct Objectivity and Independence
Auditing April 1, 2015 46
Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
Auditing April 1, 2015 47
Page 59
Auditing April 1, 2015 48
Auditing April 1, 2015 49
role of audits in capital markets
stockholders
board of directors
management
auditors
Auditing April 1, 2015 50
ind auditor
audit com m
m anagm ent
com pensation comm m anagm ent com m
board of d irec tors
s tockholders
Auditing April 1, 2015 51
Auditing April 1, 2015 52
Auditing April 1, 2015 53
Auditing April 1, 2015 54
Auditing April 1, 2015 55
Independent Auditor’s Report
Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor's signature, city and state, date of report]
Auditing April 1, 2015 56
AU-C Section 200 Overall Objectives of the Independent Auditor and Conduct of an Audit in Accordance with Generally Accepted Auditing Standards
.11 The overall objectives of the auditor, in conducting an audit of financial statements, are to
a. 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 presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and
b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor's findings.
AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement
.03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.
AU-C 315 Performing Audit Procedures in Response to Assessed Risks and Evaluating the audit Evidence Obtained
.03 The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks.
AU-C 500 Audit Evidence
.04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.
AU-C 700 Forming an Opinion and Reporting on Financial Statements
.10 The objectives of the auditor are to
a. form an opinion on the financial statements based on an evaluation of the audit evidence obtained, including evidence obtained about comparative financial statements or comparative financial information, and
b. express clearly that opinion on the financial statements through a written report that also describes the basis for that opinion.
AU-C 708 Consistency of Financial Statements.
03 The objectives of the auditor are to
a. evaluate the consistency of the financial statements for the periods presented and
b. communicate appropriately in the auditor's report when the comparability of financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements.