Chapter 21 Professional Standards ACCT-4080

Chapter Basis of Auditing Objectives of auditing Responsible parties involved in auditing Similarities with other disciplines Limitations of auditing ACCT-4080

Chapter Practice Standards AICPA standards Citation Methods SAS Number AU Section Number (AU-C) Professional Standards, Vol. I and II (and III) Sources of Auditing Standards Statements on Auditing Procedures — SAPs (1-54) Statements on Auditing Stds — SASs — AU (1- ) ACCT-4080

Chapter Practice Standards (continued) Sources of other Standards Statements on Stds for Attestation Engagements — SSAEs — AT Statements on Stds for Accounting and Review Services — SSARSs — AR Consulting Standards — CS Quality Control Standards — QC Peer Review Standards — PR Tax Practice Standards — TX ACCT-4080

Chapter 25 2.Practice Standards (continued) Sources Personal Financial Planning Standards — PFP Code of Ethics Standards — ET AICPA Bylaws Standards — BL Continuing Education Standards — CPE ACCT-4080

Chapter 26 2.Practice Standards (continued) International Standards International Auditing and Assurance Standards Board — IAASB (Part of IFAC) International Auditing Standards (ISAs) International Standards on Assurance Engagement (ISAE) IFAC Code of Ethics (International Financial Reporting Standards — IASB) PCAOB Standards 2003 adopted 101 existing SASs Auditing Standards – AS Ethics and Independence Standards – IT Quality Control Standards – QC ACCT-4080

Chapter 27 2.Practice Standards (continued) Clarity Project Purpose: to make standards easier to read, understand, and apply to converge US GAAS with ISAs issued by IAASB Project started in 2004 AU sections renumbered to ISA numbers New format for standards introduction, objective, definitions, requirements, application and other explanatory material Effective for audits of financial statements for years ending on or after December 15, 2012 Primarily was issued as one SAS – SAS 122 ACCT-4080

Chapter Practice Standards - T erminology in auditing standards ACCT-4080 Responsibility Level MeaningWords to Indicate Responsibility Unconditional Responsibility Auditor must fulfill responsibilities“Must” “Is required” “Shall” (PCAOB only) Presumptively Mandatory Auditor must comply with requirements unless auditor demonstrates and documents that alternative actions were sufficient to achieve the objectives of the standards “Should” Responsibility to Consider Auditor should consider; whether the auditor complies with the requirements depends on the exercise of professional judgment in the circumstances “Might” “Could” Other phrases

2. Practice Standards – The GAAS Hierarchy CategoryStatusAudit Guidance 1. StandardsAuditors should be prepared to justify departures from these standards.  GAAS principles (10 stds/prin)  SASs  Other standards from PCAOB, GAO, SEC 2. Interpretative PublicationsRecommendations on the application of the SASs. If not followed, the auditors should be prepared to explain how they complied with the SAS provisions addressed.  Appendices to SASs  Interpretation of SASs  Auditing guidance in AICPA Audit and Accounting Guides  AICPA auditing Statements of Position 3. Other Auditing Publications No authoritative status, but may help the auditor understand and apply the standards  Auditing articles  Continuing education programs  Textbooks  Guidebooks  Audit programs  Checklists ACCT-40809Chapter 2

2. Practice Standards (continued) Client Public Entities (Issuers) Private Entities (Nonissuers) Governmental Entities Foreign Entities Rule- making body Public Company Accounting Oversight Board (PCAOB) AICPA Auditing Standards Board (ASB) U.S. Government Accountability Office (GAO) IFAC International Auditing and Assurance Standards Board (IAASB) StandardsAuditing Standards (ASs) Statements on Auditing Standards (SASs) Government Auditing Standards (The “Yellow Book”) International Standards on Auditing (ISAs) Summary of Practice Standards ACCT Chapter 2

11 3. GAAS and Principles General standards (responsibilities principle) adequate technical training independence due professional care Fieldwork standards (performance principle) adequately planned & supervised internal control sufficient appropriate evidence Reporting standards (reporting principle) GAAP consistency adequate disclosure opinion ACCT-4080

Comparison of AICPA GAAS to Principles: Responsibilities 3. GAAS and Principles General StandardsResponsibilities Principle 1.Training and proficiency 2.Independence in mental attitude 3.Due professional care Auditors are responsible for: competence and capabilities ethical requirements professional skepticism and professional judgment ACCT Chapter 2

Comparison of AICPA GAAS to Principles: Performance 3. GAAS and Principles Standards of Field WorkPerformance Principle 1.Planning and supervision 2.Understanding of entity and environment to assess risk of material misstatement 3.Obtain sufficient appropriate evidence To obtain reasonable assurance: Plan work and supervise assistants Determine and apply appropriate materiality levels Identify and assess risks of material misstatement based on understanding of business and internal control Obtain sufficient appropriate evidence ACCT Chapter 2

Comparison of AICPA GAAS to Principles: Reporting 3. GAAS and Principles Standards of ReportingReporting Principle 1.Financial statements in accordance with GAAP 2.GAAP applied consistently (only report if not consistent) 3.Adequacy of disclosures (only report if not adequate) 4.Express or disclaim an opinion Express an opinion or state that an opinion cannot be expressed Opinion is based on conformity of financial statements with applicable financial reporting framework ACCT Chapter 2

15 4. Evidence SAS 122 3rd Standard of Field Work: The auditor must obtain sufficient appropriate audit evidence by performing audit procedures… Definition All the information used by the auditor in arriving at the conclusions on which the audit opinion is based ACCT-4080

Chapter Evidence (continued) Sufficiency and Appropriateness Interrelated Sufficiency – quantity (affected by RMM and quality of evidence) Appropriateness – quality (affected by its relevance and reliability) Limitations (cost, persuasiveness) Generalizations about reliability Source – knowledge, location, reliability of ICS, direct/indirect, directly by auditor Nature – documentary form, originals, reliability of form (e.g., ability to be altered, certainty of sender), document experts ACCT-4080

Chapter Evidence (continued) Relationship between assertions and evidence Relevance of assertions ACCT-4080

Chapter Evidence (continued) Types of Evidence Underlying Accounting Data journals, general and subsidiary ledgers, accounting manuals, work sheets, spreadsheets, cost allocations, reconciliations, etc. Corroborating Information auditor’s direct personal knowledge documentary evidence created outside and transmitted directly to auditor created outside and held by client created by and held by client client representations ACCT-4080

Chapter Evidence (continued) Types of Evidence (continued) Physical evidence Mathematical evidence Oral evidence Confirmations Written representations Analytical procedures Electronic evidence ACCT-4080

Chapter Attestation Standards Apply to attest services affirm to be genuine when a CPA expresses a conclusion about the reliability of subject matter or an assertion that is the responsibility of another party includes financial and nonfinancial services ACCT-4080

Chapter Attestation Standards SSAEs apply to forecasts and projections pro forma information internal control compliance with laws, regs, contracts MD & A agreed-upon procedures ACCT-4080

Chapter Quality Control for Firms AICPA National Peer Review Committee (formerly known as the Center for Public Company Audit Firms) Private Companies Practice Section (PCPS) PCAOB registration PCAOB inspections State level peer review Quality Enhancement Program in Nebraska ACCT-4080

Chapter Quality Control for Firms An audit firm must establish a system of QC to provide it reasonable assurance that the firm will comply with professional, regulatory, and legal requirements QC standards apply to all firms and all services provided Specific QC policies and procedures vary by firm size

Chapter Quality Control for Firms AICPA Elements of Quality Control leadership responsibilities ethical requirements acceptance and continuance of clients and engagements human resources engagement performance monitoring ACCT-4080

Chapter 225 Review Questions for Discussion Chapter ACCT