2. Auditing April 1, 2015 1 Chapter Two The CPA Profession just skim the section on Generally Accepted Auditing Standards Page 32-36

3. Auditing April 1, 2015 2

4. Auditing April 1, 2015 3 What are the characteristics of a Limited Liability Company, an LLC? Timothy

5. Auditing April 1, 2015 4 LLC n Taxed like a general partnership n Limits the owners’ personal liability similar to a corporation

6. Auditing April 1, 2015 5 What are the characteristics of a Limited Liability Partnership, an LLP? Meredith

7. Auditing April 1, 2015 6 LLP n Taxed like a general partnership n Partners are not personally liable for negligent acts of other partners and employees not under their supervision n Partners are personally liable for their own actions and the negligent acts of employees under their supervision

8. Auditing April 1, 2015 7 GAAS GAAP Which refers to Accounting Standards ? Which refers to Auditing Standards ? Emily

9. Auditing April 1, 2015 8 Name of the organization(s) which creates Accounting Standards ? Name of the organization(s) which creates Auditing Standards ? Adrian

10. Auditing April 1, 2015 9 GAAPFASB primary source GAASPCAOB (public companies) aicpa ASB (private companies)

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12. Auditing April 1, 2015 11 FASB Codification ASU Accounting Standards Updates n 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,

13. 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 All previous level (a)-(d) US GAAP standards issued by a standard setter are superseded.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.

14. 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

15. Auditing April 1, 2015 14 Organizations SEC PCAOBFASB American Institute of Certified Public Accountants California Board of Accountancy

16. Auditing April 1, 2015 15 GAAP FASB FAS ASC 310-10-25-3 ASU GAAS **public****private** PCAOBAICPA ASSAS

17. Auditing April 1, 2015 16 David What is the Sarbanes Oxley Act of 2002?

18. Auditing April 1, 2015 17 What is the overall objective of an audit? Pei

19. 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.

20. 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

21. Auditing April 1, 2015 20 What is the objective of AU-C 315? Juancarlos

22. 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.

23. 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.

24. Auditing April 1, 2015 23 What is the objective of AU-C 500? Peter

25. 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.

26. Auditing April 1, 2015 25 What is the objective of AU-C 700? Levi

27. 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.

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30. Auditing April 1, 2015 29 What are the four paragraphs in an unmodified opinion? Bart

31. Auditing April 1, 2015 30 Independent Auditor’s Report Report on the Financial Statements Management’s Responsibility for the Financial Statements Auditor’s Responsibility Basis for XXXX Opinion (if a modified opinion) Auditor’s Opinion Emphasis-of-Matter / Other-Matter Signature of the Auditor (city, state and date)

32. Auditing April 1, 2015 31 In which paragraph does the auditor “express an opinion” regarding the financial statements?” John

33. Auditing April 1, 2015 32 Independent Auditor’s Report Report on the Financial Statements We 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 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. 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]

34. Auditing April 1, 2015 33 Which paragraph discusses “the degree of responsibility the auditor is taking ?” Jeanette

35. Auditing April 1, 2015 34 Independent Auditor’s Report Report on the Financial Statements We 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 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. 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]

36. Auditing April 1, 2015 35 Which paragraph discusses “management’s responsibility ?” Algernon

37. Auditing April 1, 2015 36 Independent Auditor’s Report Report on the Financial Statements We 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 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. 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]

38. Auditing April 1, 2015 37 Which paragraph “describes the characteristics of the auditor’s work?” Priya

39. Auditing April 1, 2015 38 Independent Auditor’s Report Report on the Financial Statements We 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 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. 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]

40. 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

41. Auditing April 1, 2015 40 Independent Auditor’s Report Report on the Financial Statements We 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 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. 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]

42. Auditing April 1, 2015 41 What four different opinions can an auditor can issue for an audit ? Jordan

43. Auditing April 1, 2015 42 AUDIT REPORTS handouts n Unmodified-fairly presented n Qualified- fairly presented ‘except for’ a very limited number of conditions where the statement’s don’t conform to GAAP n Qualified- fairly presented ‘except for’ a very limited number of situations where the audit procedures were unable to satisfy GAAS n Adverse-don’t conform to GAAP n Disclaimer- Scope limitation – unable to audit

44. Auditing April 1, 2015 43 AU-C 220 Quality Control of.. Leadership Responsibilities Ethical Requirements ResponsibilitiesThe public interest IntegrityObjectivity and independence Due care Acceptance and Continuation of clients Assignment of Engagement Teams Engagement Performance direction, supervision & performance Review Consultation Engagement Quality Control Review Monitoring Documentation

45. Auditing April 1, 2015 44 Important n Selected Objectives n Unmodified Auditor’s Report n Management’s Assertions p. 59

46. 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

47. Auditing April 1, 2015 46 Independent Auditor’s Report Report on the Financial Statements We 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 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. 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]

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50. Auditing April 1, 2015 49 role of audits in capital markets stockholders board of directors management auditors

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56. Auditing April 1, 2015 55 Independent Auditor’s Report Report on the Financial Statements We 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 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. 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]

57. 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.