Audit is a form of attestation

Chpt. 1

1-16

A. Audit is a form of attestation service and attestation service is a form of an assurance service.

1)      Audit of historical financial statements

2)      An attestation service other than an audit service

3)      An attestation service other than an audit service

4)      An attestation service other than an audit service

5)      An attestation service other than an audit service

6)      An attestation service that is not an audit service

7)      An attestation service other than an audit service

8)      An attestation service other than an audit service

9)      An assurance service that is not an attestation service

Chpt.2

2-18

Pros

Reporting on the effectiveness of internal control over financial reporting will provide benefits in improved controls which in turn will result in better quality financial reporting.

 

 

Cons

Costs of complying with the Act are excessively high, especially the requirement to report on internal control over financial reporting and it will ultimately discourage companies from being public companies.

 

 

 

 

 

 

 

 

 

 

 

2-21

 

 

 

BRIEF DESCRIPTION OF GAAS

HOLMES’ ACTIONS RESULTING IN FAILURE TO COMPLY WITH GAAS

GENERAL STANDARDS  
  1. The auditor must have adequate technical training and proficiency to perform the audit.
  2. It was inappropriate for Holmes to hire the two students to conduct the audit. The audit must be conducted by persons with proper education and experience in the field of auditing.
  3. The auditor must maintain independence in mental attitude in all matters relating to the audit.
  4. Holmes must exercise fairness to his client and external users who rely on his report. The outcome of the bank loan should play no part in Holmes excesrcising fairness in his reporting.
  5. The auditor must exercise due professional care in the performance of the audit and the preparation of the report.
  6. Holmes failed to exercise due care by not reviewing the work done.by assistants

 

 

BRIEF DESCRIPTION OF GAAS

HOLMES’ ACTIONS RESULTING IN FAILURE TO COMPLY WITH GAAS

STANDARDS OF FIELD WORK  
  1. The auditor must adequately plan the work and must properly supervise any assistants.
  2. Holmes agree to the engagement knowing that he didn’t  have a properly trained staff if required for assistance. Holmes failed to adequately plan the work.
  3. The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
  4. Holmes, nor did his assistants obtain sufficient understanding of the entity and its environment, including its internal control.
  5. The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.
  6. Holmes only checked the mathematical accuracy of the records and summarized the accounts. No standard audit procedures were performed.
STANDARDS OF REPORTING  
  1. The auditor must state in the auditor’s report whether the financial statements are presented in accordance with (GAAP).
  2. Holmes made no mention to using GAAP. He should also express in the report that no opinion can stated at this time due to the lack of use of GAAP..

 

 

  1. The auditor must identify in the auditor’s report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
  2. Holme’s failed to properly follow GAAP. As a result no such principles can be applied to this situation.
  3. When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor’s report.
  4. Both the financial statements and auditor’s report had adequate disclosures.
  5. The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor’s report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefor in the auditor’s report. In all cases where an auditor’s name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking, in the auditor’s report.
  6. An opinion should not be included because Holmes failed to provide a proper audit according to GAAP.

 

 

 

 

 

Chpt. 3

3-26

 

B. The true economic conditions don’t specifically mention that GAAP procedures were applied.

C.  The opinion paragraph is stated as an opinion rather than as a statement of absolute fact or a quarantee.

D. The firm name should appear oppose to the individual auditor. The CPA firms accepts full responsibility of the report.

E. The purpose of the of the Audit is not see if the financial statements are misstated but instead conducted to see if the statements are fairly stated.

3-29

  1. Scope of the audit has been restricted.

Highly material.

Disclaimer.

Introductory paragraph modified. Need to add another paragraph stating the scope of restriction. Scope paragraph omitted and the opinion paragraph becomes a disclaimer of opinion.

  1. Auditor doesn’t have to add an explanatory paragraph because risky business is now being performed.
  2. Immaterial.

Unqualified-standard wording.

The facts are adequately disclosed in the footnote.

  1. Failure to follow GAAP

Material, Qualified opinion only

Qualified opinion is needed for the failure to include statement of cash flows.

  1. Substantial doubt about going concern

Material

Unqualified explanatory paragraph

Following the opinion, the auditor should disclose his doubts about the concerns he have about the ability of the company to continue.

  1. A report involving other auditors

Material

Unqualified-modified wording

The audit report is shared detailing what work has been done by individual auditors

 

 

 

 

Chpt. 4

4-20

A. Providing bookkeeping services to a public company. The services were pre-approved by the audit committee of the company.

B. Providing internal audit services to a public company that is not an audit client. No violation occurred. If the client was an audit client there would be a violation.

C. Designing and implementing a financial information system for a private company. No violation occurred. A CPA firm may assist in the installation of a clients information system as long as the client makes necessary management decisions about the system.

D. Recommending a tax shelter to a client that is publicly held. The services were pre-approved by the audit committee. It’s not a violation if it is used a tax avoidance strategy.

E. Providing internal audit services to a public company client with the pre-approval of the audit committee. There is a violation. The violation occurs because and internal audit cannot be performed on an audit client of a public company.

F. Providing bookkeeping services to an audit client that is a private company. No violation because a firm can provide bookkeeping services to their audit client so long as they are a private company.

 

4-23

A. An audit committee is a selected number of members of a company’s board of directors whose responsibilities include helping auditors remain independent of management. The Sarbanes-Oxley Act requires that all members of the audit committee be independent, and companies must disclose whether or not the audit committee includes at least one member who is a financial expert.

B.The audit committee must preaprove all audit and nonaudit services, and is responsible for oversight of the work of the auditor, including resolution of disagreements involving financial reporting between management and the auditor. Auditors are responsible for communicating all signigicant matters identified during the audit to the audit committee.

C. The audit committee can help an auditor become more independent by stressing to the auditor the signifigance of performing fairness and good judgement of their financial statements.

D. PCAOB rules require a CPA firm, before its selection as the company’s auditor, to describe in writing and discuss with the audit committee all relationships between the firm and the company, including executives in financial reporting positions, to determine whether there is any impairment of the CPA firm’s independence. If selected as the auditor, these communications are to be made at least annually.

E. In my experience people tend to go with what they know and if going with a prestigious company is what they know, hey. Costs should not be ignored though. Small mom and pop firms can give you the same or better quality service with cheaper costs.

 

 

 

 

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