ACG5637: Chapter 2 - Professional Standards & Auditing

AICPA Auditing Standards

Statements on Auditing Standards (SAS / AU-C) applied to audits of private (nonpublic) companies.

PCAOB Auditing Standards

Auditing Standards (AS) applied to audits of public companies (issuers) and brokers/dealers.

IAASB Auditing Standards

International Standards on Auditing (ISA) applied in countries adopting international standards.

Standards

Authoritative guidance (SASs / AU-C) that must be applied, considering unconditional vs. presumptively mandatory responsibility levels.

Interpretive Publications

Recommendations on SAS application that the auditor should consider, though they are not standards.

Other Auditing Publications

Non-authoritative publications (practice alerts, journal articles, textbooks) that help understand and apply standards.

Professional Skepticism

A questioning mind and critical assessment of audit evidence, assuming neither unquestioned honesty nor dishonesty.

Professional Judgment

Applying relevant training, knowledge, and experience to make informed decisions about appropriate audit courses of action.

Unconditional Responsibility

"Must", "Shall"; A requirement to comply in every case where relevant, with no exceptions.

Presumptively Mandatory Responsibility

"Should"; A requirement to comply except in rare circumstances; any departure must be justified and documented.

Responsibility to Consider

"May", "Might", "Could"; Auditor should consider; whether the auditor follows depends on exercise of professional judgement in the circumstances. (PCAOB only)

Errors vs. Fraud

Errors are unintentional misstatements, while fraud consists of intentional acts designed to deceive financial statement users.

Laws with Direct Effect on Financial Statements

Laws (like tax and pension rules) where auditors must obtain sufficient appropriate evidence to provide reasonable assurance of no material misstatement.

Laws with Indirect Effect on Financial Statements

Laws (like OSHA or environmental rules) where auditors are not required to test all violations, but must inquire, inspect correspondence, and follow up if suspected.

Unqualified / Unmodified Opinion

The clean opinion issued when the auditor obtains reasonable assurance that financial statements are not materially misstated.

Qualified Opinion

Issued when financial statements are fairly presented except for a specific, material, but not pervasive matter.

Pervasive

Widespread

Adverse Opinion

Issued when financial statements are not fairly presented due to a misstatement that is both material and pervasive.

Disclaimer of Opinion

Issued when the auditor is unable to obtain sufficient appropriate audit evidence to form an opinion, usually due to a significant scope limitation.

Materiality

A threshold of importance where an omission or misstatement could reasonably influence users' economic decisions.

Components of the Audit Report

Opinion, Basis for Opinion, Responsibilities of Management, and Responsibilities of the Auditor.

Attestation Standards Categories

General Standards, Standards of Fieldwork, and Standards of Reporting.

System of Quality Management

A firm-designed system to provide reasonable assurance of compliance with professional and legal standards and appropriate engagement reports.

Engagement Quality Review (EQR)

A review performed before report issuance by an independent partner or senior professional to evaluate significant judgments.

Completed Engagement Inspection

Review working papers, audit reports, and/or financial stmts after the report is issued. Conducted internally (can be outsourced for small firms).

Peer Review

An external review of an AICPA member firm's quality control system conducted annually by an external CPA firm. Required by AICPA.

PCAOB Inspection

Mandatory inspections of firms auditing public companies, reviewing individual engagements and firm-level quality controls.

GAGAS (Generally Accepted Government Auditing Standards)

Audits of government entities/organizations that spend federal funds. Builds on AICPA standards.

Single Audit Act Threshold

Requires an organization-wide audit for non-federal entities spending $1,000,000 or more in federal awards annually.

ERISA Audits

Audits of certain employee benefit plans (401(k), pension) with 100+ participants, filed with the DOL on Form 5500.