ACG5637 CH 1 - Role of the Public Accountant

Assurance Services

Services provided by CPAs to increase the credibility or usefulness of information.

Attest Engagement

An engagement by an independent third party to report on a subject matter or management assertion. Meant to increase reliability; independent in appearance and fact.

Independence in Fact

The auditor actually is objective and unbiased when performing the engagement.

Independence in Appearance

The auditor seems objective to outside users with no visible relationships causing doubt.

Financial Reporting Framework

The suitable criteria used for the presentation of financial statements, such as GAAP.

Examination (Audit)

High reasonable assurance with low misstatement risk and full verification procedures.

Review Engagement

Limited assurance with moderate risk, relying primarily on inquiry and analytical procedures.

Agreed-Upon Procedures

Engagement where assurance varies and the report provides a customized summary of findings.

Management's Responsibility

Preparing financial statements, selecting policies, making estimates, and maintaining internal controls.

Auditor's Responsibility

Independently gathering evidence, testing records, and expressing an opinion on financial statements.

What an Audit Does Not Do

It is not an absolute guarantee, not fraud-proof, and not an investment opinion.

Business Risk

Risk associated with company performance and economic conditions; not changed by an audit.

Information Risk

Risk that financial information used to assess business risk is inaccurate; reduced by audits.

Audit Committee

Board members charged with overseeing financial reporting, regulatory compliance, and the external auditor.

Financial Audit

Examination of financial information to verify conformance with GAAP.

Compliance Audit

Verification that an entity's activities conform to established standards, laws, or regulations.

Operational Audit

Assessment of an organization's processes based on effectiveness and efficiency.

Integrated Audit

Combines a financial statement audit with an assessment of internal controls over financial reporting.

AICPA

National professional organization for CPAs that sets private company auditing standards.

FASB

Sets generally accepted accounting principles for U.S. private-sector entities.

PCAOB

Created by SOX to register, set standards, inspect, and enforce rules for public-company audit firms.

SOX Section 301

The audit committee oversees the auditors (not mgmt)

SOX Section 302

Requires CEO and CFO to personally certify that SEC filings are fairly stated. Must disclose control deficiencies and fraud to auditors and audit committee.

SOX Section 404

Requires management to report on internal controls and mandates integrated audits (statements AND internal controls) for large companies.

SOX Section 201

Bans most consulting services for audit clients and mandates five-year audit partner rotation.

SOX Section 203

Lead and reviewing audit partners rotate every 5 years.

SOX Section 206

1-year cooling period before joining a client as a CEO, CFO, or controller.

State Boards of Accountancy

State-level bodies responsible for professional licensure; granting CPA permits, setting requirements, etc.

GASB

Governmental Accounting Standards Board; sets standards for state and local govt entities

FASAB

Federal Accounting Standards Advisory Board; sets standards for the US govt

SEC

Securities and Exchange Commission; govt agency that regulates companies that issue public securities; oversees the PCAOB and appoints its board members; has own authority over acc standards for public companies.

What did SOX create?

Title 1. PCAOB

Title 2. Auditor Independence

Title 3. Corporate Responsibility

Title 4. Internal Control