Auditing

Purpose of Auditing

Providing financial statement users with an opinion by an auditor on whether the financial statements are presented fairly and in accordance with GAAP to enhance confidence.

Securities and Exchange Commission (SEC)

A US government agency established in 1933 to administer laws and regulations related to securities exchange and financial information disclosure.

Sarbanes-Oxley Act of 2002

Legislation introducing the PCAOB to oversee audits of public companies, requiring testing of internal controls to ensure informative and accurate audit reports.

Integrated Audit

An audit type testing both internal controls and financial statements in compliance with the Sarbanes-Oxley Act of 2002.

Independent Auditor

Certified Public Accountants without financial interest in the audited company, providing unbiased evaluation of evidence.

Government Accountability Office (GAO)

An investigative arm of Congress overseeing audits of government agencies like the DMV and Post Office to ensure efficiency and compliance.

Generally Accepted Auditing Standards (GAAS)

Standards ensuring auditors' qualifications, independence, due care, and appropriate evidence gathering for financial statement audits.

AICPA Code of Professional Conduct

Guidelines for CPAs emphasizing integrity, objectivity, independence, and due care in providing professional services.

Types of Audit Reports

Standard Unmodified/Unqualified Opinion, Qualified Opinion, Adverse Opinion, and Disclaimer of Opinion based on audit findings and financial statement presentation.

Independence in Auditing

Independence of mind and appearance to maintain professional judgment and avoid compromising influences during attest services.

Adverse interest threat

Risk of commencing litigation against an attest client

Advocacy threat

Risk of providing initial public offering or witness services

Familiarity threat

Risk of a partner being involved in an attest engagement for an extended period

Management participation threat

Risk of a member serving as an officer or director of the attest client

Self-interest threat

Risk of a member benefiting financially or otherwise from an interest in the client

Self-review threat

Risk of a member not appropriately evaluating previous judgments made

Undue influence threat

Risk of subordinating judgment to an individual associated with an attest client

Professional competence

Requirement for training and proficiency in the accounting profession

Due professional care

Obligation to exercise professional care in accounting services

Planning and supervision

Necessity for planning and supervising accounting engagements

Sufficient relevant data

Requirement for competent evidence in accounting services

Compliance with Standards

Various services must comply with their own standards

Accounting Principles

Guidelines for expressing opinions on financial statements

Acts Discreditable

Actions that are discreditable to the accounting profession

Fees and Other Types of Remuneration

Regulations regarding fees and remuneration in accounting services

Advertising and Other Forms of Solicitation

Restrictions on seeking clients through deceptive means

Confidential Client Information

Rules regarding the disclosure of client information

Form of Organization and Name

Regulations on the organization and naming of accounting firms

Quality Control

Policies and procedures to ensure conformity with professional standards

Engagement Letter

Agreement outlining the nature of auditing services and responsibilities assumed

Business and Inherent Risk

Discussion of the nature of the industry, relative risk, stability of the industry, market size, growth potential, competition, stability of the client within the industry, and control risk.

Control Activities

Refers to the actions established to ensure good internal controls, including performance reviews, information processing, physical controls, segregation of duties, authorization, recording, custody, and comparison.

Risk Assessment

Involves assessing and mitigating risks by properly training new employees, evaluating internal controls, understanding systems implemented for accounting software, and monitoring rules within the organization.

COSO Framework

Internal Control Components (CRIME ~ PIPS ~ ARCCS):Control Activities (PIPS) focus on strong internal controls, while Segregation of Duties (ARCCS) involves authorization, recording, custody, comparison, and safeguarding.

Significant Deficiencies and Material Weaknesses

Deficiency in Internal Control, Deficiency in design, Deficiency in operation, Significant Deficiency, and Material Weakness are levels of internal control issues that range from less severe to potentially impacting financial statements.

Sarbanes Oxley Act of 2002 – Section 404

Requires a top-down approach to auditing internal controls, identifying entity-level controls, significant accounts, and disclosures, testing controls, evaluating their effectiveness, and forming an opinion on financial reporting.