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Chapter 2. Professional Standards. 1. Basis of Auditing. Objectives of auditing Responsible parties involved in auditing Similarities with other disciplines Limitations of auditing. 2. Practice Standards. AICPA standards Citation Methods SAS Number AU Section Number (AU-C)

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Chapter 2


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    Presentation Transcript
    1. Chapter 2 Professional Standards Chapter 2

    2. 1. Basis of Auditing • Objectives of auditing • Responsible parties involved in auditing • Similarities with other disciplines • Limitations of auditing Chapter 2

    3. 2. Practice Standards • AICPA standards • Citation Methods • SAS Number • AU Section Number (AU-C) • Professional Standards, Vol. I and II (and III) • Sources of Auditing Standards • Statements on Auditing Procedures — SAPs (1-54) • Statements on Auditing Stds — SASs — AU (1- ) Chapter 2

    4. 2. Practice Standards (continued) • Sources of other Standards • Statements on Stds for Attestation Engagements — SSAEs — AT • Statements on Stds for Accounting and Review Services — SSARSs — AR • Consulting Standards — CS • Quality Control Standards — QC • Peer Review Standards — PR • Tax Practice Standards — TX Chapter 2

    5. Practice Standards (continued) • Sources • Personal Financial Planning Standards — PFP • Code of Ethics Standards — ET • AICPA Bylaws Standards — BL • Continuing Education Standards — CPE Chapter 2

    6. Practice Standards (continued) • International Standards • International Auditing and Assurance Standards Board — IAASB • (Part of IFAC) • International Auditing Standards (ISAs) • International Standards on Assurance Engagement (ISAE) • IFAC Code of Ethics • (International Financial Reporting Standards — IASB) • PCAOB Standards • 2003 adopted 101 existing SASs • Auditing Standards – AS • Ethics and Independence Standards – IT • Quality Control Standards – QC Chapter 2

    7. Practice Standards (continued) • Clarity Project • Purpose: • to make standards easier to read, understand, and apply • to converge US GAAS with ISAs issued by IAASB • Project started in 2004 • AU sections renumbered to ISA numbers • New format for standards • introduction, objective, definitions, requirements, application and other explanatory material • Effective for audits of financial statements for years ending on or after December 15, 2012 • Primarily was issued as one SAS – SAS 122 Chapter 2

    8. 2. Practice Standards - Terminology in auditing standards Chapter 2

    9. 2. Practice Standards – The GAAS Hierarchy Chapter 2

    10. 2. Practice Standards (continued) Summary of Practice Standards Chapter 2

    11. 3. GAAS and Principles • General standards (responsibilities principle) • adequate technical training • independence • due professional care • Fieldwork standards (performance principle) • adequately planned & supervised • internal control • sufficient appropriate evidence • Reporting standards (reporting principle) • GAAP • consistency • adequate disclosure • opinion Chapter 2

    12. 3. GAAS and Principles Comparison of AICPA GAAS to Principles: Responsibilities Chapter 2

    13. 3. GAAS and Principles Comparison of AICPA GAAS to Principles: Performance Chapter 2

    14. 3. GAAS and Principles Comparison of AICPA GAAS to Principles: Reporting Chapter 2

    15. 4. Evidence • SAS 122 • 3rd Standard of Field Work:The auditor must obtain sufficient appropriateaudit evidence by performing audit procedures… • Definition • All the information used by the auditor in arriving at the conclusions on which the audit opinion is based Chapter 2

    16. 4. Evidence (continued) • Sufficiency and Appropriateness • Interrelated • Sufficiency – quantity (affected by RMM and quality of evidence) • Appropriateness – quality (affected by its relevance and reliability) • Limitations (cost, persuasiveness) • Generalizations about reliability • Source – knowledge, location, reliability of ICS, direct/indirect, directly by auditor • Nature – documentary form, originals, reliability of form (e.g., ability to be altered, certainty of sender), document experts Chapter 2

    17. 4. Evidence (continued) • Relationship between assertions and evidence • Relevance of assertions Chapter 2

    18. 4. Evidence (continued) • Types of Evidence • Underlying Accounting Data • journals, general and subsidiary ledgers, accounting manuals, work sheets, spreadsheets, cost allocations, reconciliations, etc. • Corroborating Information • auditor’s direct personal knowledge • documentary evidence • created outside and transmitted directly to auditor • created outside and held by client • created by and held by client • client representations Chapter 2

    19. 4. Evidence (continued) • Types of Evidence (continued) • Physical evidence • Mathematical evidence • Oral evidence • Confirmations • Written representations • Analytical procedures • Electronic evidence Chapter 2

    20. 5. Attestation Standards • Apply to attest services • affirm to be genuine • when a CPA expresses a conclusion about the reliability of subject matter or an assertion that is the responsibility of another party • includes financial and nonfinancial services Chapter 2

    21. 5. Attestation Standards • SSAEs apply to • forecasts and projections • pro forma information • internal control • compliance with laws, regs, contracts • MD & A • agreed-upon procedures Chapter 2

    22. 6. Quality Control for Firms • AICPA • National Peer Review Committee (formerly known as the Center for Public Company Audit Firms) • Private Companies Practice Section (PCPS) • PCAOB registration • PCAOB inspections • State level peer review • Quality Enhancement Program in Nebraska Chapter 2

    23. 6. Quality Control for Firms • An audit firm must establish a system of QC to provide it reasonable assurance that the firm will comply with professional, regulatory, and legal requirements • QC standards apply to all firms and all services provided • Specific QC policies and procedures vary by firm size Chapter 2

    24. 6. Quality Control for Firms • AICPA Elements of Quality Control • leadership responsibilities • ethical requirements • acceptance and continuance of clients and engagements • human resources • engagement performance • monitoring Chapter 2

    25. Review Questions for Discussion • Chapter 22.12.22.72.152.16 • 2.17 • 2.19 • 2.21 • 2.25 Chapter 2