Assume that a public accounting firm is reviewing the financial statements of a nonpublic company and discovers that the firm is not independent. What options are available to the firm?
> Identify the three types of audits that a governmental organization might obtain.
> Describe the scope of activities of an internal auditing function.
> Explain the auditors’ responsibility for testing compliance with laws and regulations in an audit in accordance with generally accepted auditing standards.
> During your audit of a small manufacturing firm, you find numerous checks for large amounts drawn payable to the treasurer and charged to the Miscellaneous Expense account. Does this require any action by the auditor? Explain.
> Explain what is meant by the following statement: “When sampling, the auditors should determine that the physical representation of the actual population is complete.”
> Explain why tests of compliance with laws and regulations are considered to be substantive tests.
> Describe the role of a broker-dealer.
> Evaluate this statement: “An agreed-upon procedures engagement on compliance with a law is designed to provide users with negative assurance on whether an entity has complied with that law.”
> Describe the two types of agreed-upon procedures engagements that CPAs may perform relating to compliance with laws and regulations.
> Should the internal auditors generally disclose their findings to operating personnel of the department involved before transmitting the report to top management? Explain.
> Describe the purpose of an operational audit.
> Differentiate between financial statement audits and operational audits.
> Describe the requirements for becoming a Certified Internal Auditor.
> Briefly describe the factors that are important to the management of an internal auditing department.
> Define internal auditing.
> Describe circumstances that might cause the auditors to identify understatement of assets as a significant audit risk.
> Explain what is meant by attestation risk. What are its components?
> What are “suitable criteria” and how do they relate to an attestation engagement?
> Distinguish between an attestation engagement in which the practitioners report directly on the subject matter and one in which the practitioners report on an assertion about the subject matter.
> Distinguish between forms of attestation engagements that result in reports that are designed for “general use” and those that result in reports that are designed for “restricted use.”
> List and describe the three types of attestation engagements.
> Is a written report from the accountant involved for all attestation and other assurance services? Explain.
> Describe the forces that have fueled the demand for assurance services.
> Identify two types of assurance services that are currently under development by the AICPA.
> What types of PrimePlus/ElderCare services do CPAs typically perform?
> The attestation standards provide guidance on agreed-upon procedures, review, and examination engagements. Which of these types of engagements are available for SysTrust?
> When using nonstatistical sampling, what relationship must exist between the projected misstatement and tolerable misstatement in order for the auditors to conclude that an account balance is acceptable?
> Describe the primary purpose and intended users of each of the three types of service auditor reports presented in the Professional Standards.
> Comment on the correctness of the following statement: Because all attest services are assurance services, all assurance services are also attest services.
> An auditor’s client uses the services of a payroll service provider. Which type of service auditor’s report is most likely to be helpful to that auditor: SOC 1, SOC 2, or SOC 3? Explain why.
> What types of systems are included in a SysTrust engagement.
> List the principles that may be included in the criteria for a Trust Services engagement.
> Describe the objectives of the practitioners’ examination of Management’s Discussion and Analysis.
> Identify the circumstances under which CPAs may examine Management’s Discussion and Analysis.
> Describe the two types of compliance services that may be performed under AICPA AT section 601.
> Describe the major elements of a report on the examination of a financial forecast.
> “A company would normally include a financial projection in its annual report rather than a financial forecast.” Comment on the validity of this statement.
> Is it correct to say that when using nonstatistical variables sampling, one is unable to project the misstatements identified to the entire population? Explain why this is or is not the case.
> What is XBRL? How do assurance services relate to it?
> Comment on the accuracy of the following: A client’s uncorrected material departure from the suitable criteria identified during an examination conducted under the attest standards is treated as a departure from GAAP in a financial statement audit—either
> Explain the relationship between assurance services and attestation services.
> What are the general types of procedures performed during a review of the quarterly financial statements of a company that has audits of its annual financial statement?
> Jane Wilson has prepared personal financial statements in which her assets are valued at her historical cost, less appropriate depreciation. Is this presentation in conformity with generally accepted accounting principles? Can a public accounting firm au
> A client has prepared financial statements using a financial reporting framework generally accepted in another country. The statements are intended only to be used in that country. Describe the auditor’s reporting options.
> Comment on the following: “Because of the nature of the frameworks the clients use, audits of special-purpose financial reporting frameworks result in an audit report that is restricted for use by those within the entity.”
> Provide four types of special-purpose financial reporting frameworks.
> Can auditors express an unmodified opinion on financial statements that are not presented on the basis of generally accepted accounting principles? Explain.
> In communications with clients, should CPAs refer to themselves as auditors or as accountants? Explain.
> Explain how, in using the mean-per-unit method to evaluate results, the auditors use the differences between the audited values and the book values of the individual items in their sample.
> When a CPA has prepared a client’s financial statements how is the fact that no assurance is provided indicated?
> What should the accountants do if they discover that the financial statements they are compiling contain a material departure from generally accepted accounting principles?
> Evaluate this statement: “Auditors perform attestation services and accountants perform accounting services.”
> Can the CPAs report on a nonpublic client’s financial statements that omit substantially all disclosures required by generally accepted accounting principles? Explain.
> What procedures are required when a CPA performs a compilation of financial statements?
> What form of opinion will the auditors normally issue with respect to summary financial statements that the client has developed from the audited financial statements?
> What is the purpose of a comfort letter? Discuss.
> Are engagement letters needed for accounting and review services? Explain.
> What are the types of procedures performed during the review of the financial statements of a nonpublic company?
> What options are available to an auditor when the client’s book value falls outside the confidence (acceptance) interval calculated using the estimate of the total value of the population?
> How does a review of the financial statements of a nonpublic company differ from an audit?
> What types of services may be performed by CPAs with respect to the financial statements of nonpublic companies?
> How do CPAs of public companies assist audit committees in performing their oversight function with respect to quarterly financial statements?
> Describe a unique reporting aspect about the CPAs’ required review of the quarterly financial statements of public companies.
> Evaluate this statement: “All companies should be audited annually.”
> Describe what is meant by a “walk-through.” Must walk-throughs be performed during audits of internal control over financial reporting? May the client perform a walk-through and the auditors then review the client’s work?
> Provide examples of antifraud programs that the auditors might expect the client to have.
> What is a compensating control?
> What is meant by the “as of” date when reporting on internal control over financial reporting?
> Comment on the accuracy of the following statement: “Because both significant deficiencies and material weaknesses must be reported to the audit committee, for practical purposes, there is no distinction between the two.”
> What conditions are necessary for the auditors to use either the ratio or difference estimation techniques?
> Describe the difference between a significant deficiency and a material weakness in internal control.
> What information must be included in management’s report on internal control over financial reporting in the annual report filed with the Securities and Exchange Commission?
> Describe the requirements involved when auditors are engaged to report on whether a previously reported material weakness continues to exist.
> Which types of deficiencies must be communicated to the audit committee?
> If an adverse internal control report is issued by the auditors, may an unqualified report be issued on the financial statements?
> What type of report on internal control is likely to be issued when management imposes a scope limitation?
> The auditors have completed an examination of internal control and are preparing to issue a report. Does the opinion paragraph on the client’s internal control conclude on internal control or management’s assessment of internal control?
> Provide three examples of findings by the auditors that are at least significant deficiencies and strong indicators of the existence of a material weakness in internal control.
> Distinguish between entity-level controls and controls designed to achieve specific control objectives.
> Provide an example of a situation in which the performance of tests of controls for the internal control audit might affect the performance of substantive procedures in a financial statement audit.
> The mean of the audited values in a sample is $20. The accounts in that sample have a mean book value of $21, and the entire population of 10,000 accounts has an average book value of $19. Using mean-per-unit sampling, calculate the estimated total audit
> Provide an example of a situation in which the performance of substantive procedures for the financial statement audit might affect the internal control audit.
> Identify management’s four overall responsibilities with respect to internal control over financial reporting that arise due to the Securities and Exchange Commission’s implementation of the Sarbanes-Oxley Act of 2002.
> What requirements exist when the auditors use the work of client personnel as a part of the evidence obtained for an audit of internal control? In which areas of the audit would one expect this to be most likely to occur?
> Comment on the following: “All controls should be tested either prior to or on the ‘as of’ date.”
> Comment on the following: “Inquiry alone does not provide sufficient evidence to support the operating effectiveness of a control.”
> Provide an example of a situation in which the design of controls may be effective but those controls do not operate effectively.
> Comment on the following: “Auditors must decide, based on cost considerations, whether to test the design effectiveness or operating effectiveness of controls.”
> A client operates out of 25 locations. Must the CPA perform tests related to internal control at each of these locations?
> When performing an integrated audit, auditors should identify significant accounts and disclosures. What makes an account significant? What factors should be considered in deciding whether an account is significant?
> When performing an audit of internal control over financial reporting, auditors may distinguish among the following types of transactions: routine, nonroutine, and accounting estimates. Distinguish between these three types of transactions and give an ex
> When using statistical sampling to evaluate results using mean-per-unit sampling, may one conclude at the tested risk levels that an account is not materially misstated whenever the projected misstatement is less than the tolerable misstatement?
> Auditors often perform walk-throughs in integrated audits. Describe the evidence that is typically provided by a walk-through.
> While performing a walk-through, auditors ordinarily make certain inquiries of employees. Provide three examples of such inquiries.
> Section 404 of the Sarbanes-Oxley Act of 2002 includes two sections. Describe those sections.
> Wade Corporation has been your audit client for several years. At the beginning of the current year, the company changed its method of inventory valuation from average cost to last-in, first-out (LIFO). The change, which had been under consideration for
> Explain three situations in which the wording of a report with an unmodified opinion might depart from the auditors’ standard report.
> When the current auditors make reference to the work of the component auditors, does this result in expression of a qualified opinion? Explain.
> Howard Green, a partner with Cary, Loeb, & Co., and his audit team have completed the audit of Baker Manufacturing. Determine the proper date of the audit report. ∙ December 31, 20X0: Baker’s year-end. ∙ February 15, 20X1: Green completed audit procedure
> Provide a list of the types of nonpublic company unmodified and modified audit opinions.
