Auditing-Seminar 6 Discussion Questions

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Auditing-Seminar 6

Discussion Questions

17-29 Provide examples of the subject matter of an assurance engagement.

Our textbook specifies; for simplicity, we refer to these types of engagements (assurance engagement) as attestation engagement. (Chapter 17, p. 827.). The subject matter of a nonadudit attestation engagement can be quite varied, Examples include: statement of greenhouse emissions, privacy of personal information, schedule of investment returns, effectiveness of control over the security of a system, capacity of a facility, and compliance with human resource practices. (Chapter 17, p. 828).

17-33 Refer to Exhibit 17.3 and describe the AICPAs’ standards for attestation engagements.

General standards 1. The practitioner must have adequate technical training and proficiency to perform the attestation engagement.
  2. The practitioner must have adequate knowledge of the subject matter.
  3. The practitioner must have reason to believe that the subject matter is capable of evaluation against criteria that are suitable and available to users.
  4. The practitioner must maintain independence in mental attitude in all matters relating to the engagement.
  5. The practitioner must exercise due professional care in planning and performing the engagement and preparing the report.
Standards of fieldwork 1. The practitioner must adequately plan the work and must properly supervise any assistants.
  2. The practitioner must obtain sufficient evidence to provide a reasonable basis for the conclusions that are expressed in the report.
Standards of reporting 1. The practitioner must identify the subject matter or the assertion being reported on and state the character of the engagement in the report.
  2. The practitioner must state the practitioners’ conclusion about the subject matter or the assertion in relation to the criteria against which the subject matter was evaluated in the report.
  3. The practitioner must state all the practitioners’ significant reservations about the engagement, the subject matter, and, if applicable, the assertion related thereto in the report.
  4. The practitioner must state in the report that the report I intended solely for the information and use of the specified parties under the following circumstances:When the criteria used to evaluate the subject matter are determined by the practitioner to be appropriate only for a limited number of parties who either participated in their establishment or can be presumed to have an adequate understanding of the criteria When the criteria used to evaluate the subject matter are available only to specified parties.When reporting on subject matter and a written assertion has not been provide by the responsible partyWhen the report is an attestation engagement to apply agreed-upon procedures to subject matter

Compare and contrast similarities and differences of these standards with the PCAOBs’ 10 general, fieldwork, and reporting standards for audit engagement as described in Chapter 5.

PCAOB-Guidance-The Ten Standards (Chapter 5, p. 184)

General Standards

The General standards, AICPAs’ Attestation Standards, and PCAOB Guidance-The Ten Standards are similar.

Standards of fieldwork in the AICPAs’ Attestation Standards.

1. The practitioner must identify the subject matter or the assertion being reported on and state the character of the engagement in the report.

2. The practitioner must obtain sufficient evidence to provide a reasonable basis for the conclusions that are expressed in the report.

Standards of Fieldwork in the PCAOB-Ten standards.

4. An audit is properly planned and supervised.

5. Auditors develop an understanding of the clients’ controls as an important prerequisite to developing specific audit tests.

6. Auditors obtain sufficient appropriate audit evidence by performing audit procedures to provide a reasonable basis for the audit opinion.

The AICPA does not include the PCAOB Guidance-The Ten Standards: Fieldwork standards, 5. Auditors develop an understanding of the clients’ controls as an important prerequisite to developing specific audit tests. The remainder of the General standards, AICPAs’ Attestation Standards, and PCAOB Guidance-The Ten Standards are similar.

Reporting Standards

In comparing the AICPAs’ Attestation Standards: Standards of reporting, and the PCAOB Guidance-The Ten Standards: Reporting standards, there are no similarities, only differences.

17-35 Describe the standard procedures for conducting a review.

Obtain a written engagement letter regarding the specific services to be performed so as to avoid potential misunderstanding with the client.

Inquire concerning actions taken at meeting of the board of directors, stockholders, and other decision-making bodies.

Inquire whether the financial statements have been consistently prepared in conformity with generally accepted accounting principles (GAAP) or other comprehensive basis of accounting. Inquire about any changes in the business activities or accounting principles and practices and events subsequent to the date of the financial statements that would have a material effect on the financial statements.

Obtain or prepare a trial balance of the general ledger and foot and reconcile it to the ledger. Trace the financial statement amounts to the trial balance.

Perform basic analytical procedures, such as comparing current financial statement amounts with those of prior period(s) and with anticipated results, such as budgets and forecasts, and studying the relationships of elements of the financial statements that would be expected to conform to a predictable pattern based on the organizations’ experience, such as interest expense to interest-bearing debt.

Obtain explanations from management for any unusual or unexpected results and consider the need for further investigation.

Read the financial statements to determine whether they appear to conform to GAAP.

Obtain a management representative letter about important assertions that management has made. (Chapter 17, p. 832).

17-38 Describe the IAASB and AICPA definitions of compilation engagement.

IAASB: defines compilation engagement that management requests an accountant in public practice assist with the preparation and presentation of financial information of an entity. The accountants’ objective in this engagement is to a apply accounting reporting expertise to assist management in the preparations and presentation of financial reporting framework based on information provided by management. AICPA: defines a compilation engagement in a complementary manner, as a service, the objective of which is to assist management in presenting financial information on the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for the statement to be in conformity with the applicable financial reporting framework. (Chapter 17, p. 834).

Discuss common compilation procedures.

Common Procedures

The practitioner should have a general knowledge of the clients’ industry, the nature of its accounting records, the accounting basis to be used (GAAP or a special-purpose framework other than GAAP), and the form and content of the financial statements. Such an understanding is obtained through continuing professional education, experience with the client, regular reviews of industry developments, and inquiry of the clients’ personnel. The practitioner is not required to make inquiries or perform procedures to verify, corroborate, or review information provided by the client. However, if the practitioner believes that such information may be incorrect, incomplete, or otherwise unsatisfactory, the practitioner should obtain additional or revise information. If the client refuses to provide this information, the practitioner should withdraw from the engagement. Further, the practitioner is not required to obtain an understanding of internal controls. The practitioner should read the financial statements including footnotes, to make sure that they are appropriate in form and free from obvious material misstatement. (Chapter 17, p. 835).

17-47 Explain the contents of a report on the audit of special-purpose financial statements.

Considerations When Forming am Opinion and Reporting on an Audit of Special-Purpose Financial Statements.

When forming an opinion on special-purpose financial statements, the auditor should evaluate whether the financial statements:

Adequately describe the applicable financial reporting framework.

Have the appropriate title.

Include a summary of significant accounting policies.

Describe how the special-purpose framework differs from GAAP.

Result in fair presentation of the organizations’ financial results.

The auditor should be alert to certain important considerations when drafting the auditors’ report. The reports should contain a statement that the financial statements are the responsibility of management, and that the special-purpose framework is appropriate in the circumstances. (Chapter 17, p. 840).

17-48 What guidance would the auditor rely on for examples of audit reports appropriate to various types of special-purpose financial statements. Exhibit 17.8: Overview of Reporting Requirements for Special-Purpose Financial Statements in accordance with AUC 800, Appendix A, paragraph .A33. AICPA audit and accounting guides by American Institute of Certified Public Accountants. (Chapter 17, p. 841).

Johnstone, K., Gramling, A., & Rittenberg, L. E. (2015). Auditing: A Risk Based-Approach to Conducting a Quality Audit. Boston, MA: Cengage




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