...any) over the audit of Smackey Dog Foods, Inc. Solution: Since Smackey Dog Foods, Inc (“Smackey”) is not a publicly traded company, it would not be subject to SEC regulations and therefore would not need to file the required reports under the securities acts. It would however have indirect impact on the audit of Smackey due to the SEC’s influence in setting generally accepted accounting principles (“GAAP”), the required disclosures for financial statements and any major changes proposed by the Financial Accounting Standards Board (“FASB”). Nonetheless, during the audit of Smackey, Keller CPA is subject the six generally accepted auditing standards established by the Auditing Standards Board (“ASB”) under the Accounting Institute of Certified Public Accountants (“AICPA”) which includes the ten standards of auditing. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: Audit planning includes eight major parts, of which the first seven are intended to help Keller CPA to establish the eighth, which is to develop an overall audit plan and audit program. They are as follows; Acceptance of the client and perform initial audit planning – Keller has already agreed to accept this client, although they should still try to assess Smackey with regards to other audit client of theirs. They should go through the usual client acceptance procedure which Keller CPA has in place...
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...CPA Exam Multiple-Choice Questions on Auditors’ and Accountants’ Reports 1. (N95,62) Which of the following statements is a basic element of the auditor’s standard report? a. The disclosures provide reasonable assurance that the financial statements are free of material misstatement. b. The auditor evaluated the overall internal control structure. c. An audit includes assessing significant estimates made by management. d. The financial statements are consistent with those of the prior period. 2. (N95,68) The fourth standard of reporting requires the auditor’s report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent a. An auditor from expressing different opinions on each of the basic financial statements. b. Restrictions on the scope of the audit, whether imposed by the client or by the inability to obtain evidence. c. Misinterpretations regarding the degree of responsibility the auditor is assuming. d. An auditor from reporting on one basic financial statement and not the others. 3. (N95,78) March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March’s client. Monday expects to present Wall’s audited financial statements with March’s auditor’s report to 1st Federal Bank to obtain financing in Monday’s attempt to purchase Wall. In...
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...CPA Program The practical experience guide and logbook If you require further information about the practical experience requirement, or would like to notify us of a change, please contact CPA Australia: practicalexperience@cpaaustralia.com.au or contact your local office – details can be found on the inside back page of this guide. Disclaimer The material used in this booklet has been designed and prepared for CPA Australia’s practical experience requirement. It provides tailored guidance for mentors who are registered in CPA Australia’s practical experience requirement. The booklet and contents should not be used for any other purpose. CPA Australia, the publisher and the author of this booklet take no responsibility for any loss incurred by any person who relies on guidance offered in this booklet. Legal notice Copyright CPA Australia Ltd (ABN 64 008 392 452) (“CPA Australia”), 2010. All rights reserved. Save and except for third party content, all content in these materials is owned by or licensed to CPA Australia. All trade marks, service marks and trade names are proprietory to CPA Australia. For permission to reproduce any material, a request in writing is to be made to the Legal Business Unit, CPA Australia Ltd, 385 Bourke Street, Melbourne, Victoria 3000. CPA Australia has used reasonable care and skill in compiling the content of this material. However, CPA Australia and the editors make no warranty as to the accuracy or completeness of any information in these...
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...SU 1 In performing an attestation engagement, a CPA typically Expresses a conclusion about an assertion Attestation Standards are Sufficient evidence shall be obtained to provide reasonable basis for the conclusion that is expressed in the report The report shall identify the assertion being reported on and state the character of the engagement The work shall be adequately planned, and assistants, if any, shall be properly supervised Which of the following professional services is considered an attest engagement An engagement to report on compliance with statutory requirements The primary reason for an audit by an independent, external firm is to Provide increased assurance to users as to the fairness of the financial statements Independent CPAs perform audits on the financial statements of issuers. This type of auditing can best be described as A discipline that attests to financial information presented by management Users of an issuers financial statements demand independent audits because Management may not be objective in reporting An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The eternal auditor is expected to Express an opinion as to the fairness of Camden’s financial statements Notes (payable) that are included with financial statements are the responsibility of the Company’s management Brand-new company is going public, and its stock will be listed on a stock exchange. Audited financial statements...
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... | | | | | | | |Reason through an ethical decision problem using the imperative, | |55, 56, 57 | |utilitarian and generalization principles of moral philosophy. | | | | | | | |Identify the different entities that make ethics rules for CPAs and |5, 6 | | |public accounting firms. | | | |...
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...Cases. Read the following cases. Required: For each case, state whether the action or situation shows a violation of the AICPA Code of Professional Conduct, explain why if it does, and cite the relevant rule or interpretation. a. CPA Ellen Stout performs the audit of the local symphony society. Because of her good work, she was elected an honorary member of the board of directors. b. CPA Darcy Wolfe practices management consulting in the area of computerized information systems under the firm name of Wolfe & Associates. The “associates” are not CPAs and the firm is not an accounting firm. However, Wolfe shows “CPA” on business cards and uses these credentials when dealing with clients. c. CPA Alex Goodwin performs significant day- to- day bookkeeping services for Harper Corporation and supervises the work of the one part- time bookkeeper employed by Ha-ley Harper. This year, Harper wants to engage CPA Goodwin to perform an audit. d. CPA H. Poirot bought a home in 1989 and financed it with a mortgage loan from Far-raway Savings and Loan. Farraway was merged into Nearby S& L, and Poirot became the manager in charge of the Nearby audit. e. Poirot inherited a large sum of money from old Mr. Giraud in 2000. Poirot sold his house, paid off the loan to Nearby S& L, and purchased a much larger estate. Nearby S& L provided the financing. f. Poirot and Mala Lemon (a local real estate broker) formed a partnership to develop apartment buildings. Lemon is a 20 percent owner and managing...
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...3-31 Ron Barber, CPA, is auditing the financial statements of DGF, Inc., a publicly held company. During the course of the audit, Barber discovered that DGF has been making illegal bribes to foreign government officials to obtain business, and he reported the matter to senior management and the board of directors of DGF. a. If management and the board of directors take appropriate remedial action, should Barber be required to report the matter outside the company? If they take the appropriate remedial action, then Barber is not required to report the matter outside the company. The company is able to report to SEC themselves within one business day and the auditors should get a copy if they did it. b. Describe Barber’s appropriate response if management and the board of directors fail to take appropriate remedial action. If they do not take the right action then Barber must communicate within one day to the Securities and Exchange Commission. They are also able to fill out the Form 8-K and resign if they feel that senior management has lost integrity due to illegal activities. 3–43. Thomas Gilbert and Susan Bradley formed a professional corporation called “Financial Services Inc.—A Professional Corporation,” each taking 50 percent of the authorized common stock. Gilbert is a CPA and a member of the AICPA. Bradley is a CPCU (Chartered Property Casualty Underwriter). The corporation performs auditing and tax services under Gilbert’s direction and insurance services...
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...Question 19-25 ITEM NO. | AUDIT PROCEDURES | REQUIRED DISCLOSURESAND REASONS | 1 | (a) Inquire of and discuss with officers and other executives having responsibility for financial and accounting matters as to: The current status of items, in the financial statements being reported on, that were accounted for on the basis of tentative, preliminary, or inconclusive data.(b) Obtain a letter of representations, dated as of the date of the auditor's report, from appropriate officials, as to whether any events occurred subsequent to the date of the financial statements being reported on by the independent auditor that in the officer's opinion would require adjustment or disclosure in these statements. | The company will need to correct previous financial statements; this will also help to accurately reflect the company’s financial position. | 2 | Inquire of client's legal counsel concerning litigation, claims, and assessments. | Adjust previous financial statements to reflect the settlement and payment of the claim. | 3 | (a) Read the available minutes of meetings of stockholders, directors, and appropriate committees; as to meetings for which minutes are not available, inquire about matters dealt with at such meetings.(b) Inquire of and discuss with officers and other executives having responsibility for financial and accounting matters as to: Whether there was any significant change in the capital stock, long-term debt, or working capital to the date of inquiry. | A supporting...
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...ACCOUNTING MINICASE: ACCT – 17 TEACHING NOTES BUSINESS ETHICS PROGRAM Ignore the Error? Teaching Notes What Are the Relevant Facts? 1. 2. Compo, a major client of the CPA firm, does not want to make an adjustment for the cutoff error. 4. Kelsey, the audit senior, knows a material cutoff error exists in Compo’s financial statements. 3. What Are the Ethics of the Alternatives? • Contrary to the firm’s policy, Bruce, the audit manager, has asked Kelsey not to document the cutoff error. 2. Kelsey has a professional responsibility to document proposed material audit adjustments. Kelsey has been asked by the supervisor to ignore this requirement. Should Kelsey violate professional and personal standards of integrity to comply with the request? • • • • • • • Kelsey, the audit senior Bruce, the audit manager The partner in charge of the audit and the entire CPA firm The owners of Compo Corporation (family members or others holding shares in the company) Third-party users of Compo’s financial statements Compo Corporation employees What are the benefits and costs to each stakeholder? 2. Do the net benefits exceed the net costs to all stakeholders? Based on a “rights” perspective, for each alternative: 1. What are the responsibilities of Kelsey, Bruce, the CPA firm, and Compo? 3. • What are the rights of each stakeholder? 2. What responsibility does Kelsey have to inform affected parties...
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...6 Phases of a Financial Statement Audit by Kendra James, Demand Media [pic] Auditors analyze material account balances during a financial statement audit. Related Articles • Forensic Audit vs. Financial Audit • How Does a CPA-Audited Financial Statement Add Value? • Financial Statement Certification • What Is a Certified Financial Statement? • Audit Procedures for Income Statements • Phases of the Audit Process A financial statement audit is an engagement performed by an independent accountant to provide assurance that an entity’s financial statements are reported in accordance with accounting principles generally accepted in the U.S. Specifically, certified public accountants, or CPAs, are obtained to provide audited financial statements to businesses, non profit organizations and government agencies. Each audit is customized to meet the needs of the organization. However, the overall approach to every audit is the same. Engagement Acceptance The American Institute of CPAs recommends that an auditor evaluate the risks associated with each engagement. Therefore, a CPA inquires about any special circumstances, the integrity of management and pending lawsuits before performing an audit. In addition, the auditor evaluates the staffing needed to complete the engagement and determines that each staff member is able to maintain an independent viewpoint while performing the engagement. Once the auditor decides to accept the engagement, an engagement...
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...Chapter 5 1. State several factors that have affected the incidence of lawsuits against CPAs in recent years. a. “Growing awareness of the responsibilities of public accountants by the users of financial statements. b. An increased consciousness on the part of the SEC for its responsibility for protecting investors’ interested c. The complexity of auditing and accounting functions caused by the increasing size of businesses, the globalization of business, and the complexities of business operations d. The tendency of society to accept lawsuits by injured parties against anyone who might be able to provide compensation, regardless of who was at fault, coupled with the joint and several liability doctrine e. Large civil court judgments against CPA firms awarded in a few cases, encouraging attorneys to provide legal services on a contingent-fee basis, which offers the injured party a potential gain when the suit is successful, but minimal losses when it is not. f. Many CPA firms being willing to settle legal problems out of court in an attempt to avoid costly legal fees and adverse publicity, rather than pursuing resolution through the judicial process g. The difficulty judges and jurors have understanding and interpreting technical accounting and auditing matters.” (Arens, Elder, & Beasley, 2012) 10. Compare and contrast traditional auditors’ legal responsibilities to clients and third-party users under common law. How...
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...perform the audit. | Jones, CPA hired to students that did not have any experience. | The auditor must maintain independence in mental attitude in all matters relating to the audit. | Arthur Jones, CPA, accepted the offer of receiving a bonus if bank approves the loan. | The auditor must exercise due professional care in the performance of the audit and the preparation of the report. | Jones, CPA did not exercise “professional care in performance of the audit and preparation of the report” because he failed to follow the GAAP guidelines. There were no notes included within the report, students conducted the report without guidance etc. | The auditor must adequately plan the work and must properly supervise any assistants. | Jones did properly supervise the students. He only told them what to. He should have reviewed the information that the students prepared and ensured that Generally Accepted Auditing Standards were followed. | The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures. | The students were told by Jones not to spend time reviewing the controls and to simply concentrate on mathematical errors. | The auditor must obtain sufficient appropriate audit evidence by...
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...implementation of independent audits, and the institution of steep penalties for corporate executives who submit fallacious filings (Botes, 2012). These actions provide increased investor assurance of the accuracy of public financial filings through improving their reliability and breadth of disclosure (Botes, 2012). The following report shows how the Act has impacted outside independent audit firms, the accuracy of public company financial statements and the cost of capital for public companies. The report further discusses the main advantages and disadvantages of the law, what changes should be made to it, and why the legislation cannot guarantee the accuracy of public company financial statements despite the attention CEOs and CFOs are paying to the law. Outside Independent Audit Firms Under SOX independent audit firms perform audit reviews of financial filings, in accordance with the Generally Accepted Accounting Principles (GAAP), and under the direction of the Public Company Oversight Accounting Board (PCOAB), in order to assure the disclosure and accuracy of financial filings (Livingstone, 2003; Botes, 2012). Botes notes these reviews provide a uniform platform for sound financial reporting and act as a deterrent of fraudulent accounting practices (2012). She also stated the PCOAB, under the direction of the SEC, administers regulations and sets principles of accounting standards known as Generally Accepted Accounting Standards or GAAS (2012). Audit firms are inspected by the...
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...Chapter 1 The Role of the Public Accountant True/False Questions 1. Independent audits of today place more emphasis on sampling for compliance with laws and regulations than the audits of the 19th century. Answer: True Difficulty: Medium 2. The American Institute of Certified Public Accountants issues CPA certificates and permits CPAs to practice. Answer: False Difficulty: Medium 3. A company is either audited by the GAO or internal auditors, but not both. Answer: False Difficulty: Easy 4. The SEC does not pass on the merits of the securities that are registered with the agency. Answer: True Difficulty: Medium 5. The American Institute of Certified Public Accountants has the primary authority to establish accounting standards. Answer: False Difficulty: Easy 6. An annual peer review is a requirement of the AICPA. Answer: False Difficulty: Medium 7. Many small companies elect to have their financial statements reviewed by a CPA firm, rather than incur the cost of an audit. Answer: True Difficulty: Easy 8. Staff assistants in CPA firms generally are responsible for planning and coordinating audit engagements. Answer: False Difficulty: Easy Whittington, Principles of Auditing, Fifteenth Edition 1 Chapter 1 The Role of the Public Accountant 9. The Sarbanes-Oxley Act requires that auditors of publicly traded companies in the United States perform an integrated audit that includes providing assurance on both the financial statements and on compliance with laws and regulations...
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...of Directors, Audit Committee From: Joe Gish, CPA RE: Audit Introductory Letter Gentlemen and Ladies: It is with great pleasure that our firm, JK CPA will be conducting the annual audit of Apollo Shoes. This is a tremendous responsibility that JK CPA will undertake in being the auditors for your prestigious firm. Over the next two months, we will conduct various tests of the accounts to determine within reasonable assurance that the financial statements are free from material misstatements. Within two weeks we will send out exactly what we need from the accounting and internal audit department. This way, we want this audit to be as smooth as possible. In addition, we will also send out a detailed engagement letter along with a checklist, which will also contain our plans and goals to accomplish for the audit. I have made sure we have a solid team in place that is well versed in manufacturing and distributing companies such as yours to give you the top auditors in the field, so you can rest assured that JK CPA will cover all of your needs and then some. Once again, thank you for your choice in JK CPA as your auditors we look forward collaborating now and in the years to come. Engagement Letter: John Doe, CFO Apollo Shoes 1234 W. Main Street Anywhere, USA 00000 Dear Mr. Doe, This letter is to confirm our understanding that JK CPA will perform the audit of the financial statements of Apollo Shoes. The primary objective is the audit the financial...
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