...Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements Provided for use with Auditing and Assurance Services: An Integrated Approach, 12th edition Alvin A. Arens, Randal J. Elder, Mark A. Beasley Pearson Prentice Hall, Inc. INTRODUCTION The 12th Edition of Auditing and Assurance Services: An Integrated Approach, includes extensive coverage of key provisions of the Sarbanes-Oxley Act (the Act) and related Public Company Accounting Oversight Board (PCAOB) standards and rules applicable to the audits of financial statements and internal control over financial reporting for public companies. At the time the 12th Edition was released in March 2007, the PCAOB had issued Auditing Standard Nos. 1-4. On May 24, 2007, the PCAOB issued Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements (AS5). Subject to SEC approval, AS5 is effective for audits of fiscal years ending on or after November 15, 2007. AS5 supersedes PCAOB Auditing Standard No. 2 (AS2), An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, which was issued in June 2004. The PCAOB and the Securities and Exchange Commission (SEC) have closely monitored the implementation of AS2 to evaluate the effectiveness of public company auditors in applying the provisions to audits of large public companies...
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...Chapter 10 Internal Control, Control Risk, and Section 404 Audits Review Questions 10-1 Management typically has three broad objectives in designing effective internal controls. 1. Reliability of Financial Reporting Management is responsible for preparing financial statements for investors, creditors, and other users. Management has both a legal and professional responsibility to be sure that the information is fairly presented in accordance with reporting requirements such as GAAP or IFRS. The objective of effective internal control over financial reporting is to fulfill these financial reporting responsibilities. 2. Efficiency and Effectiveness of Operations Controls within an organization are meant to encourage efficient and effective use of its resources to optimize the company’s goals. An important objective of these controls is accurate financial and non-financial information about the entity’s operations for decision making. 3. Compliance with Laws and Regulations Section 404 of the Sarbanes–Oxley Act requires all public companies to issue a report about the operating effectiveness of internal control over financial reporting. In addition to the legal provisions of Section 404, public, nonpublic, and not-for-profit organizations are required to follow many laws and regulations. Some relate to accounting only indirectly, such as environmental protection and civil rights laws. Others are closely related to accounting, such as income...
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...AUDIT PLANNING PSA 200, “Overall Objectives of the independent auditor and the conduct of an audit in accordance with Philippine Standards on Auditing” “The auditor should plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated.” * Overall Strategy * Audit plan Preliminary Audit Engagement 1. Perform procedures regarding the continuance of the client relationship and the specific audit engagement 2. Evaluate compliance with ethical requirements, including independence. 3. Establish an understanding of the term of engagement. Benefits of Audit Planning 1. It helps ensure that appropriate attention is devoted to important areas of the audit. 2. It aids in identifying potential problems and resolving them on a timely basis. 3. It helps ensure that the audit is properly organized, managed and performed in an effective and efficient manner. 4. It assists in the proper assignment and review of the work of the engagement team members. 5. It helps coordinate the work to be done by auditors of components and other parties involved such as experts, specialists, etc. The Overall Audit Strategy sets the Scope, Timing & Direction of the Audit SCOPE 1. The financial reporting framework 2. Industry specific reporting requirements, and 3. The locations of the components of the entity. TIMING 1. Deadlines for interim...
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...need to know about SSA SSA 200: Objective and General Principles Governing an Audit of Financial Statements 2 SSA 300: Planning an Audit of Financial Statements 3 SSA 500: Audit Evidence 4 SSA 520: Analytical Procedures 5 SSA 580: Management Representations 6 SSA 315: Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement (PART 1) 6 SSA 315: Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement (PART 2) 8 SSA 320: Audit Materiality 8 SSA 330: The Auditor’s Procedures in Response to Assessed Risks (PART 1) 9 SSA 330: The Auditor’s Procedures in Response to Assessed Risks (PART 2) 10 SSA 620: Using the Work of an Expert 11 SSA 240: The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (PART 1) 12 SSA 240: The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (PART 2) 13 SSA 240: The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (PART 3) 14 SSA 240: The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (PART 4) 15 SSA 250: Consideration of Laws and Regulations in an Audit of Financial Statements (PART 1) 16 SSA 250: Consideration of Laws and Regulations in an Audit of Financial Statements (PART 2) 17 SSA 505: External Confirmations 18 SSA 540: Audit of Accounting Estimates 19 SSA 501: Audit Evidence – Additional Considerations for Specific Items 21 SSA 545: Summary...
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...personnel, designed to provide reasonable assurance regarding, achievement of (the entity’s) objectives on: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. 7-2 Control Objectives In each area of internal control (financial reporting, operations and compliance) Control objectives and Sub objectives exist Foreign Corrupt Practices Act Passed in 1977 in response to American corporation practice of paying bribes and kickbacks to officials in foreign countries to obtain business The Act Requires an effective system of internal control Makes illegal payment of bribes to foreign officials Example: Area of financial reporting Top level objective – prepare and issue reliable financial information Detailed level applied to A/R sub objectives • All goods shipped are accurately billed in the proper period • Invoices are accurately recorded for all authorized shipments and only for such shipments • Authorized and only authorized sales returns and allowances are accurately recorded • The continued completeness and accuracy of A/R is ensured • Accounts receivable records are safeguarded 7-3 7-4 Controls over Financial Reporting Preventive Aimed at avoiding the occurrence of misstatements in the financial statements Example: Segregation of duties Detective Designed to discover misstatements after they...
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...range following each area represents the approximate percentage of total test questions associated with the area. The ranges are designed to provide flexibility in building the examination, and the midpoints of the ranges for all areas in each section total 100%. The examination questions will be selected from each area to fall within the percentage allocation range. No percentages are given for groups or topics. The presence of several groups within an area or several topics within a group does not imply equal importance or weight will be given to these groups or topics on an examination. Auditing and Attestation (AUD) The Auditing and Attestation section tests knowledge and understanding of the following professional standards: Auditing standards promulgated in the United States of America (related to audits of an “Issuer” (a public company), a “Nonissuer” (an entity that is not a public company),...
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...Statement Audit 1719 AU Section 316 Consideration of Fraud in a Financial Statement Audit (Supersedes SAS No. 82.) Source: SAS No. 99; SAS No. 113. Effective for audits of financial statements for periods beginning on or after December 15, 2002, unless otherwise indicated. Introduction and Overview .01 Section 110, Responsibilities and Functions of the Independent Auditor, paragraph .02, states, "The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. [footnote omitted]"1 This section establishes standards and provides guidance to auditors in fulfilling that responsibility, as it relates to fraud, in an audit of financial statements conducted in accordance with generally accepted auditing standards (GAAS).2 .02 The following is an overview of the organization and content of this section: • • • Description and characteristics of fraud. This section describes fraud and its characteristics. (See paragraphs .05 through .12.) The importance of exercising professional skepticism. This section discusses the need for auditors to exercise professional skepticism when considering the possibility that a material misstatement due to fraud could be present. (See paragraph .13.) Discussion among engagement personnel regarding the risks of material misstatement due to fraud. This section requires, as part of planning the audit, that there...
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...CHAPTER 6 INTERNAL CONTROL IN A FINANCIAL STATEMENT AUDIT Answers to Review Questions 6-1 From management's perspective, the internal control provides a way to meet its stewardship or agency responsibilities. Management also needs a control system that generates reliable information for decision-making purposes. The importance of internal control to the auditor is rooted in the second standard of fieldwork. The controls that are relevant to the entity's ability to initiate, record, process, and report financial data consistent with management's assertions are the auditor's main concern. The auditor needs assurances about the reliability of the data generated within the entity's internal control system in terms of how it affects the fairness of the financial statements and how well the assets and records of the entity are safeguarded. 6-2 The potential benefits and risks to an entity’s internal control from information technology include (see Table 6-1): Benefits: • Consistent application of predefined business rules and performance of complex calculations in processing large volumes of transactions or data. • Enhancement of the timeliness, availability, and accuracy of information. • Facilitation of additional analysis of information. • Enhancement of the ability to monitor the performance of the entity's activities and its policies and procedures. • Reduction in the risk that controls will be circumvented. ...
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...Planning the Audit Process I wanted to let you know that Apollo Shoes is satisfied with our services and wants to continue with a full audit. Therefore I wanted to explain to you how I plan to conduct the audit. I will begin with an explanation of the objectives, responsibilities and strategies for completing the audit. This will be followed by explanations on how analytical procedures will be used to plan, conduct and complete the audit, how materiality and risk will be consider in designing the audit and how technology will be incorporated into the audit. The objective in conducting an audit are to obtain reasonable assurance about whether Apollo Shoe’s financial statements as a whole are free from material misstatement, whether due to fraud or error; allowing us to express an opinion that the financial statements are presented fairly, and in accordance with an applicable financial reporting framework. (Arens, J., & & Beasley, 2014) We have a responsibility to conduct this audit in accordance with established standards. These standards indicate that we should have a high, but not absolute, level of assurance that Apollo Shoe’s financial statements are free of material misstatements. However, it is possible that even when we conduct their audit in accordance with standards, we may fail to detect a material misstatement. Therefore, we have a responsibility to work to overcome judgment biases and to continually remind ourselves of the importance of maintaining appropriate...
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...March 2012 This Auditing and Assurance Bulletin has been prepared by Auditing and Assurance staff. It has not been issued under the authority of the Auditing and Assurance Standards Board (AASB). This Auditing and Assurance Bulletin is intended to help raise practitioners’ awareness in a timely manner of significant new or emerging issues or other noteworthy circumstances related to engagements addressed by the AASB pronouncements. It is also meant to direct practitioners to relevant requirements, application and other explanatory material in the CICA Handbook – Assurance. auditing and assurance FOR PUBLIC ACCOUNTANTS PERFORMING AUDIT AND REVIEW ENGAGEMENTS BULLETIN Staff contact Chi Ho Ng, CA, CPA(IL), MBA Principal Auditing and Assurance Standards Department 277 Wellington Street West Toronto, ON M5V 3H2 Tel: (416) 204-3443 E-mail: chiho.ng@cica.ca Fax : (416) 204-3408 Auditing Considerations in an Uncertain Economic Environment Uncertainties in the current economic environment There is a possibility that the Canadian economy may weaken in the near term. This has been noted in various sources, including the economic forecast for Canada issued by the Organization for Economic Co-operation and Development. Heightened risks from renewed financial-market turmoil linked to the European sovereign debt crisis and high levels of household indebtedness are eroding consumer confidence. In January 2009, staff of the Auditing and Assurance Standards Board (AASB) issued...
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...the walkthrough; and * Document the procedures performed and the information gathered during the walkthrough. INSTRUCTIONS Statement on Auditing Standards No. 109 (SAS-109), Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, requires that the auditor: …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. To obtain an understanding, the auditor should evaluate the design of controls and determine whether they have been implemented. Several types of audit procedures may be performed, such as: * Observation of entity activities and operations. * Inspection of documents (e.g., business plans and strategies), records, and internal control manuals. * Reading reports prepared by management (e.g., quarterly management reports and interim financial statements), by those charged with governance (e.g., minutes of board of directors’ meetings), and by internal audit. * Visits to the entity’s premises and plant facilities. * Tracing transactions through the information system relevant to financial reporting, which may be performed as part of a walkthrough. The auditor may either use this form to document walkthrough procedures or document procedures at AID-402 in a separate narrative,...
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...To: Outside CPAs From: CPA Date: November 12, 2012 Subject: Professional responsibilities as a Certified Public Accountant (CPA), difference between a review and an audit; explanations regarding deferred tax methods, accounting changes and error corrections, and establishing a subsidiary as a corporation. CC: manager It has come to my attention that my expertise is warranted for the explanations on the following topics: the methodology used in determining deferred taxes, procedures required for reporting accounting changes and error corrections, and the rationale behind establishing a subsidiary as a corporation. CPA Professional Responsibilities and Roles I am delighted that you seek my expertise in these topics. I want to first give you a brief overview of my professional responsibilities and role as a CPA for this company. As a licensed CPA by the Tennessee State Board of Accountancy (TNSBA), and a current member of the American Institute of Certified Public Accountants (AICPA), I am required to uphold and practice with a level of ethical conduct. I ensure that I have the required educational background and experience, and continue to maintain updated educational recaps every three years. According to the Code of Professional Conduct, members are to have “…a continuous responsibility to cooperate with each other to improve the art of accounting” (AICPA, 2012, para. 1). I am responsible...
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...Audit Group Project 1a. The transition between predecessor auditor and successor auditor is governed by AU Section 315. It details a list of responsibilities on each side prior to the acceptance of the audit. The predecessor auditor is considered the one who reported on the most recent audited financial statements or was engaged to perform this audit but did not complete it. The successor is an auditor who is considering accepting an engagement to audit financial statements. (AU 315.02) The successor auditor is required to communicate with the predecessor auditor prior to accepting an audit engagement, though they can make a proposal prior to communications and inform the client that acceptance is conditional on evaluating this communication. (AU 315.03) If there is more than one auditor bidding for the engagement, the predecessor auditor is not required to communicate until the engagement has been accepted subject to review of the communications. (AU 315.05) Responsibility for initiating communication rests on the successor auditor. (AU 315.06) The successor auditor requests permission from the client to communicate with the predecessor auditor. This is required as the predecessor auditor cannot discuss confidential information from the engagement without consent of the client. If the client does not give this information or does not allow full disclosure the successor auditor needs to inquire as to the reason and consider this when deciding to accept an engagement...
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...are not just “approximations.” c. When searching for and evaluating evidence auditors must be concerned about the reliability and relevance of the evidence that they are utilizing in their reports. Otherwise, invalid derivations and conclusions will be reached in regards to the management’s assertions. Furthermore, the reliability of the evidence that they use will attest as to the ability of such evidence to show the real state of their assertions. 1-27: a. There are many phases to an audit that is to be evaluated and executed properly. First of all, auditors must determine if they are going to accept a new client or continue with a client that is already using them for their services, which is known as “client acceptance/continuance.” Next, they will have to consider the “preliminary engagement activities” to ascertain the requirements of the auditing team that will have to be met, establish the independence of the team and the firm in general, and gain a clear understanding with their client as to the services that will be completed and any other...
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...Compliance Management Framework and Procedures Document data: | Document type: | Framework and Procedures | Administering entity: | Audit and Risk Directorate | Records management system number: | D12/50959 | Date approved: | 4th October 2012 | Approved by: | Vice-Chancellor | Indicative time for review: | Maximum 2 years from approval date | Responsibility for review: | Audit and Risk Directorate | Related policies or other documents: | Compliance Policy | | Risk Management Policy and Guidelines | | Code of Conduct | | Records Management Policy | | AS3806- 2006 Compliance programs | Staff contact for advice: | Legal Counsel and Executive Director of GovernanceDirector Audit and Risk | Revision history: | | * Table of Contents Section 1 : Compliance Management Framework 4 1. Purpose 4 2. Scope 4 3. Compliance Management Introduction 4 4. The Policy 7 5. Risk Management 7 6. Compliance Management Process 8 7. Responsibility and Accountability Structure 9 7.1 Overview 9 7.2 Council 9 7.3 Vice-Chancellor and CEO 10 7.4 Executive Management 10 7.5 Managers 11 7.6 Audit and Risk Directorate (ARD) 11 7.7 Employees 12 8. Reporting Responsibilities 12 8.1 Annual Reporting 12 8.2 Obligations Register 12 8.3 Breach reporting and management 13 8.4 External Reporting Requirements 13 9. Annual Compliance Management Calender 14 Section 2 : Compliance Management Operating Procedure...
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