Transcript Day One
Chapter Two The CPA Profession just skim the section on Generally Accepted Auditing Standards Page 32-36 Auditing April 3, 2014 1 Auditing April 3, 2014 2 Bradley What are the characteristics of a Limited Liability Company, an LLC? Auditing April 3, 2014 3 LLC Taxed like a general partnership Limits the owners’ personal liability similar to a corporation Auditing April 3, 2014 4 Ian -- do we even have an Ian What are the characteristics of a Limited Liability Partnership, an LLP? Auditing April 3, 2014 5 LLP Taxed like a general partnership Partners are not personally liable for negligent acts of other partners and employees not under their supervision Partners are personally liable for their own actions and the negligent acts of employees under their supervision Auditing April 3, 2014 6 Ron GAAS GAAP Which refers to Accounting Standards ? Which refers to Auditing Standards ? Auditing April 3, 2014 7 Steven Name of the organization(s) which creates Accounting Standards ? Name of the organization(s) which creates Auditing Standards ? Auditing April 3, 2014 8 GAAP FASB primary source GAAS PCAOB (public companies) aicpa ASB (private companies) Auditing April 3, 2014 9 Auditing April 3, 2014 10 FASB Codification ASU Accounting Standards Updates Auditing Effective July 1, 2009, changes to the source of authoritative U.S. GAAP, the FASB Accounting Standards Codification, are communicated through an Accounting Standards Update (ASU). ASUs will be published for all authoritative U.S. GAAP promulgated by the FASB, April 3, 2014 11 FASB Accounting Standards Codification The Codification is the single source of authoritative nongovernmental U.S. GAAP. The Codification is effective for periods ending after September 15, 2009. All previous level (a)-(d) US GAAP standards issued by a standard setter are superseded. Level (a)-(d) US GAAP refers to the previous accounting hierarchy. All other accounting literature not included in the Codification will be considered nonauthoritative. Auditing April 3, 2014 12 Organizations Securities Exchange Commission Public Companies Accounting Oversight Board Financial Accounting Standards Board American Institute of Certified Public Accountants State Board of Accountancy California Society of CPAs Auditing April 3, 2014 13 Organizations SEC PCAOB FASB American Institute of Certified Public Accountants California Board of Accountancy Auditing April 3, 2014 14 GAAP FASB FAS ASC 310-10-25-3 ASU GAAS **public** PCAOB AS Auditing **private** AICPA SAS April 3, 2014 15 Amy What is the Sarbanes Oxley Act of 2002? Auditing April 3, 2014 16 Michael G What is the overall objective of an audit? Auditing April 3, 2014 17 Overall Objective AU-C Section 200 Overall Objectives of the Independent Auditor and Conduct of an Audit in .11 The overall objectives of the auditor, in conducting an audit of financial statements, are to a. obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor's findings. Auditing April 3, 2014 18 Objectives AU-C 200 Overall Objective of the Independent Auditor and Conduct of an Audit in Accordance with Generally Accepted Auditing Standards AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement AU-C 500 Audit Evidence AU-C 700 Forming an Opinion and Reporting on Financial Statements Code of Professional Conduct Objectivity and Independence Auditing April 3, 2014 19 Lindsey What is the objective of AU-C 315? Auditing April 3, 2014 20 AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement .03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement. Auditing April 3, 2014 21 AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained .03 The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks. Auditing April 3, 2014 22 Derek What is the objective of AU-C 500? Auditing April 3, 2014 23 AU-C 500 Audit Evidence .04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion. Auditing April 3, 2014 24 Nataliewhite What is the objective of AU-C 700? Auditing April 3, 2014 25 AU-C 700 Forming an Opinion and Reporting on Financial Statements .10 The objectives of the auditor are to a. form an opinion on the financial statements based on an evaluation of the audit evidence obtained, including evidence obtained about comparative financial statements or comparative financial information, and b. express clearly that opinion on the financial statements through a written report that also describes the basis for that opinion. Auditing April 3, 2014 26 Auditing April 3, 2014 27 Auditing April 3, 2014 28 Kelly S What are the four paragraphs in an unmodified opinion? Auditing April 3, 2014 29 Independent Auditor’s Report Report on the Financial Statements Management’s Responsibility for the Financial Statements Auditor’s Responsibility Basis for XXXX Opinion (if a modified opinion) Auditor’s Opinion Emphasis-of-Matter / Other-Matter Signature of the Auditor (city, state and date) Auditing April 3, 2014 30 Jacob In which paragraph does the auditor “express an opinion” regarding the financial statements?” Auditing April 3, 2014 31 Independent Auditor’s Report Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. [Auditor's signature, city and state, date of report] Auditing April 3, 2014 32 Jamey Which paragraph discusses “the degree of responsibility the auditor is taking ?” Auditing April 3, 2014 33 Independent Auditor’s Report Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. [Auditor's signature, city and state, date of report] Auditing April 3, 2014 34 Ross Which paragraph discusses “management’s responsibility ?” Auditing April 3, 2014 35 Independent Auditor’s Report Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Auditing [Auditor's signature, city and state, date ofApril report] 3, 2014 36 Danielle Which paragraph “describes the characteristics of the auditor’s work?” Auditing April 3, 2014 37 Independent Auditor’s Report Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of Our responsibility is to express an opinion on these financial statements based on our audit. the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. [Auditor's signature, city and state, date of report] Auditing April 3, 2014 38 Sumeet Where in the auditor’s report does it state whether the financial statements are presented in accordance with generally accepted accounting principles Auditing April 3, 2014 39 Independent Auditor’s Report Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above [Auditor's signature, city and state, date of report] Auditing April 3, 2014 40 Brian What four different opinions can an auditor can issue for an audit ? Auditing April 3, 2014 41 AUDIT REPORTS Unmodified handouts -fairly presented Qualified -fairly presented ‘except for’ a very Adverse -don’t conform to GAAP limited number of conditions where the statement’s don’t conform to GAAP Qualified -fairly presented ‘except for’ a very limited number of situations where the audit procedures were unable to satisfy GAAS Disclaimer Auditing -Scope limitation – unable to audit April 3, 2014 42 AU-C 220 Quality Control of .. Leadership Responsibilities Ethical Requirements Responsibilities Integrity Due care The public interest Objectivity and independence Acceptance and Continuation of clients Assignment of Engagement Teams Engagement Performance direction, supervision & performance Review Consultation Engagement Quality Control Review Monitoring Documentation Auditing April 3, 2014 43 Important Selected Objectives Unmodified Auditor’s Report Management’s Assertions p. 59 Auditing April 3, 2014 44 Objectives AU-C 200 Overall Objective of the Independent Auditor and Conduct of an Audit in Accordance with Generally Accepted Auditing Standards AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement AU-C 500 Audit Evidence AU-C 700 Forming an Opinion and Reporting on Financial Statements Code of Professional Conduct Objectivity and Independence Auditing April 3, 2014 45 Independent Auditor’s Report Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. [Auditor's signature, city and state, date of report] Auditing April 3, 2014 46 Auditing April 3, 2014 47 Auditing April 3, 2014 48 role of audits in capital markets stockholders board of directors management auditors Auditing April 3, 2014 49 stockholders board of directors audit comm compensation comm managment comm ind auditor managment Auditing April 3, 2014 50 Auditing April 3, 2014 51 Auditing April 3, 2014 52 Auditing April 3, 2014 53 Auditing April 3, 2014 54 Independent Auditor’s Report Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. [Auditor's signature, city and state, date of report] Auditing April 3, 2014 55 AU-C Section 200 Overall Objectives of the Independent Auditor and Conduct of an Audit in Accordance with Generally Accepted Auditing Standards .11 The overall objectives of the auditor, in conducting an audit of financial statements, are to a. obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor's findings. AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement .03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement. AU-C 315 Performing Audit Procedures in Response to Assessed Risks and Evaluating the audit Evidence Obtained .03 The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks. AU-C 500 Audit Evidence .04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion. Auditing April 3, 2014 56