Questions and Answers
What is the difference between generally accepted accounting principles (GAAP) and AICPA generally accepted auditing standards (GAAS)?
GAAP tries to have some standards while GAAS is more of the framework.
If a CPA firm completes a nonpublic company audit of Adam Company's financial statements following the AICPA generally accepted auditing standards and is satisfied with the results of the audit, an unmodified audit report may be issued.
True
If no audit is performed of the current year's financial statements, the CPA firm can still issue a qualified report based on prior satisfactory audits.
False
What is the meaning of quality control as it relates to the operation of a CPA firm?
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What is peer review in the context of a CPA firm?
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Peer review is required for CPA firms.
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What are Reed's responsibilities regarding Smith's errors and fraud?
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What is Reed's responsibility to detect Smith's material noncompliance with laws?
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What responsibilities does Reed have to report Smith's noncompliance with laws?
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Which of the following organizations can revoke the right of an individual to practice as a CPA? (Select all that apply)
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Which of the following standards are currently established by the AICPA? (Select all that apply)
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Which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available? (Select all that apply)
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Which of the following is not explicitly included in a standard report for a nonpublic company? (Select all that apply)
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What is the basic objective of a CPA firm in providing professional services? (Select all that apply)
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Financial statements audits performed under PCAOB requirements are designed to provide reasonable assurance with respect to the detection of material misstatements due to errors or fraud.
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Which of the following is not included in an integrated audit report on the financial statements of a public company? (Select all that apply)
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Audit firms that are subject to inspections by the PCAOB staff include: (Select all that apply)
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Study Notes
Differences between GAAP and GAAS
- GAAP establishes standards for accounting practices, while GAAS serves as a framework for auditing.
Audit Reporting for Nonpublic Companies
- An unmodified audit report may be issued if a CPA firm follows GAAS and is satisfied with the audit results.
- No audit for the current year, even with past satisfactory audits, cannot justify issuing a qualified report; an audit is necessary to assess the current situation.
Quality Control and Peer Review in CPA Firms
- Quality control refers to the internal policies and procedures that ensure the firm meets professional standards.
- Peer review evaluates the effectiveness of a firm's quality control policies and practices.
- Peer review is a mandatory requirement for CPA firms to maintain quality and compliance.
Auditor Responsibilities
- Reed, CPA, must detect errors and potential fraud in Smith Company's financial statements by understanding the overall company operations during the audit.
- Responsibility to detect material noncompliance with laws entails an obligation to be aware of relevant laws and how they apply to the audit.
- Reed must report any detected noncompliance issues to ensure compliance and adherence to regulations.
Revocation of CPA Practice Rights
- Only the applicable state board of accountancy has the authority to revoke a CPA's license to practice.
AICPA Standards
- AICPA is responsible for establishing auditing standards applicable to nonpublic company audits.
- The AICPA does not set quality control standards for audits of public companies.
Nonauthoritative Guidance from FASB
- FASB Concepts Statements are considered a nonauthoritative source of guidance when authoritative guidance is absent.
Assurance in Financial Statement Audits
- PCAOB audits aim to provide reasonable assurance about the detection of material misstatements due to errors or fraud.
Quality Control Assurance
- A system of quality control within a CPA firm offers reasonable assurance that professional services align with established standards.
Content of Audit Reports
- Internal control is not explicitly mentioned in the standard report for nonpublic companies, unlike auditors' opinions and adherence to auditing standards.
Maintaining Independence in Auditing
- A mental attitude of independence is required from auditors, which is a key component of the PCAOB auditing standards.
AICPA Quality Control Standards
- Maintaining records of partners or employees previously employed by the firm's clients satisfies relevant ethical requirements in AICPA quality control standards.
Audit Report Differences
- Integrated audit reports for public companies conform to PCAOB standards, not AICPA standards.
- PCAOB inspections apply only to audit firms that are registered with the PCAOB.
International Audit Report Differences
- The international audit report differs from the AICPA audit report by including specific phrases, presentation formats, and requirements, such as the need for an opinion on internal control.
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Description
Test your understanding of key concepts in Auditing, specifically focusing on the distinctions between GAAP and GAAS. This set of flashcards will also challenge you with real-world scenarios related to auditing nonpublic companies. Perfect for students looking to solidify their grasp on auditing standards.
