Podcast
Questions and Answers
A financial statement audit covers 4 basic financial statements. What are they listed in their natural order?
A financial statement audit covers 4 basic financial statements. What are they listed in their natural order?
- Balance Sheet 2. Income Statement 3. Statement of Retained Earnings 4. Statement of Cash Flows
CPA firms are required to have a peer review done if they are members of the American Institute of Certified Public Accountants
or the Public Company Accounting Oversight Board. Define, in your own words, the objective of a peer review and the process of completing
one.
CPA firms are required to have a peer review done if they are members of the American Institute of Certified Public Accountants or the Public Company Accounting Oversight Board. Define, in your own words, the objective of a peer review and the process of completing one.
The objective of a peer review for CPA firms is to ensure that they are maintaining high standards of quality in their accounting and auditing practices. This process involves having an independent evaluator, typically another CPA firm, review the firm's work and procedures. The evaluator assesses the firm's compliance with professional standards, ethical guidelines, and regulatory requirements. They examine the firm's audit engagements, documentation, quality control systems, and overall adherence to best practices. The peer review process aims to enhance the quality and credibility of CPA firms' services by identifying areas for improvement and ensuring consistency in practice standards.
Public Companies must file required forms through EDGAR. What are the most important forms, subjected to the reporting
provisions of the Securities Act, required to be filed with the SEC? Give detail as to what is included on/in the form.
Public Companies must file required forms through EDGAR. What are the most important forms, subjected to the reporting provisions of the Securities Act, required to be filed with the SEC? Give detail as to what is included on/in the form.
Form 10-K: This is the annual report filed by companies with the SEC. It provides a comprehensive overview of the company's financial performance, including audited financial statements, management's discussion and analysis (MD&A), and disclosures about the company's business, risks, and operations.
Form 10-Q: This is the quarterly report filed by companies with the SEC. It provides condensed financial statements and interim financial information, along with MD&A and disclosures about significant events or changes affecting the company during the quarter.
Form 8-K: This is the report filed by companies to announce significant events or changes that are of interest to investors. It includes disclosures about events such as acquisitions or dispositions of assets, changes in management or corporate governance, or amendments to the company's articles of incorporation.
Explain the purpose of the Code of Professional Conduct for the accounting profession.
Explain the purpose of the Code of Professional Conduct for the accounting profession.
Signup and view all the answers
What are the six principles outlined in the Code of Professional Conduct?
What are the six principles outlined in the Code of Professional Conduct?
Signup and view all the answers
Explain the importance of confidentiality in the accounting profession, and provide an example of how an auditor should protect confidential information.
Explain the importance of confidentiality in the accounting profession, and provide an example of how an auditor should protect confidential information.
Signup and view all the answers
Why is it important for accountants to maintain professional behavior, and give an example of conduct that could discredit the profession.
Why is it important for accountants to maintain professional behavior, and give an example of conduct that could discredit the profession.
Signup and view all the answers
What are generally accepted accounting principles (GAAP), and why is it important for accountants to comply with technical standards like GAAP?
What are generally accepted accounting principles (GAAP), and why is it important for accountants to comply with technical standards like GAAP?
Signup and view all the answers
Provide an example of how an auditor should follow auditing standards issued by professional bodies like the PCAOB or AICPA.
Provide an example of how an auditor should follow auditing standards issued by professional bodies like the PCAOB or AICPA.
Signup and view all the answers
What is the purpose of a code of professional conduct in the accounting profession, and why is it important?
What is the purpose of a code of professional conduct in the accounting profession, and why is it important?
Signup and view all the answers
Explain the concept of professional skepticism and why it is essential for auditors to exercise professional skepticism during an audit engagement.
Explain the concept of professional skepticism and why it is essential for auditors to exercise professional skepticism during an audit engagement.
Signup and view all the answers
Provide an example scenario that demonstrates the principle of integrity in the accounting profession.
Provide an example scenario that demonstrates the principle of integrity in the accounting profession.
Signup and view all the answers
How can an auditor maintain objectivity when evaluating a client's financial statements?
How can an auditor maintain objectivity when evaluating a client's financial statements?
Signup and view all the answers
Explain the importance of professional competence and due care in the accounting profession.
Explain the importance of professional competence and due care in the accounting profession.
Signup and view all the answers
How can an auditor ensure they maintain professional competence when assessing a client's financial statements?
How can an auditor ensure they maintain professional competence when assessing a client's financial statements?
Signup and view all the answers
Describe a scenario where an accountant may face a conflict of interest that could compromise their objectivity.
Describe a scenario where an accountant may face a conflict of interest that could compromise their objectivity.
Signup and view all the answers
What steps can an accounting firm take to promote the principle of confidentiality among its employees?
What steps can an accounting firm take to promote the principle of confidentiality among its employees?
Signup and view all the answers
Identify the correct description to the Presentation and Disclosure-Related Audit Objective:
Identify the correct description to the Presentation and Disclosure-Related Audit Objective:
Signup and view all the answers
What are the 8 major steps performing the initial planning of the audit?
What are the 8 major steps performing the initial planning of the audit?
Signup and view all the answers
Why is it important for accountants to uphold integrity in all professional and business relationships?
Why is it important for accountants to uphold integrity in all professional and business relationships?
Signup and view all the answers
How should accountants ensure objectivity when evaluating financial statements?
How should accountants ensure objectivity when evaluating financial statements?
Signup and view all the answers
What is the significance of maintaining professional competence and due care in the practice of accounting?
What is the significance of maintaining professional competence and due care in the practice of accounting?
Signup and view all the answers
What are the key principles outlined in the Code of Professional Conduct for the accounting profession?
What are the key principles outlined in the Code of Professional Conduct for the accounting profession?
Signup and view all the answers
Why is confidentiality important in the accounting profession?
Why is confidentiality important in the accounting profession?
Signup and view all the answers
Provide an example of a situation where an accountant may face a conflict of interest jeopardizing their objectivity.
Provide an example of a situation where an accountant may face a conflict of interest jeopardizing their objectivity.
Signup and view all the answers
Why is it important for accountants to comply with technical standards like GAAP?
Why is it important for accountants to comply with technical standards like GAAP?
Signup and view all the answers
Give an example of conduct that could discredit the accounting profession.
Give an example of conduct that could discredit the accounting profession.
Signup and view all the answers
What is the significance of maintaining professional behavior in the accounting profession?
What is the significance of maintaining professional behavior in the accounting profession?
Signup and view all the answers
How can an auditor promote the principle of confidentiality among its employees?
How can an auditor promote the principle of confidentiality among its employees?
Signup and view all the answers
Why is exercising professional skepticism essential for auditors during an audit engagement?
Why is exercising professional skepticism essential for auditors during an audit engagement?
Signup and view all the answers
Provide an example scenario that demonstrates the principle of integrity in the accounting profession.
Provide an example scenario that demonstrates the principle of integrity in the accounting profession.
Signup and view all the answers
Elaborate on each step for the auditor’s objective in achieving the above essential elements.Discuss in detail what each step consists of and give an example for each.
- Accept the client and perform initial audit planning.
Elaborate on each step for the auditor’s objective in achieving the above essential elements.Discuss in detail what each step consists of and give an example for each.
- Accept the client and perform initial audit planning.
Signup and view all the answers
Elaborate on each step for the auditor’s objective in achieving the above essential elements.Discuss in detail what each step consists of and give an example for each
2. Understand the client's business and industry
Elaborate on each step for the auditor’s objective in achieving the above essential elements.Discuss in detail what each step consists of and give an example for each 2. Understand the client's business and industry
Signup and view all the answers
Elaborate on each step for the auditor’s objective in achieving the above essential elements.Discuss in detail what each step consists of and give an example for each.
3. Assess client business risk
Elaborate on each step for the auditor’s objective in achieving the above essential elements.Discuss in detail what each step consists of and give an example for each. 3. Assess client business risk
Signup and view all the answers
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss
in detail what each step consists of and give an example for each.
4. Perform preliminary analytical procedures
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss in detail what each step consists of and give an example for each. 4. Perform preliminary analytical procedures
Signup and view all the answers
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss
in detail what each step consists of and give an example for each.
- Set materiality levels and assess acceptable audit risk and inherent risk
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss in detail what each step consists of and give an example for each.
- Set materiality levels and assess acceptable audit risk and inherent risk
Signup and view all the answers
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss
in detail what each step consists of and give an example for each.
- Understand internal control and assess control risk
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss in detail what each step consists of and give an example for each.
- Understand internal control and assess control risk
Signup and view all the answers
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss
in detail what each step consists of and give an example for each.
7. Gather information to assess fraud risks
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss in detail what each step consists of and give an example for each. 7. Gather information to assess fraud risks
Signup and view all the answers
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss
in detail what each step consists of and give an example for each.
8. Develop overall audit plan and program
Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss in detail what each step consists of and give an example for each. 8. Develop overall audit plan and program
Signup and view all the answers
The company segregates the duties for authorizing, approving customer credit, shipping merchandise, and accounting for all sales transactions. They have different employees for each duty noted.
Which management assertions apply to this control? Existence & Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
The company segregates the duties for authorizing, approving customer credit, shipping merchandise, and accounting for all sales transactions. They have different employees for each duty noted. Which management assertions apply to this control? Existence & Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
Every month, the accounting manager reconciles the accounts receivable master file to the general
ledger.
Which of the following 4 management assertions apply to this control? Existence & Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Every month, the accounting manager reconciles the accounts receivable master file to the general ledger. Which of the following 4 management assertions apply to this control? Existence & Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
The computer is programmed to verify the customer order clerk's assigned password
before any sales data can be inputted.
Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
The computer is programmed to verify the customer order clerk's assigned password before any sales data can be inputted. Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
Years ago, the company purchased a software package that was used by other companies
in the same industry (it was not a specially made software). It was sold by a leading
software company known for their highly rated products.
Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Years ago, the company purchased a software package that was used by other companies in the same industry (it was not a specially made software). It was sold by a leading software company known for their highly rated products. Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
- The computer assigns a number to every sales invoice.
Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
- The computer assigns a number to every sales invoice. Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
The accounts receivable employee matches every invoice with the delivery receipts and accounts for them in numerical .sequenceWhich of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
The accounts receivable employee matches every invoice with the delivery receipts and accounts for them in numerical .sequenceWhich of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
Monthly statements are mailed to customers.Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Monthly statements are mailed to customers.Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
The computer assigns a number to every delivery receipt. Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
The computer assigns a number to every delivery receipt. Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
All sales returns are approved by the vice president of sales.Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
All sales returns are approved by the vice president of sales.Which of the following 4 management assertions apply to this control? Existence and Occurence, Rights and Obligations, Completeness, Valuation or Measurement.
Signup and view all the answers
Distinguish between an actual liability and a contingent liability.
Distinguish between an actual liability and a contingent liability.
Signup and view all the answers
Which of the following is NOT a common type of contingent liability?
Which of the following is NOT a common type of contingent liability?
Signup and view all the answers
Which of the following aspects of a contingent liability is LEAST important in determining its accounting treatment?
Which of the following aspects of a contingent liability is LEAST important in determining its accounting treatment?
Signup and view all the answers
A company is facing a pending lawsuit alleging breach of contract. Which of the following is the LEAST important factor in determining the accounting treatment for this contingent liability?
A company is facing a pending lawsuit alleging breach of contract. Which of the following is the LEAST important factor in determining the accounting treatment for this contingent liability?
Signup and view all the answers
Which of the following is the LEAST common type of contingent liability?
Which of the following is the LEAST common type of contingent liability?
Signup and view all the answers
Which of the following is the LEAST important factor in determining the accounting treatment for a contingent liability?
Which of the following is the LEAST important factor in determining the accounting treatment for a contingent liability?
Signup and view all the answers
Which of the following is NOT a key characteristic of a contingent liability?
Which of the following is NOT a key characteristic of a contingent liability?
Signup and view all the answers
According to the passage, what is the main difference in how GAAP and IFRS treat contingent liabilities?
According to the passage, what is the main difference in how GAAP and IFRS treat contingent liabilities?
Signup and view all the answers
Under GAAP, which of the following best describes the accounting treatment for a contingent liability with a high probability of occurrence?
Under GAAP, which of the following best describes the accounting treatment for a contingent liability with a high probability of occurrence?
Signup and view all the answers
What is a key aspect of recognizing and accounting for contingent liabilities according to the passage?
What is a key aspect of recognizing and accounting for contingent liabilities according to the passage?
Signup and view all the answers
How do companies manage contingent liabilities according to the passage?
How do companies manage contingent liabilities according to the passage?
Signup and view all the answers
What change in accounting standards has the IASB proposed regarding the treatment of certain contingent liabilities?
What change in accounting standards has the IASB proposed regarding the treatment of certain contingent liabilities?
Signup and view all the answers
According to the passage, what is the main reason for the different treatment of contingent liabilities under GAAP and IFRS?
According to the passage, what is the main reason for the different treatment of contingent liabilities under GAAP and IFRS?
Signup and view all the answers
Explain the purpose and significance of the Opinion Paragraph in an auditor's report.
Explain the purpose and significance of the Opinion Paragraph in an auditor's report.
Signup and view all the answers
What is the role of the Auditor's Responsibility Paragraph in an auditor's report?
What is the role of the Auditor's Responsibility Paragraph in an auditor's report?
Signup and view all the answers
Describe the purpose of the Management's Responsibility Paragraph in an auditor's report.
Describe the purpose of the Management's Responsibility Paragraph in an auditor's report.
Signup and view all the answers
What is the significance of the Introductory Paragraph in an auditor's report?
What is the significance of the Introductory Paragraph in an auditor's report?
Signup and view all the answers
Explain the purpose of the Addressee section in an auditor's report.
Explain the purpose of the Addressee section in an auditor's report.
Signup and view all the answers
What is the significance of the Title in an auditor's report?
What is the significance of the Title in an auditor's report?
Signup and view all the answers
According to the passage, what is the purpose of an unmodified (clean) opinion audit report?
According to the passage, what is the purpose of an unmodified (clean) opinion audit report?
Signup and view all the answers
What is the role of an explanatory paragraph in an audit report, if included?
What is the role of an explanatory paragraph in an audit report, if included?
Signup and view all the answers
Explain the concept of professional skepticism and why it is essential for auditors during an audit engagement.
Explain the concept of professional skepticism and why it is essential for auditors during an audit engagement.
Signup and view all the answers
According to the passage, what is a key aspect of recognizing and accounting for contingent liabilities?
According to the passage, what is a key aspect of recognizing and accounting for contingent liabilities?
Signup and view all the answers
Explain the importance of confidentiality in the accounting profession, and provide an example of how an auditor should protect confidential information.
Explain the importance of confidentiality in the accounting profession, and provide an example of how an auditor should protect confidential information.
Signup and view all the answers
According to the passage, what is the significance of maintaining professional competence and due care in the practice of accounting?
According to the passage, what is the significance of maintaining professional competence and due care in the practice of accounting?
Signup and view all the answers
Study Notes
Financial Statements and Peer Reviews
- Four basic financial statements: Income Statement, Balance Sheet, Cash Flow Statement, and Statement of Changes in Equity.
- CPA firms must undergo peer reviews if they are members of the AICPA or PCAOB to ensure quality control and compliance with accounting standards.
EDGAR Filings for Public Companies
- Public Companies are required to file specific forms through EDGAR, primarily Form 10-K, Form 10-Q, and Form 8-K.
- Form 10-K includes comprehensive annual financial data, management's discussion, and a detailed analysis of results.
- Form 10-Q provides quarterly financial updates and management’s insights, while Form 8-K reports significant events affecting the company.
Code of Professional Conduct
- Purpose: Establish standards of conduct to ensure ethical behavior within the accounting profession.
- Six principles: Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, Professional Behavior, and Technical Standards Compliance.
Confidentiality and Auditors
- Confidentiality is critical to protect sensitive client information and maintain trust.
- Example: An auditor should not disclose client information without consent, even after the audit is complete.
Professional Behavior and Integrity
- Accountants must exhibit integrity to maintain public confidence and professional credibility.
- Discrediting conduct can include falsifying financial reports or engaging in unethical practices.
Generally Accepted Accounting Principles (GAAP)
- GAAP consists of standards and guidelines for financial reporting to ensure consistency, reliability, and transparency.
- Compliance with GAAP is essential for accurate financial disclosure and to meet regulatory requirements.
Auditing Standards
- Auditors must follow standards set by organizations like PCAOB or AICPA to achieve high-quality audit results.
- An example of compliance includes obtaining sufficient evidence to substantiate financial statement assertions.
Professional Skepticism
- Definition: An attitude that includes a questioning mind and critical assessment of audit evidence.
- Essential for auditors to avoid complacency and ensure thorough examination during audits.
Objectivity and Conflicts of Interest
- An auditor must maintain objectivity, ensuring judgement is not influenced by external factors.
- Common conflict of interest example: An accountant auditing a firm where a family member is employed.
Promoting Confidentiality
- Accounting firms can promote confidentiality by establishing strict information-sharing policies and training employees on privacy regulations.
Audit Planning and Objectives
- Major steps in initial audit planning:
- Accept the client and perform initial audit planning.
- Understand the client’s business and industry.
- Assess business risks associated with the client.
- Perform preliminary analytical procedures.
- Set materiality levels and assess audit risks.
- Understand internal controls and assess control risk.
- Gather information to assess fraud risks.
- Develop an overall audit plan and program.
Management Assertions and Controls
- Assertions relevant to controls include Existence & Occurrence, Rights and Obligations, Completeness, and Valuation or Measurement.
- Weekly reconciliations ensure completeness and accuracy of financial data entered in the system.
Contingent Liabilities
- Distinction between actual and contingent liabilities with examples including lawsuits, warranty claims, and guarantees.
- Common accounting treatments differ under GAAP and IFRS, impacting recognition and reporting of contingent liabilities.
Auditor's Report Structure
- Opinion paragraph expresses the auditor's opinion on financial statements.
- Auditor's Responsibility paragraph details responsibilities related to the audit process.
- Management's Responsibility paragraph clarifies management’s obligations for accurate reporting.
Importance of Professional Competence
- Maintaining professional competence ensures that accountants are equipped with the latest knowledge and skills necessary for their work.
- Continuous professional development activities contribute to maintaining high standards in accounting practices.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge on the order of the 4 basic financial statements covered in a financial statement audit. Make sure you know the natural sequence in which they are presented.