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ACCT 6300 Final Exam Review Instructor written questions Audio Clip Link:

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1 ACCT 6300 Final Exam Review Instructor written questions Audio Clip Link:

2 Chapter 5 Auditors’ Report Ten GAAS: TIP PIE ACDO Types of Fraud and the fraud triangle:

3 Auditors’ Report Five types of opinions standard unqualified modified unqualified ANGEL modifications still provide an unqualified opinion Qualified: Material GAAP or GAAS problem Disclaimer: highly material GAAS problem Adverse: highly material GAAP problem

4 Auditors’ Report Three standard paragraphs for standard unqualified opinion: introductory, scope and opinion. An explanatory paragraph (or languages) will be added if a standard unqualified opinion cannot be expressed. Position of the explanatory paragraph For qualified or adverse opinion: before the opinion paragraph For modified unqualified opinion: after the opinion paragraph  However, the explanatory paragraph can be either before or after the opinion paragraph: (a) Necessary GAAP Departure,and (b) Emphasis of a matter.

5 Ten GAAS Mnemonics per Becker CPA review: TIP PIE ACDO Three general standards (TIP):  Training  Independence  Professional Care Three field work standards (PIE):  Planning and Supervision  Internal Control  Evidence Four reporting standards (ACDO)  Accounting=GAAP  Consistency  Disclosure  Opinion

6 Accounting Fraud Types of Fraud ◦ fraudulent financial reporting (lying); ◦ asset misappropriation (stealing); ◦ corruption (cheating) Fraud triangle ◦ pressure/incentive; ◦ opportunity; ◦ rationalization/attitude

7 Chapter 6 Auditors’ legal liability (exhibits 6.1 and 6.2 ; my extra notes) Regulatory obligations (general requirements)

8 Auditors’ legal liability An auditor(accountant) could be held liable for : ◦ breach of contract: privity relationship. ◦ ordinary negligence: missed certain information or omitted a certain procedure ◦ gross negligence/constructive fraud: did not pay even minimal care, fail to follow GAAS/GAAP ◦ fraud: fraudulent or deceitful behavior or actions Disputes exist regarding whether an auditor (accountant) should be liable for a third party for ordinary negligence. Under common law, the courts have applied different approaches (exhibit 6.2) ◦ Four approaches adopted in four classic court cases  privity

9 Statutory laws Securities Act of 1933: IPO Securities and Exchange Act of 1934: subsequent trading ◦ Annual financial statements should be audited and quarterly financial statements are reviewed Insider trading: ◦ directors, officers, and >10% shareholders should register with SEC and report their trading Other laws: PSLRA, SOX, FCPA, and RICO (just need to briefly know)

10 Chapter 7 Earnings management (EM) ◦ inflate/deflate Earnings or EPS Materiality ◦ quantitative and qualitative factors Restatements ◦ voluntary or requested by SEC 7 common EM techniques (Shenanigans)

11 7 common EM techniques 1. Recording Revenue too soon or of questionable quality 2. Recording bogus revenue 3. Boosting income with one-time gains 4. Shifting current expenses to a later or earlier period 5. Failing to record or improperly reducing liabilities 6. Shifting current revenue to a later period 7. Shifting future expenses to the current period as a special charge Items 1-5: inflate earnings through overstatement of revenue and assets (1-3), or understatement of expense and liabilities (4 and 5). Items 6-7: deflate earnings through understatement of revenue or overstatement of expense.

12 Chapter 8 GAAP vs. IFRS ◦ Rule vs. principle-based standards CG worldwide ◦ Germany, China, India IFCA code vs. AICPA code of professional conduct: quite similar Differences between international and US audit report ◦ True and fair vs. Present Fairly

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