1. Professional Standards
Chapter 2
Professional Standards
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2. 1. Basis of Auditing Objectives of auditing
Responsible parties involved in auditing
Similarities with other disciplines
Limitations of auditing
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3. 2. Practice Standards AICPA standards Citation Methods
SAS Number
AU Section Number (AU-C)
Professional Standards, Vol. I and II (and III)
Sources of Auditing Standards
Statements on Auditing Procedures — SAPs (1-54)
Statements on Auditing Stds — SASs — AU (1-131)
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4. 2. Practice Standards (continued)
Sources of other Standards
Statements on Stds for Attestation Engagements — SSAEs — AT-C
Statements on Stds for Accounting and Review Services — SSARSs — AR-C
Consulting Standards — CS
Quality Control Standards — QC
Peer Review Standards — PR
Tax Practice Standards — TX
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5. Practice Standards (continued)
Sources
Personal Financial Planning Standards — PFP
Code of Ethics Standards — ET
AICPA Bylaws Standards — BL
Continuing Education Standards — CPE
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6. Practice Standards (continued)
Clarity Project
Purpose:
to make standards easier to read, understand, and apply
to converge US GAAS with ISAs issued by IAASB
Project started in 2004
AU sections renumbered to ISA numbers
New format for standards
introduction, objective, definitions, requirements, application and other explanatory material
Effective for audits of financial statements for years ending on or after December 15, 2012
Primarily was issued as one SAS – SAS 122
SSARS Clarity Project completed (SSARS 21) – effective December 2015
Attestation Clarity Project just completed (SSAE 21) – effective May 2017
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7. Practice Standards (continued)
International Standards
International Auditing and Assurance Standards Board — IAASB
(Part of IFAC)
International Auditing Standards (ISAs)
International Standards on Assurance Engagement (ISAE)
IFAC Code of Ethics
(International Financial Reporting Standards — IASB)
PCAOB Standards
2003 adopted 101 existing SASs
Auditing Standards – AS
Reorganized standards
Ethics and Independence Standards – IT
Quality Control Standards – QC
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8. 2. Practice Standards - Terminology in auditing standards
Responsibility
Level
Meaning
Words to Indicate Responsibility
Unconditional
Auditor must fulfill responsibilities
“Must”
“Is required”
“Shall” (PCAOB only)
Presumptively
Mandatory
Auditor must comply with requirements unless auditor demonstrates and documents that alternative actions were sufficient to achieve the objectives of the standards
“Should”
to Consider
Auditor should consider; whether the auditor complies with the requirements depends on the exercise of professional judgment in the circumstances
“Might”
“Could”
Other phrases
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9. 2. Practice Standards (continued)
Summary of Practice Standards
Client
Public
Entities (Issuers)
Private
Entities (Nonissuers)
Governmental
Entities
Foreign
Rule-
making
body
Public Company Accounting Oversight Board (PCAOB)
AICPA Auditing Standards Board (ASB)
U.S. Government Accountability Office (GAO)
IFAC International Auditing and Assurance Standards Board (IAASB)
Standards
Auditing Standards (AS)
Statements on Auditing Standards (SASs) (AU-C)
Government Auditing Standards (The “Yellow Book”)
International Standards on Auditing (ISAs)
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10. 3. GAAS and Principles General standards (responsibilities principle)
adequate technical training
independence
due professional care
Fieldwork standards (performance principle)
adequately planned & supervised
internal control
sufficient appropriate evidence
Reporting standards (reporting principle)
GAAP
consistency
adequate disclosure
opinion
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11. Responsibilities Principle
3. GAAS and Principles
Comparison of AICPA GAAS to Principles: Responsibilities
Addresses whether auditor can accept engagement
General Standards
Responsibilities Principle
Training and proficiency
2. Independence in mental attitude
3. Due professional care
Auditors are responsible for:
Competence and capabilities
Ethical requirements
Professional skepticism and professional judgment
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12. Standards of Field Work Performance Principle
3. GAAS and Principles
Comparison of AICPA GAAS to Principles: Performance
Provides guidance on conducting the audit
Standards of Field Work
Performance Principle
Planning and supervision
2. Understanding of entity and its environment, including its internal control, sufficient to assess risk of material misstatement
3. Obtain sufficient appropriate evidence
To obtain reasonable assurance the auditor must:
Plan work and supervise assistants
Determine and apply appropriate materiality levels
Identify and assess risks of material misstatement based on understanding of business and internal control
Obtain sufficient appropriate evidence
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13. Standards of Reporting
3. GAAS and Principles
Comparison of AICPA GAAS to Principles: Reporting
Provides guidance on issuing audit report
Standards of Reporting
Reporting Principle
Financial statements in accordance with GAAP
GAAP applied consistently (only report if not consistent)
Adequacy of disclosures (only report if not adequate)
Express or disclaim an opinion
The report:
Must express an opinion or state that an opinion cannot be expressed
Opinion must be based on conformity of the financial statements with the applicable financial reporting framework
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14. 4. Evidence
SAS 122
Performance Principle: The auditor must obtain sufficient appropriate evidence
Definition of evidence
All the information used by the auditor in arriving at the conclusions on which the audit opinion is based
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15. 4. Evidence (continued) Sufficiency and Appropriateness Interrelated
Sufficiency – quantity (affected by RMM and quality of evidence)
Appropriateness – quality (affected by its relevance and reliability)
Limitations (cost, persuasiveness)
Generalizations about reliability
Source – knowledge, location, reliability of ICS, direct/indirect, directly by auditor
Nature – documentary form, originals, reliability of form (e.g., ability to be altered, certainty of sender), document experts
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16. 4. Evidence (continued) Types of Evidence Underlying Accounting Data
journals, general and subsidiary ledgers, accounting manuals, work sheets, spreadsheets, cost allocations, reconciliations, etc.
Corroborating Information
auditor’s direct personal knowledge
documentary evidence
created outside and transmitted directly to auditor
created outside and held by client
created by and held by client
client representations
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17. 4. Evidence (continued) Types of Evidence (continued)
Physical evidence
Mathematical evidence
Oral evidence
Confirmations
Written representations
Analytical procedures
Electronic evidence
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18. 5. Attestation Standards
Apply to attest services
affirm to be genuine
when a CPA expresses a conclusion about the reliability of subject matter or an assertion that is the responsibility of another party
includes financial and nonfinancial services
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19. 5. Attestation Standards
SSAEs apply to
forecasts and projections
pro forma information
internal control
compliance with laws, regs, contracts
MD & A
agreed-upon procedures
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20. 6. Quality Control for Firms
AICPA
National Peer Review Committee (formerly known as the Center for Public Company Audit Firms)
Private Companies Practice Section (PCPS)
PCAOB registration
PCAOB inspections
State level peer review
Quality Enhancement Program in Nebraska
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21. 6. Quality Control for Firms
An audit firm must establish a system of QC to provide it reasonable assurance that the firm will comply with professional, regulatory, and legal requirements
QC standards apply to all firms and all services provided
Specific QC policies and procedures vary by firm size
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22. 6. Quality Control for Firms
AICPA Elements of Quality Control
leadership responsibilities
ethical requirements
acceptance and continuance of clients and engagements
human resources
engagement performance
monitoring
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23. Review Questions for Discussion
Chapter
2.16
2.17
2.19
2.21
2.25
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