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CHAPTER 2 Professional Responsibilities: Defining Quality of Assurances

CHAPTER 2 Professional Responsibilities: Defining Quality of Assurances. What is GAAS ?. Generally Accepted Auditing Standards (GAAS). - the foundation of all auditing theory and practice. Generally Accepted Auditing Standards (GAAS). - the foundation of all auditing theory

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CHAPTER 2 Professional Responsibilities: Defining Quality of Assurances

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  1. CHAPTER 2 Professional Responsibilities: Defining Quality of Assurances

  2. What is GAAS?

  3. Generally Accepted Auditing Standards (GAAS) - the foundation of all auditing theory and practice

  4. Generally Accepted Auditing Standards (GAAS) - the foundation of all auditing theory and practice - the basis of all Statements on Auditing Standards issued by the ASB

  5. Generally Accepted Auditing Standards (GAAS) - the foundation of all auditing theory and practice - the basis of all Statements on Auditing Standards issued by the ASB - ten standards categorized into three groups: general, field work, and reporting

  6. GENERAL STANDARDS 1. The audit is to be per- formed by a person or per- sons having adequate technical training and pro- ficiency as an auditor.

  7. GENERAL STANDARDS 1. training and proficiency - formal accounting education, contin- uing professional education - technical qualifications and experi- ence in client industry

  8. GENERAL STANDARDS 2. In all matters relating to the assignment, an independence in mental attitude is to be main- tained by the auditor or auditors.

  9. I’m a prudent practitioner!! GENERAL STANDARDS 3. Due professional care - concerns audit quality: completeness of work- papers, sufficiency of evidence, appropriate report - court precedents form “prudent practitioner;” i.e., what a competent practitioner would do

  10. GENERAL STANDARDS 3. Due professional care is to be exercised in the performance of the audit and the preparation of the report.

  11. FIELD WORK STANDARDS 1. The work is to be ade- quately planned and as- sistants, if any, are to be properly supervised.

  12. FIELD WORK STANDARDS 1. planning and supervision - planning is complex for large clients, consider: scheduling personnel, types of tests and their timing - supervision is critical because of assistants’ lack of experience December

  13. FIELD WORK STANDARDS 2. A sufficient understanding of internal control is to be obtained to plan the audit and determine the nature, timing, and extent of tests to be performed.

  14. FIELD WORK STANDARDS 3. Sufficient, competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.

  15. REPORTING STANDARDS 1. The report shall state whether the financial statements are pre- sented in accordance with GAAP.

  16. REPORTING STANDARDS 2. The report shall identify those circumstances in which such practices have not been con- sistently observed in the cur- rent period in relation to the preceding period.

  17. REPORTING STANDARDS 3. Informative disclosures in the financial statements are to be regarded as reason- ably adequate unless other- wise stated in the report.

  18. REPORTING STANDARDS 4. The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons there- for should be stated. In all cases where an audi- tor’s name is associated with financial state- ments, the report should contain a clear-cut indi- cation of the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking.

  19. What is the purpose of the audit report? The audit report is an explanation of the audit process and conclusions reached. The report is the formal communica- tion between the auditor and the external users of the financial state- ments, primarily the stockholders.

  20. Ace Company G A A P 19x2 Financial Statements Generally Accepted Auditing Standards REPORTING STANDARDS 1. The report shall state whether the financial statements are presented in accordance with GAAP. ?

  21. REPORTING STANDARDS 1. The report shall state whether the financial statements are presented in accordance with GAAP. What financial statements are required by GAAP?

  22. What financial statements are required by GAAP? - balance sheet - income statement - statement of retained earnings - statement of cash flows

  23. REPORTING STANDARDS 1. The report shall state whether the financial statements are presented in accordance with GAAP. Could an auditor accept an engagement to audit only one (or more) financial statement?

  24. Could an auditor accept an engagement to audit only one (or more) financial statement? yes, as long as access to information underlying the statement(s) is unrestricted

  25. Ace Company 19x2 Financial Statements REPORTING STANDARDS 2. The report shall identify those circum- stances in which such principles have not been consistently observed in the current period in relation to the preced- ing period. Ace Company 19x1 Financial Statements consistent?

  26. REPORTING STANDARDS 3. Informative disclosures in the finan- cial statements are to be regarded as reasonably adequate unless otherwise stated in the report. Footnotes Ace Company 19x2 Financial Statements

  27. Ace Company 19x2 Financial Statements REPORTING STANDARDS 4. The report shall either contain an expression of opinionregarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefor should be stated. In all cases where an auditor’s name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking. opinion?

  28. Ace Company G A A P 19x2 Financial Statements conditions requiring a departure from the unqualified report Departures from GAAP (AU 508) result in a qualified or adverse opinion depending on materiality and pervasiveness.

  29. conditions requiring a departure from the unqualified report Departures from GAAP (AU 508) result in a qualified or adverse opinion depending on materiality and pervasiveness. The correct information should be included in an additional third paragraph. If this information is not available, the report should state that fact. Inadequate disclosure is a GAAP departure.

  30. The audit report should not include anystatements that would counterbalancethe opinion: - negative assurance - “nothing came to our attention that would lead us to believe...” - piecemeal opinion - positive comments on some components of the financial statements when a disclaimer or adverse opinion is issued

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