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MTA Revision by Mind Map: MTA Revision

1. CPA Professional Ethics

1.1. Ethical Dilemmas

1.1.1. AICPA Code of Professional Conduct

1.1.1.1. a mental conflict between differing moral requirements, in which to obey one requirement will result in disobeying another

1.1.2. Example

1.1.3. Ethics Def.

1.1.3.1. Ethics are moral principles & values that govern the behavior of individuals & groups.

1.2. Steps in Resolving an Ethical Dilemma

1.2.1. Identify the problem.

1.2.2. Identify possible courses of action.

1.2.3. Identify any constraints relating to the decision.

1.2.3.1. Internal Standards

1.2.3.1.1. Internal standards are individuals' views on the importance of truthfulness, fairness, loyalty, and caring for others.

1.2.3.2. External standards

1.2.3.2.1. External standards are those that are imposed upon individuals by society, peers, organizations, employers, or one’s profession. For example, the AICPA Code of Professional Conduct is an external constraint on members of the AICPA.

1.2.4. Analyze the likely effects of the possible courses of action.

1.2.5. Select the best course of action.

1.2.6. Example

1.3. Need for Professional Ethics

1.3.1. Responsibility to serve the public

1.3.2. Complex body of knowledge

1.3.3. Standards of Admission to the Profession

1.3.4. Need for public confidence

1.4. AICPA - Code of Professional Conduct

1.4.1. Designed to provide a framework for expanding professional services and responding to changes in the profession

1.4.2. Two sections

1.4.2.1. Principles

1.4.2.1.1. Responsibilities

1.4.2.1.2. The Public Interest

1.4.2.1.3. Integrity

1.4.2.1.4. Objectivity and Independence

1.4.2.1.5. Due Care

1.4.2.1.6. Scope and Nature of Services

1.4.2.2. Rules

1.4.3. Additional guidance

1.4.3.1. Interpretations

1.4.3.2. Ethics Rulings

1.4.4. Independence

1.4.4.1. Independence of mind (actual independence) Independence of appearance Both are required

1.4.4.2. Threats to independence.

1.4.4.2.1. CPA financial and other personal matters

1.4.4.2.2. Interests of relatives and friends

1.4.4.2.3. CPA Performance of nonattest services

1.4.4.3. Approaches to evaluate threats to independence.

1.4.4.3.1. Whether the Code directly addresses the threat

1.4.4.3.2. If the Code does not directly address the threat, the auditor considers whether adequate safeguards exist to eliminate the threat to independence

1.4.4.3.3. Chart

2. Professional Standards

2.1. Authority of Regulatory Bodies

2.1.1. AICPA/American Institute of Certified Public Accountants

2.1.1.1. Establish Auditing, Attestation, Quality Control, Independence Ethical, Accounting and Review Standards for engagements involving nonpublic companies

2.1.1.2. AICPA have authority based on federal legislation.

2.1.1.3. CPA firms may subject themselves to AICPA voluntary Peer Review Programs.

2.1.1.4. Peer Review Programs cover non public auditing practices of CPA firm inspected by the PCAOB.

2.1.2. PCAOB/Public Company Accounting Oversight Board

2.1.2.1. Establish Auditing, Attestation, Quality Control, Independence, Ethical Standards for audits of public companies

2.1.2.2. PCAOB have authority based on their acceptance by NASPA.

2.1.2.3. Register CPA Firms.

2.1.2.4. Inspections of the audits practices of reg. CPAs.

2.2. Principles Underlying a GAAS Audit (PPRPR)

2.2.1. Purpose of an audit

2.2.1.1. opinion on f/s are in accordance GAAP

2.2.2. Premise of an audit

2.2.2.1. Prepare f/s in accordance with (GAAP).

2.2.2.2. Provide auditor with needed information and unrestricted access

2.2.3. Personal responsibilities of the auditor

2.2.3.1. competence and capabilities to perform audit.

2.2.3.2. maintaining professional skepticism.

2.2.3.3. exercising professional judgment.

2.2.4. Auditor actions in performing the audit

2.2.4.1. Obtain reasonable assurance about whether f/s are free from error or fraud.

2.2.5. Reporting results of an audit

2.2.5.1. written report an opinion on findings.

2.2.5.2. opinion is on whether the f/s are in accordance GAAP.

2.2.5.3. statement that opinion cannot be expressed

2.3. Auditor Responsibility for the Detection of Errors and Fraud

2.3.1. Audit Risk

2.3.1.1. Def.:is the risk that the auditors may unknowingly fail to appropriately modify the opinion on financial statements that are materially misstated due to Errors and Fraud.

2.3.2. Errors

2.3.2.1. Def.:Unintentional misstatements or omissions.

2.3.2.2. EX:Mistakes in processing accounting data, incorrect accounting estimates due to oversight, mistakes in application of GAAP.

2.3.3. Fraud

2.3.3.1. Def.:Intentional misstatements or omissions.

2.3.3.2. EX:Two types— fraudulent financial reporting and misappropriation of assets

2.3.3.3. Employee Fraud Vs. Management Fraud:

2.3.3.3.1. Employee fraud

2.3.3.3.2. Management fraud

2.3.4. Auditor Responsibility

2.3.4.1. Obtain information to assess the inherent risks and fraud risks

2.3.4.2. Assess the risk of errors and fraud

2.3.4.3. plan and perform the audit to obtain reasonable assurance

2.3.4.4. Exercise due care proper degree of professional skepticism to achieve reasonable assurance

2.4. Auditor Responsibility for Client Identifying Noncompliance with Laws

2.4.1. Direct effect

2.4.1.1. Violations of laws regulations having a material and direct on F/S.

2.4.1.2. EX: Tax laws

2.4.1.3. Auditor Responsibility Same as for errors

2.4.2. Other Laws

2.4.2.1. Violations of laws regulations nothaving a material and direct on F/S.

2.4.2.2. Auditor Responsibility

2.4.2.2.1. Be aware of possibility that they may have occurred.

2.4.2.2.2. Specific procedures: Inquire of management as to compliance Inspect correspondence with licensing or regulatory authorities

2.4.2.2.3. determining whether noncompliance with a law has occurred.

2.5. The AICPA Standard Auditors’ Report-

2.5.1. Sections

2.5.1.1. Title

2.5.1.2. Addressee

2.5.1.3. Content Sections (paragraphs)

2.5.1.3.1. Introductory (“We have audited”)

2.5.1.3.2. Management’s responsibility

2.5.1.3.3. Auditor’s Responsibility

2.5.1.3.4. Opinion Paragraph

2.5.1.4. Signature (firm name)

2.5.1.5. City and state of office issuing audit report

2.5.1.6. Date

2.5.2. Types of Auditors’ Reports

2.5.2.1. Standard unmodified report (unqualified per PCAOB standards)

2.5.2.1.1. Financial statements follow GAAP and auditor does not add additional commentary for any issue .

2.5.2.2. Unmodified with emphasis of matter (or other emphasis)

2.5.2.2.1. Example: A lack of consistency in application of accounting principles.

2.5.2.3. Qualified opinion

2.5.2.3.1. Scope limitation or departure from GAAP.

2.5.2.4. Adverse opinion

2.5.2.4.1. Departure from GAAP so significant that financial statements as a whole are misleading.

2.5.2.5. Disclaimer of opinion

2.5.2.5.1. Unable to arrive at an opinion due to a very significant scope limitation.

2.5.3. Public Company Audit Report

2.5.3.1. Title is “Report of Registered Independent Public Accounting Firm.”

2.5.3.2. Refers to standards of the PCAOB rather than GAAS.

2.5.3.3. Includes a paragraph that refers to report on internal control.

2.5.3.4. Somewhat more brief than the nonpublic company report.

2.6. The 10 Generally Accepted Auditing Standards

2.6.1. General Standards TIP

2.6.1.1. Training and proficiency.

2.6.1.2. Independence in mental attitude

2.6.1.3. Due professional care

2.6.2. Standards of Field Work PIC Auditor Must

2.6.2.1. adequately plan and properly supervise work

2.6.2.2. obtain a sufficient understanding of entity, and its environment, including internal control.

2.6.2.3. Obtain sufficient appropriate audit evidence.

2.6.3. Reporting Standards GCDE

2.6.3.1. State whether the f/s are presented in accordance with GAAP.

2.6.3.2. Identify circumstances in which GAAP not been consistently applied.

2.6.3.3. Informative disclosures are adequate.

2.6.3.4. state the degree of responsibility being assumed by the auditors by expressing an opinion or stating that one cannot be expressed, and the reason therefor.

2.7. 6 Elements of Quality Control (CPA Firm)

2.7.1. Leadership responsibilities for quality within the firm (“tone at the top”)

2.7.2. Relevant ethical requirements

2.7.3. Acceptance and continuance of clients and engagements

2.7.4. Human Resources

2.7.5. Engagement performance

2.7.6. Monitoring

3. The Role of the Public Accountant in the American Economy

3.1. Assurance Role of the Public Accountant in

3.1.1. Def.

3.1.1.1. The broad range of information enhancement services that are provided by independent certified public accountants (CPAs)or external auditor . Two types: Increase reliability of information Putting information into a form or context that facilitates decision making.

3.1.2.  Assurance Services

3.1.2.1.  Attestation Services

3.1.2.1.1. Example: Audits of Financial Statements, Examinations of Internal Control

3.1.2.2.  Other Assurance Services

3.1.2.2.1. Example: XBRL service

3.1.3.  Non - Assurance Services

3.1.3.1.  Tax Services  Management Consulting Services  Other Services (Bookkeeping)

3.2. Attest engagement

3.2.1. A practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about subject matter that is the responsibility of another party (e.g. management)

3.2.2. Subject matter

3.2.2.1. CPA attest to many types of subject matter (responsibility of management) or assertions about subject matter including: Financial Statements, Internal Control, Compliance with laws and regulations, Advertising claims.

3.2.3. Suitable criteria

3.2.3.1. Standards established or developed by groups of experts. Example: Internal control audit – standards established by a committee of experts on internal control Example: Financial statement audit – standards are GAAP.

3.2.4. Forms of Attestation

3.2.4.1. Examination

3.2.4.2. Review

3.2.4.3. agreed-upon procedures

3.3. Types of Audits

3.3.1. Financial Audits

3.3.1.1. Covers the balance sheet and related statements of income, retained earnings and cash flows

3.3.1.2. Goal is to determine if prepared in conformity with GAAP

3.3.1.3. Performed by CPAs

3.3.1.4. Users include management, investors, bankers, creditors, financial analysts, government agencies

3.3.2. Compliance Audits

3.3.2.1. Example: IRS audit of income tax return

3.3.3. Operational Audits

3.3.3.1. Example: Effectiveness of operations of receiving department of a manufacturing company

3.3.4. Integrated Audits

3.3.4.1. Example: Assurance on both the financial statements and effectiveness of internal control over financial reporting (Under SOX ACT)

3.4. Other Types of Auditors

3.4.1. Internal Auditors

3.4.1.1. Employed by a company as an employee They often perform operational and compliance audits address internal control report to the audit committee of the board of directors and to the president The Institute of Internal Auditors is the international organization of internal auditors.

3.4.2. Government Accountability Office Auditors

3.4.2.1. Headed by the comptroller general Responsibility of supporting Congress Perform Compliance, operational and financial audits of government agencies Examinations of corporations holding government contracts to verify contract payments have been proper

3.4.3. Tax Auditors

3.4.3.1. Responsible for enforcement of tax laws of various sorts (e.g., state and federal income taxes, property taxes, sales taxes) Internal revenue agents generally perform compliance audits of income tax returns