Question

7. Discuss the following types of Auditors: a. Auditors Working for CPA Firms b. Governmental Auditors (e.g. GAO, IRS, health inspectors) C. Internal Auditors 8. Identify the roles CPA firms play in society. 9. Briefly explain Sarbanes-Oxley (SOX) and the role the Securities and Exchange Commission (SEC) plays in regulating audits. 10. What is the role of the AICPA? The PCAOB? The Institute of Internal Auditors (IIA)? 11. Summarize the 10 components of Generally Accepted Auditing Standards (GAAS) 12. What are SAS, and for what are they used? 13. True or False - CPA firms are required to engage in quality control efforts of its audits? Why or Why not? 14. What is a Peer Review and how and when are they performed? 15. Why does government often have different auditing and accounting standards?

Answer 1

Answers

7. Type of auditors

a. auditor who working for Certified Public Accountant (CPA) firm is a independent financial auditor who reviews a company’s financial statements in the light of documents and records of accounts produced by company. Auditors who working in a CPA are professionally qualified in the field of accounting, to evaluate the financial statements and according records of the company and to make the reports on it.

b. government auditors are the auditors appointed by government to verify the revenues and expenses government entities according to the laws and regulations. They also examine the performance of private entities and Individuals activities subject to government regulations and taxation. Their works helps to detect the irregularity in the firm performance such misappropriation of resources, embezzlement and fraudulent activities in the public entities, they also certify the performance of the firs based on the auditing objectives.

c. internal auditors are the auditors appointed by the company to facilitate company’s internal control system and corporate governors. Internal auditors provide sufficient input about the performance of firm to management with the intention improving efficiency. The role of internal auditors is to ensure the internal control and to increase the efficiency of the firm

8. since the task of CPA is the evaluating the financial performance of the firm and preparation verified documents including taxation and financial planning, the CPA firms helps to create confidents among the investors and to ensure effective utilization of resources. Further the CPA provides adequate correct information about the company’s affairs regarding their risk and the potential growth.   

9. Sarbanes – Oxley Act 2002(SOX) came to force in 2002 with intention to provide protection to investors from fraudulent and misleading financial reporting of the companies. The Act came to force the experiences of the financial scandals of public traded companies such as Enron Corporation, Tyco international plc and WorldCom in 2000. The Act provides mandated strict reforms to existing securities regulation and the provision of new penalties for the fraudulent representation. The Act contains many section with the stringent provisions, for instances, the audit department should conduct external audit by a SOX compliances specialist, then check the report with a specialized software having the facilities of "electronic paper trails". The section of the SOX 302 listed the responsibility of financial reports as a) CEO and CFO must review all financial reports; b) Financial report does not contain any misrepresentations; c) Information in the financial report is "fairly presented"; d) CEO and CFO are responsible for the internal accounting controls; e) CEO and CFO must report any deficiencies in internal accounting controls, or any fraud involving the management of the audit committee; f) CEO and CFO must indicate any material changes in internal accounting controls.

Security Exchange Commission (SEC) also mandated certain documents in the annual reports of the company. The company must attach two years audited balance sheet and there years audited statements of income and cash flows. Further, SEC required the performance reports of last five years financial data including net sales or operating revenue, statement of income or loss, total ssets long term liabilities and cash dividend declared. The SEC also ensure; 1) investors accessibility financial reports of the firms of the previous years; 2) details of company offering and profitability; 3) the mandate report in the form of 10- K and 21 F of financial performance

10. AICPA, PCAOB and IIA are the world’s largest accounting association which is responsible for ensuring the accounting standard and ethics in the works of the accounting professionals the primary role of the association include equip accounting professionals with common standard working in accounting. It sets ethical standards for the professional and conduct examination to certify the qualified professionals to look after the company’s financial statements. The association also gives certification for professionals to undertake various financial related activities including financial planning; forensic accounting; business valuation; and information management and technology assurance.

11. Components/principles of GAAP

1.) Principle of Regularity

2.) Principle of Consistency

3.) Principle of Sincerity

4.) Principle of Permanence of Methods

5.) Principle of Non-Compensation

6.) Principle of Prudence

7.) Principle of Continuity

8.) Principle of Periodicity

9.) Principle of Materiality / Good Faith

10.) Principle of Utmost Good Faith

12. Statements on Auditing Standards (SAS) provide guidance to auditors, which provide a minimum guideline to auditors to determine the auditing task, procedures and precaution should be taken while auditing the financial performance of the firm. To fulfil the audit objective their should be standards to perform audit tasks. The SAS helps to ensure the qulity of the audit works with minimum errors     

13. The statement is true,

Since the responsibility of the CPA firm is to verify the financial reports of the firms based on the accounting standards and regulation, the works of the auditor should checked by the another auditor or group of auditors in order to ensure the accuracy, correctness and adherence to accounting standard

14. peer review is the process of checking the works of the individual by an exports after completing the task, it helps to deduct the work quality and identify the errors and also make the suggestion to improvement. So peer review ensure the continues improvement of the working quality of accountant or auditors.

15. the auditing standard fixed on the basis of the objectives of the firm, so the government organization keep unique objectives varying from financial objectives to welfare of society and performance audit. So in order to ensure or check the level of the achievements of the various departments and government entities, the government follows different auditing standards.