Question

This is due today!

Week One Self-Guided Quiz

The questions below generally follow the order of the topics as presented in the text in Chapters 1 and 2. However, you will need to read all chapters (1, 2, 25, 26) in order to get the complete picture of most of these topics as Chapters 25 and 26 and additional insight to topics found in Chapters 1 and 2 and contain original material addressed in later questions.

4. Audits typically consist of three phases: Planning; Fieldwork; Reporting. Describe activities that accompany each phase.

5. Distinguish between Assurance and Attestation Services.

6. Describe the following types of Audits:

       a. Operational Audits

       b. Compliance Audits

        c. Financial Statement Audits

        d.Informational Technology Audits (may need to go outside the text to address this)

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

4.

The audit process begins with planning the audit. During this phase, the audit team will perform the following:

• Distribute Audit Notification
• Conduct Pre-Audit Meeting
• Interview Department Personnel
• Review Policies and Procedures
• Understand and Document the Business Processes
• Perform Risk Assessment
• Prepare a Detailed Audit Program
• Prepare audit budget (in hours)
• Select items to be Audited (samples, not 100%)

Fieldwork

The second phase of the audit is called fieldwork. During this phase, the audit team will physically be on site at the audit client’s location performing the audit. The following are some of the procedures generally performed during fieldwork.

• Review Supporting Documentation
• Interview department personnel
• Perform analyses
• Identify Exceptions
• Identify Recommendations for Improvement
• Prepare Written Audit Comments (i.e., findings)
• Department Provides Written Response and Corrective Action Plan for findings

Reporting

The third phase of the audit is reporting. During this phase, the auditor in charge will prepare the written audit report which summarizes and communicates the audit results.

• Issue a draft report
• Discuss draft report with unit management
• Issue final report
• Report is factual, clear, concise, and appropriate tone
• Report distribution:
  • President
  • Executive Vice President
  • External Auditors
  • Chief Financial Officer
  • Controller
  • Audit Subcommittee
  • Division Vice President or Senior Vice President
  • Department Head

5.

Attestation:

Certified public accountants also can perform attestations for organizations in addition to audit reporting, or provide it as a separate service. An attestation basically takes all the data and information that has been gathered and checks its validity based upon agreed-upon procedure engagements. An organization can also request attestation to be performed regarding compliance procedures, reviews on internal control functions, and reporting on financial forecasts, projections or pro forma data.

More often than not, attestation and auditing services can sometimes be confused with each other. One of the things to keep in mind to differentiate each of these services is that audits are performed to discover data, risks, or compliance issues that may not have been known before the audit took place, and attestation is to evaluate and review how true the data or information is when compared to a stated purpose, internal control or system.

For example: an organization may want to discover whether their operations are in compliance with a certain set of government regulations for their industry. An audit may be performed to look for gaps in their compliance procedures as an issue may be discovered. Then the organization can seek an attestation to the reported information.

The attestation engagement examines the issue to check if it truly falls outside the parameters of the compliance standard as an opinion is given about the compliance issue. Then the business can take the necessary steps to bring their operations back into compliance as well as set risk management policies in place to prevent the issue from reoccurring.

Assurance

When companies do business with other organizations, trying to raise money from outside investors, or are even engaging in merger deals, they need to be reassured that the data and information presented is accurate and credible. This instance is when assurance services come into play. Assurance work provided by a certified public accountant aims to substantiate the data that is presented. The accountant will give their opinion regarding the information that can be used by the company to make a decision.

So an investor may ask for assurance work to check the financial information in regards to a company that has asked for funding. The certified public account would review the gathered information and put it through given procedures before providing a report so that the investor can trust the given data before agreeing to the financial transaction.

An assurance service basically provides three main goals for an organization:

• Helps the company’s reputation that it is presenting truthful information regarding their data, internal controls and systems
• Assists companies to make the best decisions for their operations to promote financial growth
• Increase credibility in the provided information that can lead to lower transaction costs and better resource allocations

Assurance services can be used toward a wide range of purposes. A company may want to check to ensure all financial information is accurate. They may also desire assurance services to see if a company abides by all established regulations and compliance standards.

6.

1. Operational Audit is a systematic review of effectiveness, efficiency and economy of operation. Operational audit is a future-oriented, systematic, and independent evaluation of organizational activities.
2. A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines. Independent accounting, security or IT consultants evaluate the strength and thoroughness ofcompliance preparations.
3. A financial statement audit is the examination of an entity's financial statementsand accompanying disclosures by an independent auditor. The result of this examination is a report by the auditor, attesting to the fairness of presentation of thefinancial statements and related disclosures
4. An IT audit is the examination and evaluation of an organization's information technology infrastructure, policies and operations. Information technology auditsdetermine whether IT controls protect corporate assets, ensure data integrity and are aligned with the business's overall goals.

7.

• Auditors working for CPA Firms review financial records and evaluate internal policies and control systems. They look for potential fraud risks and analyze a company’s effectiveness in meeting established standards and complying with relevant laws and regulations. These individuals usually work for public accounting firms, though self-employed external auditors are not uncommon. This role is often referred to as a public auditor.
• Government auditors are defined as governmental employees reporting to a head auditor who is appointed or elected and is primarily responsible to a legislative body at the level of government in which appointed.
• Internal auditors identify problems and suggest improvements through an objective review of a company’s processes and systems. An audit covers a wide range of activities and functions, including accounting and finance, fraud detection and information technology systems. Internal auditors work within an organization to continuously monitor risks and provide leaders with recommended changes to policies and procedures. This role provides an important assessment of a company’s current practices in order to maintain compliance with various regulations, and to prepare for external reviews.

Roles CPA firms play in society

Protectors of Public Interest

As a profession that has been bestowed a privileged position in society, the accountancy profession as a whole deals with a wide range of issues that has a public interest angle. In the case of professional accountants in business, not only must they maintain high standards but they also have a key role to play in helping organizations to act ethically.

Competing Demands

Accountants often times face conflicts between upholding values central to their profession and the demands of the real world. Balancing these competing demands speaks to the very heart of being a professional in contrast to simply having a job or performing a function.

Ethical codes for professional accountants globally compels professional accountants, regardless of the roles that they perform, to uphold values of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

The Role of Professional Accounting Bodies in Promoting Professional Accountants

They will look to the professional accounting body to provide them with the support and resources they need in doing their daily jobs and to keep their skills up-to-date.

Evolving Role in an Evolving Environment

Professional accountants in business are an important critical mass in the global accountancy profession. The same applies at the national level. Public education on the diverse roles of professional accountants in business needs to be stepped up so as to increase the visibility of these roles.