Wiley CPAexcel Exam Review July 2020 Study Guide Auditing and Attestation

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About the Authors ix

About the Auditing and Attestation Professors xi

Welcome to Auditing and Attestation xii

Ethics, Professional Responsibilities, and General Principles 1

AICPA Code of Professional Conduct 2

Introduction and Preface 2

Members in Public Practice 5

MIPPs Introduction and Conceptual Framework 5

MIPPs Nonindependence Rules 7

Conflicts of Interest, Directorships, and Gifts 7

Reporting Information and Subordination of Judgment 9

Advocacy, Third-Party Service Providers (TSPs), General Standards,

and Accounting Principles 11

Discreditable Acts 13

Fees 15

Advertising and Confidentiality 17

Form of Organization and Names 19

MIPPs Independence Rules 21

Introduction to MIPPs Independence Rules 21

Network Firms and Affiliates 23

Reissues, Engagement Letters, ADR, and Unpaid Fees 25

Financial Interests 26

Overview and Unsolicited Financial Interests 26

Mutual Funds and Retirement Plans 28

Partnerships, 529s, Trust and Estates, Employee Benefit Plans 30

Depository Accounts, Brokerage Accounts, and Insurance Policies 32

Loans, Leases, and Business Relationships 33

Family Relationships 35

Employment Relationships 37

Current Employment 37

Subsequent Employment 39

Other Associations and Relationships 41

Nonaudit Services 43

Code Provisions 43

Specific Services 46

Members in Business 53

Other Members 56

Requirements of SEC and PCAOB 57

Securities and Exchange Commission (SEC) 57

Public Company Accounting Oversight Board (PCAOB) 63

Requirements of GAO and DOL 66

Government Accountability Office (GAO) 66

Department of Labor (DOL) 74

Assessing Risk and Developing a Planned Response 77

Financial Statement Audits 78

Accounting vs. Auditing 78

GAAS and Principles 80

Professional Standards 82

Quality Control Standards (SQCS) 84

Overview of Audit Process 86

Overview of Auditor’s Report 87

Different Types of Engagements 91

PCAOB Responsibilities 93

PCAOB on Engagement Quality Review 95

Planning Activities 97

Pre-Engagement Planning Issues 97

Planning and Supervision 103

Materiality 105

Audit Risk 107

Analytical Procedures 110

Audit Data Analytics 112

Detecting Fraud 116

Fraud: Evaluation and Communication 121

Detecting Illegal Acts 123

Using the Work of a “Specialist” 125

Required Communications with Those Charged with Governance 128

PCAOB on Communications with Audit Committees 131

Internal Control—Concepts and Standards 134

Obtaining and Understanding Internal Control 134

Evaluating Internal Control 136

Assessing Control Risks Under AICPA Standards 139

Performing Procedures in Response to Assessed Risks 143

Required Communications 146

Using the Work of an Internal Audit Function 149

Performing Further Procedures and Obtaining Evidence 153

Internal Control: Transaction Cycles 154

Specific Transaction Cycles 154

Revenue/Receipts—Sales 156

Revenue/Receipts—Cash 158

Expenditures/Disbursements 160

Payroll Cycle 163

Miscellaneous Cycles 165

Audit Evidence: Concepts and Standards 167

Overview of Substantive Procedures 167

The Nature of Audit Evidence 171

Assertions and Types of Audit Procedures 175

PCAOB Risk Assessment Audit Standards 178

Evaluation of Misstatements Identified During the Audit 182

Audit Documentation 184

PCAOB on Audit Documentation 188

Confirmation 190

Accounting Estimates 192

Fair Value Estimates 194

Lawyer’s Letters 196

Management Representations Letters 199

Related-Party Issues 202

PCAOB on Related Parties 205

Subsequent Events and Related Issues 208

Going Concern Issues 212

Audit Evidence: Specific Audit Areas 216

Introduction to Auditing Individual Areas 216

Cash 218

Accounts Receivable 221

Inventory 223

Investments in Securities and Derivative Instruments 226

Fixed Assets 232

Current Liabilities 234

Long-Term Liabilities 236

Stockholders’ Equity 237

Payroll 238

Audit Sampling 240

Introduction to Sampling 240

Attributes Sampling 242

Variables Sampling 244

Probability-Proportional-to-Size (PPS) Sampling 248

IT (Computer Auditing) 250

IT General and Application Controls 250

Other IT Considerations 254

Forming Conclusions and Reporting 257

Audit Reports 258

Introduction to Audit Reports 258

PCAOB on Audit Reports 266

Audits of Group Financial Statements 270

Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs 274

Qualified for Scope Limitation 277

Qualified for Misstatement 280

Adverse Opinion 282

Disclaimer of Opinion 284

Consistency of Financial Statements 286

PCAOB on Evaluating Consistency of Financial Statements 288

Opening Balances—Initial Audits 290

Other Information Along with Financial Statements 294

Supplementary Information Related to Financial Statements 296

Required Supplementary Information 298

PCAOB on Auditing Supplemental Information 300

Alert to Restrict Report 303

Financial Statements Using Another Country’s Framework 305

Reporting on Summary Financial Statements 307

Interim Financial Information 310

Other Types of Reports 315

Reports on Application of Requirements of Framework 315

F/S with Special Purpose Frameworks 318

Audits of Single F/S and Specific Elements, Accounts, or Items 321

Reporting on Compliance with Requirements in an F/S Audit 324

Service Organizations—User Auditors 327

Service Organizations—Service Auditors 329

Comfort Letters 332

Government Auditing Standards 337

Compliance Audits 340

SSARSs—General Principles 343

SSARSs—Preparation of Financial Statements 346

SSARSs—Compilation Engagements 348

SSARSs—Review Engagements 352

SSARSs—Other Topics 356

Other Professional Services 361

AICPA on Reporting on Internal Control in an Integrated Audit 361

PCAOB on Reporting on Internal Control in an Integrated Audit 370

PCAOB on Reporting Whether a Previously Reported Material Weakness Continues to Exist 376

Auditing Employee Benefit Plans 379

Introduction to Attestation Standards 384

Attestation Standards—Common Concepts 387

Examination Engagements 390

Examination Reports 394

Review Engagements 398

Review Reports 402

Agreed-Upon Procedures Engagements 406

Prospective Financial Information 411

Pro Forma Financial Information 418

Compliance Attestation 423

Management’s Discussion and Analysis (MD&A) 427

Assurance Services 431

Index 433