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Unformatted text preview: 2-1The Sarbanes-Oxley Act of 2002 created the PCAOB and gave this body authority to develop auditing standards for the audits of public companies. The AICPA has the authority, based on general acceptance (and adoption by state boards of accountancy and other regulatory bodies), to develop auditing standards for audits of nonpublic companies.2-2Generally accepted accounting principles are accounting principles which have substantial authoritative support, such as approval by the Governmental Accounting Standards Board or the Financial Accounting Standards Board, or its predecessor, the Accounting Principles Board. These standards provide the criteria for financial reporting, including the nature and content of financial statements. Generally accepted auditing standards (GAAS) refer to the 10 broad standards and the Statement on Auditing Standards (SASs) set forth by the Auditing Standards Board of the AICPA. Generally accepted auditing standards vary depending upon whether the audit is of a public or nonpublic company. Auditing standards for public companies are established by the Public Company Accounting Oversight Board. Examples of generally accepted accounting principles are the matching principle, the realization principle, and the going concern assumption. There are a number of others, but no official list exists. Examples of generally accepted auditing standards (within the general standards subgroup) would include:2-7The first sentence of the quotation is correct. The completion of an audit of financial statements by a CPA following generally accepted auditing standards and satisfying the CPA provides the basis for expression of an unqualified opinion on the fairness of financial statements.The second sentence of the quotation is in error. Auditors never express an opinion (either qualified or unqualified) on the fairness of financial statements without first performing an audit. The audit provides the basis for the expression of an opinion. Such factors as audits made in prior years, confidence in management, and a "quick review" of the current year's financial statements are not an acceptable substitute for appropriate audit procedures.2-11In the opinion paragraph of the auditor's standard report the auditors make representations as to the following:(1)The fairness of the financial statements, in all material respects.(2)Application of generally accepted accounting principles.(3)By implication (second standard of reporting) consistent application of generally accepted accounting principles.(4)By implication (third standard of reporting) adequate disclosure.2-19Quality controlin a public accounting firm means policies and procedures which help assure that each audit meets at least a minimum standard of quality. Such control is vital because even one substandard audit could cause the firm to be defendant in a lawsuit that could threaten its continued existence....
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- Spring '10