Chapter 2 - Regulatory Environment

Aicpa role n the aicpa still regulates for both

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+ AICPA Role n The AICPA still regulates (for both private and public companies): n CPA Certification n CPE Requirements n Code of Conduct n Quality Control Standards n Leadership n Client acceptance n Engagement performance n Personnel management n Independence (ethical requirements) n Monitoring
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+ SEC n Created 1934 n An agency of the federal government n Assists in providing investors with reliable information for decision making n Forms n 10-K – annual reports n 10-Q – quarterly reports n 8-K – significant events of interest to investors n From S-1 – issue new securities to the public
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+ SEC n Influence the setting of GAAP n Can establish rules related to CPAs who audit F/S submitted to SEC n SEC can investigate any alleged frauds and does so for public companies n Website n http://www.sec.gov/
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+ PCAOB (as per website)
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+ SOX and PCAOB n Sarbanes Oxley Act – signed in 2002 n As a response to the multiple corporate failures n SOX established Public Company Accounting Oversight Board (PCAOB) n Overseen by SEC n Inspections by PCAOB n Inspect accounting firms to assess compliance with SEC and PCAOB rules, standards, and firm’s quality control policies n Annual inspections for firms who audit more than 100 issuers n Every three years inspections for other firms
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+ Generally Accepted Auditing Standards (GAAS) n General standards: 1. Auditors should have adequate technical training and proficiency as an auditor. 2. Auditors must remain independent in all matters relating to the audit. 3. Auditors must use due professional care in performing the audit. n Fieldwork standards: 1. Auditors must use adequate planning and supervision during audits. 2. Auditors must obtain sufficient understanding of the client, its environment, and internal controls to assess risk of misstatement in order to design the nature, timing, and extent of audit procedures. 3. Auditors must obtain sufficient evidence as basis of opinion. n Reporting standards: 1. Auditors must state whether financials are in accordance with GAAP. 2. Auditors must identify circumstances where consistency has not been observed. 3. Auditors must report if disclosures are not adequate. 4. Auditors must either express an opinion, or state that an opinion cannot be
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+ Statement on Auditing Standards (SAS) n ASB issues SASs n Two codification numbers n SAS number n AU number n Beginning with 2 – interpretations of general standards n Beginning with 3 – interpretations of fieldwork standards n Beginning with 4,5,6 – interpretations of reporting standards n Example: SAS 99 – Consideration of fraud in the financial statements (AU 316)
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+ SAS n Applicable to audits of private companies n Specificity is not high n SASs are perceived as minimum standards of
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