Chapter 2 - Regulatory Environment

N preliminary conclusion n the auditing profession

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n Preliminary Conclusion: n The auditing profession has done an excellent job of regulating itself and adapting to changes in the world. ..however, there is always the lingering question of whether the regulators serve the
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+ Options for Regulation n Government regulation in it's various forms (SEC, GAO, PCAOB, other) n Pluses: n Independent perspective n Clearly represent the public n Legal clout n Minuses: n No cost/benefit thresholds n Political process n Lack of understanding n Preliminary Conclusion: n The government may solve some problems, but may cause other
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+ Regulation Structures
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+ AICPA (as per website mission)
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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.
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n Preliminary Conclusion n The auditing profession has done...

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