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 40

Other Associations and Relationships 42

Nonaudit Services 44

Code Provisions 44

Specific Services 47

Members in Business 54

Other Members 57

Requirements of SEC and PCAOB 58

Securities and Exchange Commission (SEC) 58

Public Company Accounting Oversight Board (PCAOB) 65

Requirements of GAO and DOL 68

Government Accountability Office (GAO) 68

Department of Labor (DOL) 76

Assessing Risk and Developing a Planned Response 79

Financial Statement Audits 80

Accounting vs. Auditing 80

GAAS and Principles 82

Professional Standards 84

Quality Control Standards (SQCS) 86

Overview of Audit Process 88

Different Types of Engagements 89

PCAOB Responsibilities 91

PCAOB on Engagement Quality Review 93

Planning Activities 95

Pre-Engagement Planning Issues 95

Planning and Supervision 100

Materiality 102

Audit Risk 104

Analytical Procedures 107

Audit Data Analytics 109

Detecting Fraud 113

Fraud: Evaluation and Communication 118

Detecting Illegal Acts 120

Using the Work of a Specialist 122

Required Communications with those Charged with Governance 126

PCAOB on Communications with Audit Committees 129

Internal Control—Concepts and Standards 132

Obtaining an Understanding of Internal Control 132

Evaluating Internal Control 134

Assessing Control Risk Under AICPA Standards 137

Performing Procedures in Response to Assessed Risks 141

Required Communications 144

Using the Work of an Internal Audit Function 147

Performing Further Procedures and Obtaining Evidence 151

Internal Control: Transaction Cycles 152

Specific Transaction Cycles 152

Revenue/Receipts—Sales 154

Revenue/Receipts—Cash 156

Expenditures/Disbursements 158

Payroll Cycle 161

Miscellaneous Cycles 163

Audit Evidence: Concepts and Standards 165

Overview of Substantive Procedures 165

The Nature of Audit Evidence 169

Types of Audit Procedures 174

PCAOB Risk Assessment Audit Standards 177

Evaluation of Misstatements Identified During the Audit 181

Audit Documentation 183

PCAOB on Audit Documentation 187

Confirmation 189

Accounting Estimates 191

Fair Value Estimates 195

Lawyer’s Letters 198

Management Representations Letters 201

Related-Party Issues 204

PCAOB on Related Parties 208

Subsequent Events and Related Issues 211

Going Concern Issues 215

Audit Evidence: Specific Audit Areas 219

Introduction to Auditing Individual Areas 219

Cash 221

Accounts Receivable 224

Inventory 226

Investments in Securities and Derivative Instruments 229

Fixed Assets 236

Current Liabilities 238

Long-Term Liabilities 240

Stockholders’ Equity 241

Payroll 242

Audit Sampling 244

Introduction to Sampling 245

Attributes Sampling 246

Variables Sampling 248

Probability-Proportional-to-Size (PPS) Sampling 252

IT (Computer) Auditing 254

IT General and Application Controls 254

Other IT Considerations 258

Forming Conclusions and Reporting 261

Audit Reports 262

Introduction to Audit Reports 262

Reporting Key Audit Matters 269

PCAOB on Audit Reports 272

Audits of Group Financial Statements 276

Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs 280

Qualified for Scope Limitation 284

Qualified for Misstatement 287

Adverse Opinion 290

Disclaimer of Opinion 293

Consistency of Financial Statements 296

PCAOB on Evaluating Consistency of Financial Statements 298

Opening Balances—Initial Audits 300

Responsibilities for Other Information in Annual Reports 304

Supplementary Information Related to Financial Statements 307

Required Supplementary Information 309

PCAOB on Auditing Supplemental Information 311

Alert to Restrict Report 314

Financial Statements Using Another Country’s Framework 316

Reporting on Summary Financial Statements 319

Interim Financial Information 322

Other Types of Reports 328

Reports on Application of Requirements of Framework 328

F/S with Special Purpose Frameworks 331

Audits of Single F/S and Specific Elements, Accounts, or Items 335

Reporting on Compliance with Requirements in an F/S Audit 339

Service Organizations—User Auditors 343

Service Organizations—Service Auditors 345

Government Auditing Standards 348

Compliance Audits 351

SSARSs—General Principles 355

SSARSs—Preparation of Financial Statements 358

SSARSs—Compilation Engagements 361

SSARSs—Review Engagements 365

SSARSs—Other Topics 372

Other Professional Services 377

AICPA on Reporting on Internal Control in an Integrated Audit 377

PCAOB on Reporting on Internal Control in an Integrated Audit 387

PCAOB on Reporting Whether a Previously Reported Material Weakness Continues to Exist 393

Auditing Employee Benefit Plans 397

Introduction to Attestation Standards 404

Attestation Standards—Common Concepts 407

Examination Engagements 411

Examination Reports 415

Review Engagements 422

Review Reports 426

Agreed-Upon Procedures Engagements 432

Prospective Information 437

Pro Forma Financial Information 444

Compliance Attestation 449

Management’s Discussion and Analysis (MD&A) 454

Assurance Services 458

Index to come 461

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