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Integrated Audits of Public Companies
Ch 18 Integrated Audits of Public Companies
14
Accounting
Undergraduate 4
12/09/2012

Additional Accounting Flashcards

 


 

Cards

Term

Auditors of

Public Companies

Should report on 

Definition

Financial Statements 

and 

Internal control over financial reporting

Term
What does PCAOB Standard No. 5 say about the audits of public companies?
Definition
The audits of internal control and financial reporting should be integrated
Term

SOX 404(a)

 

Definition

Requires annual report filed with SEC to include an internal control report

*Mgmt acknowledges responsibility for estabishing and maintaining adequate internal control

*Provides assessment of internal control effectiveness at end of fiscal year

Term
SOX 404 (b)
Definition

Requires CPA firm to audit internal control and express opinion on effectiveness of internal control 

(required for companies w/capitalization in excess of $75million)

Term

What is

Management's responsibility?

Definition

*Accept responsibility for effectiveness

*Evaluate effectiveness using suitable criteria

*Support evaluation with sufficient evidence

*Provide a report on internal control

Term

What must be in

Management's Report on 

Internal Control?

Definition

-State that it is management’s responsibility to establish and maintain adequate internal control.

-Identify framework for evaluation

-Include assessment of effectiveness of internal control over financial reporting as of the end of the most recent period, including stmt as to whether it is effective

-Stmt that company's auditors have issued an attestation report on mgmt's assessment

Term

What are the rules for 

Management's Assessment? 

Definition

-may be assisted by consultants but not CPA firm that conducts the financial stmt audit

-must understand definition of internal control adopted by the SEC

-must use an accepted control framework such as internal control integrated framework by COSO

-Must understand concepts of control deficiency, significant deficiency and material weakness

Term

What are the 3 types of

deficiency, and do they lead to required modification of management's assessment and auditor's report?

Definition

Control Deficiency -not directly considered in definition. Only if material weakness

Significant Deficiency- Less severe than material weakness. No

Material Weakness-Reasonable possibility of a material misstatement. Yes


Term

What is a

control deficiency?

Definition

Exists when design or operation of a control doesn't allow mgmt or employees, in the normal course of performing their functions, to prevent or detect misstatements on a timely basis. 

Term

What are the different levels of

control deficiencies?

Definition

Less than a significant deficiency

Significant deficiency- less severe than material weakness but important enough to merit attention

Material Weakness- reasonable possibility that a material misstatement will not be prevented or detected

Term

What is the objective of

management's evaluation

of

Internal Control?

Definition

To provide a reasonable basis for annual assessment.

What is the process?:

1-evaluate design effectiveness of controls

2-evaluate operating effectiveness of internal control

3-documentation of process

4-reporting

 

Term
What is the auditor's objective in the evaluation of internal control in the  audit of a public company?
Definition

-Plan and perform the audit to obtain reasonable assurance about whether material weaknesses exist to express an opinion on company's internal control over financial reporting

-Evidence gathered as of date specified in management's assessment- normally the last day of the fiscal year. 

Term

What are the Audit Steps in the audit of a Public Company?

 

Definition

1-Plan engagement

2-Use top-down approach to identify controls to test

3-Test and evaluate design effectiveness of internal control

4-Test and evaluate operating effectiveness of internal control

5-Form an opinion on the efffectiveness of internal control

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