Reference no: EM132448635

This list below indicated various audits, attestation, and other engagements involving auditors.

1. A report on the effectiveness of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.

2. An auditor's report on whether the financial statements are fairly presented in accordance with International Financial Reporting Standards.

3. An engagement to help a company structure a merger transaction to minimize the taxes of the combined entities.

4. A report stating whether the company has complied with restrictive covenants related to officer compensation and payment of dividends contained in a bank loan agreement.

5. A report on the effectiveness of internal controls at a company that provides payroll processing for other companies.

6. An examination report stating whether a company's statement of greenhouse gas emissions is presented in conformity with standards issued by the World Business Council for Sustainable Development and the World Resources Institute.

7. Evaluating the voting process and certifying the outcome for Rolling Stones Magazine's "Greatest Singer of All Time" poll.

8. A report indicating whether a governmental entity has compiled with certain government regulations.

9. A review report that provides limited assurance about whether financial statements are fairly stated in accordance with U.S. GAAP.

10. A report about management's assertion on the effectiveness of controls over the availability, reliability, integrity, and maintainability of its accounting information system.

11. An evaluation of the effectiveness of key measures used to assess an entity's success in achieving specific targets linked to an entity's strategic plan and vision.

Required

a. Explain the relationships among audit services, attestation services, and other assurance and no assurance services provided by CPA's.

b. For each of the services listed above, indicate the type of service from the list that follows.
(1) An audit of historical financial statements.
(2) An attestation service other than an audit service.
(3) An assurance or no assurance service that is not an attestation service.

•  Dave Czarnecki is the managing partner of Czarnecki and Hogan, a medium-sized local CPA firm located outside of Chicago. Over lunch, he is surprised when his friend James Foley asks, him, "Doesn't it bother you that your clients don't look forward to seeing their auditors each year?" Dave responds, "Well auditing is only one of several services we provide. Most of our work for clients does not involve financial statement audits, and our audit clients seem to like interacting with us."

a. Identify ways in which a financial statement audit adds value for clients.

b. List other services other than audits that Czarnecki and Hogan likely provides.

c. Assume Czarnecki and Hogan has hired you as a consultant to identify ways in which they can expand their practice. Identify at least one additional service that you believe the firm should provide and explain why you believe this represents a growth opportunity for CPA firms.

• 1-22. There are many types of information that require assurance. Individually or in groups, identify the following types of assurance services.

a. Identify three or more assurance services that are likely to be provided only by public accounting firms.

b. Identify three or more assurance services that are likely to be provided by assurance providers other than public accounting firms.

c. Identify three or more assurance services that may be provided by public accounting firms or other assurance providers.

Sara O'Hann enjoyed taking her first auditing course as part of her undergraduate accounting program. While at home during her semester break, she and her father discussed the class, and it was clear that he didn't really understand the nature of the audit process as he asked the following questions:

a. What is the main objective of the audit of an entity's financial statements?

b. The audit represents the CPA firm's guarantee about the accuracy of the financial statements, right?

c. Isn't the auditor's primary responsibility to detect all kinds of fraud at the client?

d. Given the CPA firm is auditing financial statements, why should they need to understand anything about eh client's business?

e. What does the auditor do in audit other than verify the mathematical accuracy of the numbers in the financial statements?

• For each of the following procedures taken from the quality control manual of a CPA firm, identify the applicable element of quality control

a. Appropriate accounting and auditing research require adequate technical reference materials. Each firm professional has online password access through the firm's Website to electronic reference materials on accounting, auditing, tax, SEC, and other technical information, including industry data.

b. The partners accept responsibility for leading and promoting a quality assurance culture within the firm and for providing and maintaining

a quality assurance manual and all other necessary practical aids and guidance to support engagement quality.

c. Each office of the firm shall be visited at least annually by review persons selected by the director of accounting and auditing. Procedures to be undertaken by the reviewers are illustrated by the office review program.

d. Audit engagement team members enter their electronic signatures in the firm's engagement management software to indicate the completion of specific audit program steps. At the end of the audit engagement file until all audit program steps have been electronically signed.

e. At all stages of any engagement, an effort is made to involve professional staff at appropriate levels in the accounting and auditing decisions. Various approvals of the manager or senior accountant are obtained throughout the audit.

f. No employee will have any direct or indirect financial interest, association, or relationship (for example, a close relative serving a client in

a decision-making capacity) not otherwise disclosed that might be adverse to the firm's best interest.

g. Individual partners submit the nominations of those persons whom they wish to be considered for partner. To become a partner, an individual must have exhibited a high degree of technical competence; must possess integrity, motivation, and judgment; and must have a desire to help the firm progress through the efficient dispatch of the job responsibilities to which he or she is assigned.

h. Through our continuing employee evaluation and counseling program and through the quality control review procedures as established by the firm, educational needs are reviewed and formal staff training programs modified to accommodate changing needs. At the conclusion of practice office reviews, apparent accounting and auditing deficiencies are summarized and reported to the firm's director of personnel.

i. All potential new clients are reviewed before acceptance. The review includes consultation with predecessor auditors, and background checks. All new clients are approved by the firm management committee, including assessing whether the firm has the technical competence to complete the engagement.

j. Each audit engagement must include a concurring partner review of critical audit decisions.

• International Standards on Auditing (ISAs) are issued by the International Auditing and Assurance Standards Board (IAASB). Use the IAASB Web site to learn more about he IAASB and its standard-setting activities.

a. What is the objective of the IAASB? Who uses International Standards on Auditing?

b. Summarize the due process followed by the IAASB in setting standards.

c. How is the IAASB committed to transparency in the standard-setting process?