Audit CH 1

CPA Exam

1) Auditing & Attestation 2) Financial Accounting & Reporting 3) Regulation 4) Business Environment & Concepts

The shift in emphasis to taking a greater responsibility for the detection of fraud resulted from:

1) a dramatic increase in congressional pressure to assume more responsibility for large-scale frauds. 2) a number of successful lawsuits claiming that fraudulent financial reporting (management fraud) had improperly gone undetected by the independent auditors. 3) a belief by public accountants that audits to be expected to detect material fraud.

Audits are often viewed as falling into three major categories:

1) financial audits 2) compliance audits 3) operational audits

Research and Publication

??

Regulation of Public Accounting Firms

?? *AICPA's Peer Review Program

Dodd-Frank Act (the Wall Street Reform and Consumer Protection Act) of 2010

A U.S. federal law that increases federal government regulation of the financial industry. The legislation, enacted in July 2010, aims to prevent a major financial crisis by creating new financial regulatory processes that are aimed at enforcing transparency and accountability while implementing rules for consumer protection. The act also expands the Public Company Accounting Oversight Board's authority to oversee audits of brokers and dealers. This act's major purposes were to promote financial stability by improving accountability and transparency in the financial system and to protect the U.S. taxpayer by ending bailouts of "too-big-to-fail" institutions.

Audit Committees

A committee of a corporation's board of directors that engages, compensates, and oversees the work of the independent auditors, monitors activities of the internal auditing staff, and intervenes in any disputes between management and the independent auditors.

Certified Public Accountant (CPA)

A person licensed by the state to practice public accounting as a profession, based on having passed the Uniform CPA Examination and having met certain educational and experience requirements. The licensing of CPAs by the states reflects a belief that the public interest will be protected by an official identification of competent professional accountants who offer their services to the public. Although CPAs provide various types of tax, consulting, and accounting services which are also provided by non-CPAs, the various states generally restrict the performance of audits of financial statements to CPAs. It is this performance of the attest function on financial statements that is most unique to CPAs.

Reliable accounting and financial reporting aid society in allocating resources in an efficient manner.

A primary goal is to allocate limited capital resources to the production of those goods and services for which demand is great. Economic resources are attracted to the industries, the geographic areas, and the organizational entities that are shown by financial measurements to be capable of using the resources to the best advantage. Inadequate accounting and reporting, on the other hand, conceal waste and inefficiency, thereby preventing an efficient allocation of economic resources.

Internal Auditors

A principal goal of internal auditors is to investigate and appraise the effectiveness with which the various organizational units of the company are carrying out their assigned functions. A large part of the work of internal auditors consists of operational audits; in addition, they may conduct numerous compliance audits. Unlike CPAs, who are committed to verify each significant item in the annual financial statements, internal auditors are not obligated to repeat their audits on an annual basis. The internal auditing staff often reports to the audit committee of the board of directors and also to the president or another high-level executive. The internal auditors are employees of the organization in which they work, subject to the restraints inherent in the employer-employee relationship.

Assertion

A representation or declaration made by the responsible party, typically management of the entity.

Association (of CPA firms)

A separate legal entity composed of otherwise unrelated CPA firms. Associations allow member firms to enhance their capabilities to provide professional services (e.g., to refer work to or receive referrals from, other association members).

Financial Reporting Framework

A set of criteria used to determine measurement, recognition, presentation, and disclosure of all material items appearing in the financial statements. Ex. International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

Sarbanes-Oxley Act of 2002

A set of reforms that toughened penalties for corporate fraud, restricted the kinds of consulting CPAs can perform for audit clients, and created the Public Company Accounting Oversight Board (PCAOB) to oversee CPAs and public accounting firms.

Financial statements may depart from GAAP due to...

Accidental errors, lack of knowledge of accounting principles, unintentional bias, and deliberate falsification.

Statements on Auditing Standards

Also known as the expectation gap, enacted by the AICPA.

Operational Audits

An analysis of a department or other unit of business or governmental organization to measure the effectiveness and efficiency of operations. An operational audit is the study of a specific unit of an organization for the purpose of measuring its performance. *efficiency and effectiveness *requires subjective judgement

Managements of public companies are now required to include in their annual reports...

An assertion about the effectiveness of internal control over financial reporting and to engage their auditors to attest to the effectiveness of internal control.

Network (of CPA firms)

An association of CPA firms that shares at least one of the following with other firms: (1) common brand name; (2) common control; (3) profits; (4) common business strategy; (5) significant professional resources; (6) common quality control policies and procedures.

Examination

An attest engagement designed to provide the highest level of assurance that CPAs provide on an assertion. An examination of financial statements is referred to as an audit.

Agreed-Upon Procedures Engagement

An attest engagement in which the CPAs agree to perform procedures for a specified party and issue a report that is restricted to use by that party. An agreed-upon procedures engagement results in a report by the CPAs that describes those procedures and their findings.

Financial Audits

An audit of the financial accounting information of an organization or segment of the organization. This may involve a complete set of financial statements or a portion of a statement.

Compliance Audits

An audit to measure the compliance of the organization with some established criteria (e.g., laws and regulations, or internal control policies and procedures). Ex. audit of an income tax return by the IRS - such audits address whether a tax return is in compliance with tax laws and IRS regulations.

Review

An engagement designed to express limited assurance relating to subject matter or an assertion.

Attest Engagement

An engagement in which the CPAs issue an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about subject matter that is the responsibility of another party (ex. management).

Audit of Financial Statements

An examination designed to provide an opinion, the CPA's highest level of assurance that the financial statements follow generally accepted accounting principles, or another acceptable basis of accounting.

Continuing Professional Education

Another important activity of the AICPA is the development of a continuing professional education program. Continuing education is a necessity for CPAs to remain knowledgeable about the unending stream of changes in accounting principles, tax law, auditing, computers, and consulting services. Continuing education programs are offered by the AICPA, state societies, and other professional organizations. State laws require CPAs to participate in continuing education programs as a condition for license renewal.

Public Company Accounting Oversight Board (PCAOB)

As indicated previously, the Public Company Accounting Oversight Board (PCAOB) was created in 2002 to oversee and discipline CPAs and public accounting firms that audit public (issuer) companies. This five-member board, under the authority of the SEC, has the responsibility to establish or adopt "auditing, attestation, quality control, ethics, and independence standards relating to the preparation of audit reports" for SEC registrants (almost all publicly traded companies in the United States). In addition, the PCAOB has the responsibility to: Register public accounting firms that audit public companies. Perform inspections of the practices of registered firms. Conduct investigations and disciplinary proceedings of registered firms. Sanction registered firms. In 2010, the Dodd-Frank Act expanded the PCAOB's scope of responsibility to include overseeing audits of securities brokers and dealers.

Integrated Audits

As required by the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board, an audit that includes providing assurance on both the financial statements and internal control over financial reporting. Integrated audits are required of publicly traded companies in the United States. The auditors, in addition to providing an opinion on the company's financial statements, report on both management's assessment and internal control effectiveness.

A major subset of assurance services is called...

Attestation Services

Appointment, compensation, and oversight of the world of the company's external auditors is the responsibility of...

Audit Committee

Financial Accounting Standards Board (FASB)

Auditors should determine whether financial statements are prepared in conformity with generally accepted accounting principles. Both the SEC and the AICPA have designated the Financial Accounting Standards Board as the body with power to set forth these principles for entities other than federal, state, and local governments. Thus, FASB Statements, exposure drafts, public hearings, and research projects are all of major concern to the public accounting profession.

Accounting and Review Services

Audits are expensive. For a small business, the cost of an audit will run into the thousands of dollars; for large corporations, the cost may exceed a million dollars. The most common reason for a small business to incur the cost of an audit is the influence exerted by a bank that insists upon audited financial statements as a condition for granting a bank loan. If a small business is not in need of a significant amount of bank credit, the cost of an audit may exceed its benefits. An alternative is to retain a public accounting firm to perform other services for nonpublic (nonissuer) companies, such as the compilation or review of financial statements. To compile financial statements means to prepare them; this service is often rendered when the client does not have accounting personnel capable of preparing statements. The public accounting firm issues a compilation report on the financial statements that provides no assurance that the statements are presented fairly in accordance with generally accepted accounting principles. A review of financial statements by a public accounting firm is an attestation service that is substantially less in scope than an audit. It is designed to provide limited assurance on the credibility of the statements. A review stresses inquiries by the CPA and the comparison of amounts in the statements to comparable financial and nonfinancial data. These comparisons, which are referred to as analytical procedures, are useful in bringing to light possible misstatements of financial statement amounts.

The auditors will gather the evidence necessary to issue an audit report...

By gathering information about the company and its environment, including internal control; inspecting documents; observing assets; making inquiries within and outside the company; and performing other auditing procedures.

SUMMARY 1

CPAs provide a wide array of information enhancement services referred to as assurance services. Currently, the primary type of assurance service provided by CPAs involves attestation. When performing attestation services, CPAs enhance the reliability of information by issuing an examination, review, or agreed-upon procedures report on subject matter or an assertion that is the responsibility of another party. In the case of financial statement audits, the report most frequently includes an opinion about whether management's financial statements conform to generally accepted accounting principles.

Generally Accepted Accounting Principles (GAAP)

Concepts or standards established by such authoritative bodies as the FASB and the GASB and accepted by the accounting profession as essential to proper financial reporting.

Government Accountability Office (GAO)

Congress' own auditing staff, headed by the controller general. The work of GAO auditors includes compliance, operational, and financial audits. These assignments include audits of government agencies to determine that spending programs follow the intent of Congress and operational audits to evaluate the effectiveness and efficiency of selected government programs. GAO auditors conduct examinations of corporations holding government contracts to verify that contract payments by the government have been proper. In addition, the financial statements of a number of federal agencies and the consolidated financial statements of the federal government are audited by the GAO.

Business risk is assessed by...

Considering factors such as the financial position of the company, the nature of its operations, the characteristics of the industry in which it operates, and the quality and integrity of its management.

The contribution of the independent auditor is to provide credibility to information.

Credibility, in this usage, means that the information can be believed; that is, it can be relied upon by outsiders, such as stockholders, creditors, government regulators, customers, and other interested third parties. These third parties use the information to make various economic decisions, such as decisions about whether to invest in the organization.

The Panel on Audit Effectiveness

Established in 2000 by the SEC. The panel was charged with the responsibility of reviewing and evaluating how independent audits of financial statements are performed and assessing whether recent trends in audit practices serve the public interest. Recommendations from the panel resulted in changes in auditing standards related to the detection of fraud, documentation of audit evidence and judgments, risk assessments, and the linkage of audit procedures to audit risks.

Accounting and Review Services Committee (of the AICPA)

Establishes standards for reporting on financial statements when the CPAs' role is to compile or review the financial statements rather than to perform an audit. The series of pronouncements by this committee is called Statements on Standards for Accounting and Review Services (SSARS). The SSARSs provide guidance for the many sensitive situations in which a public accounting firm is in some way associated with the financial statements of a nonpublic company and, therefore, needs to make clear the extent of the responsibility that the public accounting firm assumes for the fairness of the statements.

The definition of an attest engagement refers to reports arising from three form of engagements...

Examinations, reviews, and the performance of agreed-upon procedures.

CPAs attest to many types of subject matter including...

Financial forecasts, internal control, compliance with laws and regulations, and advertising claims.

The CPAs perform a financial statement audit to gather sufficient evidence to issue an audit report with their opinion on whether the financial statements (the subject matter)...

Follow the applicable financial reporting framework (often GAAP).

Fraud Investigation Services

Fraud investigation services generally involve engaging professionals to investigate suspected or known fraud. These types of services are also referred to as forensic accounting services, but forensic accounting is somewhat broader and includes litigation support services. Because of increased identified incidences of defalcation and theft, fraud investigation has become a significant part of the work performed by many internal audit departments. These types of services are also a practice specialty for many public accounting firms. To demonstrate expertise in the area of fraud investigation, the designation "Certified Fraud Examiner" has been developed by the Association of Certified Fraud Examiners.

The suitable criteria in a financial statement audit are set forth in the financial reporting framework selected by management, often...

Generally Accepted Accounting Principles (GAAP)

Public Company Accounting Oversight Board (PCAOB)

Has broad powers to develop and enforce standards for public accounting firms that audit companies that issue securities registered with the SEC. Establishment of the PCAOB eliminated the accounting profession's self-regulation of audits of public (issuer) companies.

Professional Regulation

Historically, most of the regulation of accounting firms has been performed by the accounting profession itself through the AICPA. While the SEC has provided oversight and some regulation, prior to 2002 Congress had enacted limited legislation to regulate the profession. This situation changed significantly in 2002 with the passage of the Sarbanes-Oxley Act. As indicated previously, this legislation created the PCAOB, which now regulates all accounting firms that audit public (issuer) companies. The AICPA now provides very limited regulation for auditors of public companies but continues to regulate the accounting firms that do not audit public companies.

Federal Accounting Standards Advisory Board (FASAB)

In 1990, the federal Office of Management and Budget, the U.S. Treasury, and the General Accounting Office (since renamed the Government Accountability Office) established the Federal Accounting Standards Advisory Board (FASAB) to develop accounting standards for the U.S. government. This body issues standards that are used to audit a number of major federal agencies and the U.S. government as a whole as required by the Government Management Reform Act of 1994.

Financial statements prepared by management and transmitted to outsiders without first being audited by independent accountants leave a credibility gap.

Independent auditors have no material personal or financial interest in the business; their reports can be expected to be impartial and free from bias.

Members of the audit committee must be...

Independent directors, that is, members of the board of directors who do not also serve as corporate officers or have other relationships that might impair independence.

Boards of Directors

Individuals elected by a corporation's shareholders to oversee the activities of the corporation. A board of directors ordinarily is composed of executives from the company and non-executive directors.

Peer Review

Involved a critical review of one public accounting firm's practices by another public accounting firm. Such an external review clearly offers a more objective evaluation of the quality of performance than could be made by self-review. The purpose of this concept is to encourage rigorous adherence to the AICPA's quality control standards.

Institute of Internal Auditors (IIA)

Is the International organization of internal auditors; it has developed various standards relating to internal auditing, and it administers the certified internal auditor (CIA) examination.

Statements on Standards for Attestation engagements (SSAEs)

Issued by the AICPA. These statements provide CPAs with guidance for attesting to information other than financial statements, such as financial forecasts.

PCAOB

Issues standards for audits of public companies. The PCAOB has adopted the Auditing Standards Board's Statements on Auditing Standards that were in effect as of April 16, 2003, as interim standards for audits of publicly traded companies. The standards are "interim" in that they serve as a starting point as the PCAOB develops its own set of standards.

The audit report states that...

It is the auditors' opinion that the financial statements follow GAAP.

An audit addresses...

Management's assertions that the assets listed in the balance sheet really exist, that the company has title (rights) to the assets, and that the valuations assigned to the assets have been established in conformity with GAAP.

The word audited, when applied to financial statements...

Means that the balance sheet and the statements of income, retained earnings, and cash flows are accompanied by an audit report prepared by independent public accountants, expressing their professional opinions as to the fairness of the company's financial statements.

Suitable criteria must have each of the following attributes:

Objectivity, measurability, completeness, and relevance.

The auditors consider whether the financial statement amounts are accurate, properly classified, and summarized and whether the notes are informative and complete.

Only if sufficient evidence is gathered in support of all these significant assertions can the auditor provide an opinion on whether the financial statements are presented in accordance with GAAP.

Federal Deposit Insurance Corporation (FDIC) Improvement Act of 1991

Passed requiring management of large financial institutions to engage CPAs to attest to the effectiveness of assertions by management about the effectiveness of the institution's controls over financial reporting.

State Board of Accountancy

Permits to practice as a CPA are granted by the state boards of accountancy in the various states. These boards also regulate the profession and may suspend or revoke an accountant's certificate.

Assurance Services

Professional services that enhance the quality of information, or its context, for decision makers. Many assurance services involve some form or attestation. *independence is important *two types of assurance services: 1) those that increase the reliability of information and, 2) those that involve putting information in a form or context that facilitates decision making.

Personal Financial Planning

Public accounting firms also may advise individuals on their personal financial affairs. For example, a public accounting firm may review a client's investment portfolio and evaluate whether the nature of the investments meets the client's financial objectives. The public accounting firm might also advise the client on the nature and amount of insurance coverage that is appropriate. The AICPA offers the designation "Personal Financial Specialist" to CPAs who satisfy certain experience requirements and pass a one-day examination on personal financial planning topics, such as income tax planning, risk management planning, investment planning, retirement planning, and estate planning.

Consulting Services

Public accounting firms offer a variety of services that are designed to improve the effectiveness and efficiency of their clients' operations. Initially, these services developed as a natural extension of the audit and primarily involved consulting on accounting and internal control systems. In recent years, public accounting firms have expanded by offering a host of services that tend to be more operational in nature. Examples are developing strategic planning models and management information systems and performing executive search services. Performance of consulting services for audit clients has been a significant issue with respect to the independence of auditors, so much so that a number of restrictions have been placed on the types and extent of consulting services that may be performed for public company audit clients.

An audit involves...

Searching and verifying the accounting records and examining other evidence supporting the financial statements.

In an examination, CPAs...

Select from all available evidence a combination that limits to a low level the risk of undetected misstatements and provides reasonable assurance that the subject matter (or assertion) is materially correct.

SUMMARY 2

Since audits involve examinations of financial information by independent experts, they increase the credibility of the information contained in the statements. Decision makers both within and outside the organization can use audited financial information with confidence that it is not likely to be materially misstated. Audits reduce information risk and, therefore, they reduce the overall risk of making various types of economic decisions.

Tax Services

Tax services that are performed by public accounting firms fall into two broad categories: compliance work and tax planning. Compliance work involves preparing the federal, state, and local tax returns of corporations, partnerships, individuals, and estates and trusts. Tax planning, on the other hand, involves consulting with clients on how to structure their business affairs to legally minimize the amount and postpone the payment of their taxes.

Effective corporate governance requires...

That the interest of a company's management, shareholders, creditors, and other stakeholders be properly balanced.

Auditing Standards Board (ASB)

The AICPA has assigned the ASB responsibility for issuing official pronouncements on auditing matters. A most important series of pronouncements on auditing by the Auditing Standards Board is entitled Statements on Auditing Standards (SASs). The ASB currently has the authority to issue auditing standards only for audits of nonpublic companies.

If an examination or review does not meet the client's needs...

The CPAs and specified user or users of the information may mutually decide on specific agreed-upon procedures that the CPAs will perform.

Governmental Accounting Standards Board (GASB)

The Governmental Accounting Standards Board (GASB) was formed in 1984 to establish and improve standards of financial accounting for state and local government entities. The operational structure of the GASB is similar to that of the FASB. Auditors of state and local government entities, such as cities and school districts, look to the GASB pronouncements for the appropriate accounting principles.

Internal Revenue Agents

The Internal Revenue Service is responsible for enforcement of the federal tax laws. Its agents conduct compliance audits of the income tax returns of individuals and corporations to determine that income has been computed and taxes paid as required by federal law. Although IRS audits include some simple individual tax returns that can be completed in an hour or so in an IRS office, they also include field audits of the nation's largest corporations and often involve highly complex tax issues.

International Federation of Accountants (IFAC)

The International Federation of Accountants (IFAC) is the global organization of accounting professional bodies. Members of IFAC are not individuals. Instead, membership consists of approximately 160 professional accountancy bodies (e.g., the AICPA) from approximately 125 countries and jurisdictions. IFAC was established to help foster a coordinated worldwide accounting profession with harmonized standards. Boards established by IFAC have the following responsibilities: The International Auditing and Assurance Standards Board (IAASB) establishes International Standards on Auditing (ISAs), International Standards on Quality Control (ISQC), and standards for other assurance and related services. The International Ethics Standards Board for Accountants (IESBA) establishes ethical standards and guidance for professional accountants. The International Accounting Education Standards Board (IAESB) develops guidance to improve accounting education around the world. The pronouncements of these boards do not override the national auditing standards of its members. Rather they are meant to foster the development of consistent worldwide professional standards. Members from countries that do not have their own standards are encouraged to adopt IFAC standards. Members from countries that already have standards are encouraged to compare them to IAASB standards and seek to eliminate any material inconsistencies. The AICPA's Auditing Standards Board has worked to harmonize its standards with those of the IAASB such that there are only minor differences between them.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is an agency of the U.S. government. It administers the Securities Act of 1933, the Securities Exchange Act of 1934, and other legislation concerning securities and financial matters. In addition, the SEC has oversight responsibility for the PCAOB. The primary function of the SEC is to protect investors and the public by requiring full disclosure of financial information by companies offering securities for sale to the public. A second objective is to prevent misrepresentation, deceit, or other fraud in the sale of securities. The term registration statement is an important one in any discussion of the impact of the SEC on accounting practice. To register securities means to qualify them for sale to the public by filing with the SEC financial statements and other data in a form acceptable to the commission. A registration statement contains audited financial statements, including balance sheets for a two-year period and income statements, statements of retained earnings, and statements of cash flows for a three-year period. The legislation creating the SEC made the commission responsible for determining whether the financial statements presented to it reflect proper application of accounting principles. To aid the commission in discharging this responsibility, the securities acts provide for an examination and report by a public accounting firm registered with the Public Company Accounting Oversight Board. From its beginning, the SEC has been a major user of audited financial statements and has exercised great influence upon the development of accounting principles, the strengthening of auditing standards, and the concept of auditor independence. Protection of investors, of course, requires that the public have available the information contained in a registration statement concerning a proposed issue of securities. The issuing company is therefore required to deliver to prospective buyers of securities a prospectus, or selling circular, from the registration statement. The registration of securities does not insure investors against loss; the SEC does not pass on the merit of securities. There is, in fact, only one purpose of registration: to provide disclosure of the important facts so that the investor has available all pertinent information on which to base an intelligent decision as to whether to buy a given security. If the SEC believes that a given registration statement does not meet its standards of disclosure, it may require amendment of the statement or may issue a stop order preventing sale of the securities. To improve the quality of the financial statements filed with it and the professional standards of the independent accountants who report on these statements, the SEC has adopted a basic accounting regulation known as Regulation S-X and entitled Form and Content of Financial Statements. Between 1937 and 1982, the SEC issued 307 Accounting Series Releases (ASRs) addressing various accounting and auditing issues. In 1982, the series was replaced by two series—Financial Reporting Releases and Accounting and Auditing Enforcement Releases. Financial Reporting Releases present the SEC's current views on financial reporting and auditing issues. Accounting and Auditing Enforcement Releases summarize enforcement activities against auditors when the SEC has found deficiencies in the auditors' work. In addition, the standards of the PCAOB must be adopted through the SEC's regulation process.

Audited financial statements are...

The accepted means by which business corporations report their operating results and financial position.

In a financial statement audit...

The auditors undertake to gather evidence and provide a high level of assurance that the financial statements follow GAAP, or some other appropriate basis of accounting.

Economic decisions are made under conditions of uncertainty; there is always a risk that the decision maker will select the wrong alternative and incur a significant loss.

The credibility added to the information by auditors actually reduces the decision maker's risk. To be more precise, the auditors reduce information risk, which is the risk that the financial information used to make a decision is materially misstated.

The performance of a compliance audit is dependent upon...

The existence of verifiable data and of recognized criteria or standards, such as established laws and regulations or an organization's policies and procedures.

Applicable Financial Reporting Framework

The financial reporting framework adopted by management and, where appropriate, those charged with governance in the preparation of the financial statements that is acceptable in view of the nature of the entity and the objectives of the financial statements, or that is required by law or regulation.

Information risk includes the possibility that...

The financial statements might contain material departures from GAAP.

Fraud

The intentional misstatement of financial statements by management (fraudulent financial reporting) or theft of assets by employees (employee fraud). Fraud also is referred to ask irregularities.

The stronger the internal control...

The less testing of financial statement account balances required by the auditors.

Litigation Support Services

The level of litigation in the United States has created a fast-growing area of practice. CPAs are often used in business litigation cases as expert witnesses to calculate damages or explain complex business and accounting concepts to judges and juries. As a result, many public accounting firms have developed departments that specialize in litigation support services.

National Commission on Fraudulent Financial Reporting (the Treadway Commission)

The major accounting organizations sponsored it to study the causes of fraudulent reporting and to make recommendation to reduce its incidence.

Regulation of Individual CPAs

The membership of the AICPA has adopted ethical rules for CPAs in the form of its goal-oriented Code of Professional Conduct. This ethical code sets forth positively stated principles on which CPAs can make decisions about appropriate conduct. Self-regulation also is apparent in the requirements for regular membership in the AICPA, which include the following: Members in public practice must practice with a firm enrolled in an approved practice-monitoring (peer review) program. Members must obtain continuing education: 120 hours every three years for members in public practice and 90 hours every three years for other members.

American Institute of Certified Public Accountants (AICPA)

The national professional organization of CPAs engaged in promoting high professional standards to ensure that CPAs serve the public interest. 1) Establishing standards and rules to guide CPAs in their conduct of professional services. 2) Carrying on a program of research and publication. 3) Promoting continuing professional education. 4) Contributing to the profession's self-regulation.

A company's internal control consists of...

The policies and procedures established to provide reasonable assurance that the objectives of the company will be achieved, including the objective of preparing accurate financial statements.

Business Risk

The risk assumed by investors or creditors that is associated with the company's survival and profitability.

Information Risk

The risk that the information used by investors, creditors, and others to assess business risk is not accurate.

Corporate Governance

The rules, processes, and laws by which businesses are operated, regulated, and controlled. A primary concern of corporate governance is the nature and extent of accountability of people in the corporation and procedures to try to assure that the organization works in the best interest of its stakeholders.

Suitable Criteria

The standards or benchmarks used to measure and present the subject matter and against which the CPA evaluates the subject matter. Suitable criteria are criteria that are established or developed by groups composed of experts that follow due process procedures, including exposure of the proposed criteria for public comment.

Auditors also gather evidence about transactions recorded in the income statement...

They demand evidence that the reported sales really occurred, that sales have been recorded at appropriate amounts, and that the recorded costs and expenses are applicable to the current period and all expenses have been recognized.

Audits provide organizations with more credible financial statements...

To allow users to have more assurance that those statements do not materially depart from GAAP.

Internal Control - Integrated Framework

To be used to evaluate the internal control of an organization.

The evidence obtained and evaluated by the auditors focuses on...

Whether the financial statements are presented in accordance with the applicable financial reporting framework, usually GAAP.

Evidence is gathered to show that...

the balance sheet contains all the liabilities of the company; otherwise the balance sheet might be grossly misleading because certain important liabilities have been accidentally or deliberately omitted.

Internal auditors perform audits of compliance...

with internal controls, other company policies and procedures, and applicable laws and regulations. Internal audit departments often are involved with documenting and testing internal control for management's reports required by the Sarbanes-Oxley Act.