CPA Exam - AUD (Section 1) question
and answers
Statements on Auditing Standards (SAS) - Answerstandard-setting body: AICPA auditing standards
board
SAS provide GAAS for audits of non issuers (private)
& provides guidance for other services, such as review of interim financials and letters to
underwriters
PCAOB Auditing Standards - Answerstandard-setting body: PCAOB accounting oversight board
PCAOB AS provide GAAS for the audits of issuers (public) & provides guidance for other services,
such as review of interim financials and letters to underwriters
Generally Accepted Government Auditing Standards (GAGAS) - Answerstandard-setting body:
governmental accountability office (GAO)
GAGAS provide guidance for audits of government orgs, programs, activities, and of entities that
receive government funds
Statements on Standards for Attestation Engagements (SSAE) - Answerstandard-setting body: AICPA
applies to: examination, a review, or agreed-upon procedures report on a subject matter, or an
assertion about a subject matter, that is the responsibility of another party
Statements on Standards for Accounting and Review Services (SSARS) - Answerstandard-setting
body: AICPA accounting and review services committee
provide guidance for UNaudited financials of non issuers (private)
Code of Professional Conduct - Answerstandard-setting body: AICPA
provides MEMBERS with guidelines for BEHAVIOR in the conduct of their professional affairs.
also provides assurance to the public that the profession intends to maintain high standards and to
enforce compliance with these standards by its members
applies to: members of the AICPA
Statements on Quality Control Standards (SQCS) - Answerstandard-setting body: AICPA
provides guidance to CPA FIRMS about a quality control system.
,applies to: CPA firms providing auditing, attestation, and accounting and review services
quality control system - Answerconsists of policies and procedures deisgned, implemented, and
maintained to ensure that the firm complies with professional standards and appropriate legal and
regulatory requirements, and that any reports issued are appropriate in the circumstances
The GAAS Hierarchy (most authoritative to least) - AnswerSAS (nonissuers) & PCAOB AS (issuers)
Interpretive Publications
Other Auditing Publications
SAS (non issuers) & PCAOB AS (issuers) - Answerauditor should use professional judgement & be
prepared to justify any departures from presumptively mandatory requirements
SAS (non issuers) & PCAOB AS (issuers) - LANGUAGE - Answerclarifies the auditor's level of
responsibility
- "must" or "is required" indicates and unconditional requirement, which must be followed in all
cases in which the requirement is relevant
- "should" indicates a presumptively mandatory requirement, which must be followed in all cases
where relevant except in rare circumstances when departure is permitted if justified
- "may," "might," and "could" indicate explanatory material that does not impose a professional
requirement for performance
Interpretive Publications - Answerare recommendations regarding how SASs should be applied in
specific situations.
- not considered to be auditing standards
- ex: auditing interpretations of GAAS, exhibits to GAAS, auditing guidance provided in AICPA Audit
and Accounting Guides, & AICPA Auditing Statements of Position (SOP)
Other Auditing Publications - Answerhave NO authoritative status but may be helpful to the auditor
- ex: Auditing articles in the Journal of Accountancy (or other professional journal), auditing articles
in the AICPA CPA Letter, continuing professional education materials, textbooks, and other auditing
publications
purpose of an audit - Answerto provide financial statement users with an opinion on whether the
financial statements are presented fairly, in all material respects, in accordance with the applicable
financial reporting framework (GAAP, IFRS, & special purpose frameworks)
,Management and those charged with governance are responsible for: - Answer1. the preparation
and fair presentation of the FS in accordance w the applicable financial reporting framework
2. the design, implementation, and maintenance of internal control relevant to the preparation and
fair presentation of FS that are free of material misstatement due to error or fraud; and
3. providing the auditor with access to information and persons within the entity needed to
complete the audit
the preparation and fair presentation of the FS requires: - Answer1. identification of the applicable
financial reporting framework
2. preparation and fair presentation of the FS in accordance w the framework; and
3. inclusion of an adequate description of the framework in the FS
Auditor Responsibilities - Answerthe auditor is responsible for expressing an opinion on the FS based
on the audit as well as:
1. maintaining professional skepticism
2. complying with relevant ethical requirements
3. exercising professional judgment throughout the planning and performance of the audit
4. obtaining sufficient appropriate audit evidence; and
5. complying with GAAS
professional skepticism - Answerrecognition that circumstances may exist that cause the financial
statements to be materially misstated
auditors should be alert for:
-audit evidence that contradicts other audit evidence obtained
-info that calls into question the reliability of documents and responses to inquiries that may be used
as audit evidence
-conditions that indicate possible fraud
-circumstances that suggest the need for audit procedures in addition to those required by GAAS
environment that creates potential fraud - Answerpressure
opportunity
, rationalization
Ethical Requirements - Answermust be independent in both fact and appearance
-ethical requirements include the AICPA Code of Professional Conduct and the rules of the state
boards of accountancy and applicable regulatory agencies that are more restrictive
Professional Judgment - Answershould exercise PJ in planning & performing the audit
professional judgment is necessary when making decisions about:
-materiality
-audit risk
-the nature, extent, and timing of audit procedures (NET)
-evaluating whether sufficient sufficient, appropriate evidence has been obtained
-evaluating management's judgements in applying the applicable financial reporting framework
-drawing conclusions based on audit evidence obtained
compliance with GAAS - AnswerAuditor shouldn't represent compliance with GAAS in auditor's
report unless auditor has complied with all GAAS relevant to audit
If objective of relevant GAAS section cannot be achieved, auditor should consider whether this
prevents auditor from achieving overall objectives of auditor thereby requiring modification of
opinion/withdrawal from engagement
Auditor May Conduct Audit in Accordance with both GAAS and: - Answer-auditing standards issued
by the PCAOB
-international standards on auditing (ISAs)
-government auditing standards (GAGAS); or
-auditing standards of a specific jurisdiction or country
Reasonable Assurance - AnswerIn order to express an opinion, the auditor obtains reasonable
assurance about whether the FS are free from material misstatement, whether due to error or fraud.
Reasonable assurance is a high, but not absolute, level of assurance. in order to obtain reasonable
assurance, the auditor must:
and answers
Statements on Auditing Standards (SAS) - Answerstandard-setting body: AICPA auditing standards
board
SAS provide GAAS for audits of non issuers (private)
& provides guidance for other services, such as review of interim financials and letters to
underwriters
PCAOB Auditing Standards - Answerstandard-setting body: PCAOB accounting oversight board
PCAOB AS provide GAAS for the audits of issuers (public) & provides guidance for other services,
such as review of interim financials and letters to underwriters
Generally Accepted Government Auditing Standards (GAGAS) - Answerstandard-setting body:
governmental accountability office (GAO)
GAGAS provide guidance for audits of government orgs, programs, activities, and of entities that
receive government funds
Statements on Standards for Attestation Engagements (SSAE) - Answerstandard-setting body: AICPA
applies to: examination, a review, or agreed-upon procedures report on a subject matter, or an
assertion about a subject matter, that is the responsibility of another party
Statements on Standards for Accounting and Review Services (SSARS) - Answerstandard-setting
body: AICPA accounting and review services committee
provide guidance for UNaudited financials of non issuers (private)
Code of Professional Conduct - Answerstandard-setting body: AICPA
provides MEMBERS with guidelines for BEHAVIOR in the conduct of their professional affairs.
also provides assurance to the public that the profession intends to maintain high standards and to
enforce compliance with these standards by its members
applies to: members of the AICPA
Statements on Quality Control Standards (SQCS) - Answerstandard-setting body: AICPA
provides guidance to CPA FIRMS about a quality control system.
,applies to: CPA firms providing auditing, attestation, and accounting and review services
quality control system - Answerconsists of policies and procedures deisgned, implemented, and
maintained to ensure that the firm complies with professional standards and appropriate legal and
regulatory requirements, and that any reports issued are appropriate in the circumstances
The GAAS Hierarchy (most authoritative to least) - AnswerSAS (nonissuers) & PCAOB AS (issuers)
Interpretive Publications
Other Auditing Publications
SAS (non issuers) & PCAOB AS (issuers) - Answerauditor should use professional judgement & be
prepared to justify any departures from presumptively mandatory requirements
SAS (non issuers) & PCAOB AS (issuers) - LANGUAGE - Answerclarifies the auditor's level of
responsibility
- "must" or "is required" indicates and unconditional requirement, which must be followed in all
cases in which the requirement is relevant
- "should" indicates a presumptively mandatory requirement, which must be followed in all cases
where relevant except in rare circumstances when departure is permitted if justified
- "may," "might," and "could" indicate explanatory material that does not impose a professional
requirement for performance
Interpretive Publications - Answerare recommendations regarding how SASs should be applied in
specific situations.
- not considered to be auditing standards
- ex: auditing interpretations of GAAS, exhibits to GAAS, auditing guidance provided in AICPA Audit
and Accounting Guides, & AICPA Auditing Statements of Position (SOP)
Other Auditing Publications - Answerhave NO authoritative status but may be helpful to the auditor
- ex: Auditing articles in the Journal of Accountancy (or other professional journal), auditing articles
in the AICPA CPA Letter, continuing professional education materials, textbooks, and other auditing
publications
purpose of an audit - Answerto provide financial statement users with an opinion on whether the
financial statements are presented fairly, in all material respects, in accordance with the applicable
financial reporting framework (GAAP, IFRS, & special purpose frameworks)
,Management and those charged with governance are responsible for: - Answer1. the preparation
and fair presentation of the FS in accordance w the applicable financial reporting framework
2. the design, implementation, and maintenance of internal control relevant to the preparation and
fair presentation of FS that are free of material misstatement due to error or fraud; and
3. providing the auditor with access to information and persons within the entity needed to
complete the audit
the preparation and fair presentation of the FS requires: - Answer1. identification of the applicable
financial reporting framework
2. preparation and fair presentation of the FS in accordance w the framework; and
3. inclusion of an adequate description of the framework in the FS
Auditor Responsibilities - Answerthe auditor is responsible for expressing an opinion on the FS based
on the audit as well as:
1. maintaining professional skepticism
2. complying with relevant ethical requirements
3. exercising professional judgment throughout the planning and performance of the audit
4. obtaining sufficient appropriate audit evidence; and
5. complying with GAAS
professional skepticism - Answerrecognition that circumstances may exist that cause the financial
statements to be materially misstated
auditors should be alert for:
-audit evidence that contradicts other audit evidence obtained
-info that calls into question the reliability of documents and responses to inquiries that may be used
as audit evidence
-conditions that indicate possible fraud
-circumstances that suggest the need for audit procedures in addition to those required by GAAS
environment that creates potential fraud - Answerpressure
opportunity
, rationalization
Ethical Requirements - Answermust be independent in both fact and appearance
-ethical requirements include the AICPA Code of Professional Conduct and the rules of the state
boards of accountancy and applicable regulatory agencies that are more restrictive
Professional Judgment - Answershould exercise PJ in planning & performing the audit
professional judgment is necessary when making decisions about:
-materiality
-audit risk
-the nature, extent, and timing of audit procedures (NET)
-evaluating whether sufficient sufficient, appropriate evidence has been obtained
-evaluating management's judgements in applying the applicable financial reporting framework
-drawing conclusions based on audit evidence obtained
compliance with GAAS - AnswerAuditor shouldn't represent compliance with GAAS in auditor's
report unless auditor has complied with all GAAS relevant to audit
If objective of relevant GAAS section cannot be achieved, auditor should consider whether this
prevents auditor from achieving overall objectives of auditor thereby requiring modification of
opinion/withdrawal from engagement
Auditor May Conduct Audit in Accordance with both GAAS and: - Answer-auditing standards issued
by the PCAOB
-international standards on auditing (ISAs)
-government auditing standards (GAGAS); or
-auditing standards of a specific jurisdiction or country
Reasonable Assurance - AnswerIn order to express an opinion, the auditor obtains reasonable
assurance about whether the FS are free from material misstatement, whether due to error or fraud.
Reasonable assurance is a high, but not absolute, level of assurance. in order to obtain reasonable
assurance, the auditor must:
