CASE:Independence
when the audit is actually able to maintain an unbiased attitude throughout the audit. accounting services;financial information systems design&implementation;appraisal or valuation services;actuarial services;internal audit outsourcing;management or human resource functions;broker or dealer or investment adviser or investment banker services;legal&expert services unrelated to the audit;others.
is a selected number of members of a company's board of directors whose responsibilities include helping auditors remain independent of management.It is also required be responsible for the appointment,compensation,oversight of the work of the auditor. （AICPA）Rule 101 independence:A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by council.(related financial interest issue;litigation between CPA firm&client;bookkeeping&other services;unpaid fees)
1,Reasonable assurance:Assurance is a measure of the level of certainty that the auditor has obtained at the completion of the audit.Auditing standards indicate reasonable assurance is a high,but not absolute,level of assurance that the financial statements are free of material misstatement The concept of reasonable,but not absolute,assurance indicates that auditor is not an insurer or guarantor of the correctness of the financial statements.Thus,an audit that is conduct in accordance with auditing standards may fail to detect a material misstatement. ①Most audit evidence results from testing a sample of a population such as accounts receivable or inventory.Sampling inevitably includes some risk of not uncovering a material misstatement.Even with good faith&integrity,auditors can make mistakes&errors in judgment.②Accounting presentations contain complex estimates,which inherently involve uncertainty and can be affected by future events.So the auditor has to rely on evidence that is persuasive,but not convincing.③Fraudulently prepared financial statements are often extremely difficult,if not impossible,for the auditor to detect,especially when there is collusion among management.
2,Section 404:1)requires management of all public companies to issue an internal control report that includes the following:a statement that management is responsible for establishing&maintaining an adequate internal control structure&procedures for financial reporting./an assessment of the effectiveness of the internal control structure&procedures for financial reporting as of the end of the company's fiscal year.2)report on IC include 2 opinions:the auditor's opinion on whether management's assessment of the effectiveness of internal control over financial reporting as of the end of the fiscal period is fairly stated,in all material respects./the auditor's opinion on whether the company maintained,in all material respects,effective internal control over financial reporting as of the specified date.
3,AAR(Acceptable audit risk):is a measure of how willing the auditor is to accept that the
financial statements may be materially misstated after the audit is completed&an unqualified opinion has been issued.When the auditor decides on a lower acceptable audit risk,it means that the auditor wants to be more certain that the financial statements are not materially misstated.ADR=AAR/RMM
4,Analytical Procedure:use comparisons&relationships to assess whether account balances or other data appear reasonable compared to the auditor's expectations.①AP1：Understand the client's industry&business(the changes of the data can represent important trends or specific events,all of which will influence audit planning);Assess the entity's ability to continue as a going concern.②AP2:indicate the presence of possible misstatements in the financial statements(significant unexpected differences between the current year's unaudited financial data &other data used in comparisons and commonly called unusual fluctuations.Unusual fluctuations occur when significant differences are not expected but do exist,or when significant differences are expected but do not exist.The presence of an accounting misstatement is one possible reason for the unusual fluctuation.)③AP3:Reduce detailed audit tests(When an analytical reveals no unusual fluctuations,this implies the possibility of a material misstatement is minimized.In such cases,the analytical procedure constitutes substantive evidence in support of the fair statement of the related account balances,and it is possible to perform fewer detailed tests in connection with those accounts.)
5,Materiality:the magnitude of an omission or misstatement of accounting information that,in the light of surrounding circumstances,makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.五步骤:①set preliminary judgment about materiality②Allocate preliminary judgment about materiality to segments③estimate total misstatement in segment④estimate the combined misstatement⑤compare combined estimate with preliminary or revised judgment about materiality.
6,Engagement latter: including the engagement's objectives,the responsibilities of the auditor &management,the engagement's limitations. FOR nonpublic companies,it is signed by management;for public management,signed by the audit committee.
7,audit opinion:standards unqualified audit report:All statement are included in the financial statements;the 3 general standards have been followed in all respects on the engagement;sufficient appropriate evidence has been accumulated,and the auditor has conducted the engagement in a manner that enables him or her to conclude that the 3 standards of field work have been met;adequate disclosure have been included in the footnotes and other parts of the financial statements;there are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report.
8,Internal Control:1)A system of internal control consists of policies&procedures designed to provide management with reasonable assurance that company achieves its objectives&goals.
[objectives:reliability of financial reporting;efficiency&effectiveness of operations;compliance with laws®ulations.2)COSO internal control components:control environment;risk
assessment;control activities;information&communication;monitoring.3)3 types of documents to obtain IC:narratives,flowcharts;internal control questionnaires.4)evaluate IC implementation: update&evaluate auditor's previous experience with the entity;make inquiries of client personnel;examine documents&records;observe entity activities&operations;perform walkthroughs of the accounting system.
9,PCAOB:established by Sarbanes-Oxley Act,appointed and overseen by the SEC.职责:Provides oversight for auditors of public companies;establishes auditing&quality control standards for public company audits;performs inspections of the quality controls at audit firms performing those audits. The PCAOB conducts inspections of registered accounting firms to assess their compliance with the rules of the PCAOB and SEC,professional standards,and each firm's own quality control policies.The PCAOB requires annual inspections of accounting firms that audit more than 100 issuers and inspections of other registered firms at least once every three years.