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aud auditing attestation cpa examination course study guide copyrighted material the comprehensive guide to passing the cpa examination

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published by fast forward academy llc http fastforwardacademy.com 888 798-pass 7277 isbn-10 0983279470 isbn-13 978-0-9832794-7-1 printed in the united states of america © 2012 matrix learning systems inc all rights reserved no part of this publication may be reproduced or distributed in any form or by any means or stored in a database or retrieval system without the prior written permission of the publisher the information provided in this publication is for educational purposes only and does not necessarily reflect all laws rules or regulations for the tax year covered this publication is designed to provide accurate and authoritative information concerning the subject matter covered but it is sold with the understanding that the publisher is not engaged in rendering legal accounting or other professional services if legal advice or other expert assistance is required the services of a competent professional person should be sought irs circular 230 disclosure pursuant to the requirements of the internal revenue service circular 230 we inform you that to the extent any advice relating to a federal tax issue is contained in this communication it was not written or intended to be used and cannot be used for the purpose of a avoiding any tax related penalties that may be imposed on you or any other person under the internal revenue code or b promoting marketing or recommending to another person any transaction or matter addressed in this communication copyrighted material

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table of contents section 3000 overview of the auditing attestation examination 5 section 3100 auditing and attestation engagement acceptance and understanding the assignment 19 section 3200 auditing and attestation understanding the entity and its environment including internal control 43 section 3300 auditing and attestation performing audit procedures and evaluating evidence 87 section 3400 auditing and attestation evaluating audit findings communications and reporting 169 section 3500 accounting and review services engagements 227 section 3600 professional responsibilities 253 index 323 copyrighted material

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copyrighted material

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5 section 3000 overview of the auditing attestation examination 3010 the auditing attestation examination 3011 purpose of the examination 3012 general content of the examination 3013 study suggestions for the auditing attestation portion of the cpa examination 3014 index of official pronouncements 3015 independent audit defined 3016 audit standards and procedures 3017 the general standards 3018 the standards of fieldwork 3019 the standards of reporting 3020 interpretive publications and other auditing publications 3021 suggested readings and references 3010 the auditing attestation section of the cpa examination 3011 purpose of the examination 3011.01 copyrighted material 1 2 3 4 5 6 engagement acceptance and understanding the assignment understanding the entity and its environment including internal control performing audit procedures and evaluating evidence evaluating audit findings communications and reporting accounting and review services engagements professional responsibilities the auditing attestation exam covers knowledge of auditing and attestation standards generally accepted in the united states of america and the skills needed to apply that knowledge in auditing and other attestation engagements candidates for the cpa certification are also expected to demonstrate an awareness of international standards on auditing and professional ethics this section tests such knowledge and skills in the context of the six broad categories source aicpa content and skill specifications for the uniform cpa examination section 3000

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6 3012 general content of the examination 3012.01 the multiple-choice questions in this portion of the examination are presented in random order of topics requiring the candidate to shift from topic to topic while working through the examination the multiple-choice questions will be given in three separate testlets containing a total of 72 to 90 questions there will also be a testlet containing six or seven short taskbased simulation tbs questions which will complement the multiple-choice portion of the exam the tbs questions are condensed case studies that will test candidates auditing knowledge using real life work-related situations the key to passing the auditing portion of the cpa examination is a thorough knowledge of the authoritative auditing literature especially the statements on auditing standards sass a common misconception is that the cpa candidate must have practical auditing experience to pass the auditing examination this may have been true several years ago but today concepts and their application are clearly more important on the examination than highly technical practice considerations such as lengthy audit programs 3012.02 3013 study suggestions for the auditing attestation portion of the cpa examination 3013.01 according to the aicpa content specification outlines starting in section 1600 it appears that the content of future exams will follow this outline all of the topics are covered in this review for your convenience this text is organized according to these topics the text reference numbers are provided as follows 3013.02 copyrighted material a determine nature and scope of engagement c communicate with the predecessor auditor e f consider other planning matters engagement acceptance and understanding the assignment section 3100 b consider the firm s system of quality control for policies and procedures pertaining to client acceptance and continuance d establish an understanding with the client and document the understanding through an engagement letter or other written communication with the client identify matters and prepare documentation for communications with those charged with governance 3013.03 understanding the entity and its environment including internal control section 3200 a determine and document materiality levels for financial statements taken as a whole b conduct and document risk assessment discussions among audit team concurrently with discussion on susceptibility of the entity s financial statement to material misstatement due to fraud c e consideration of fraud consider additional aspects of the entity and its environment including industry regulatory and other external factors strategies and business risks and financial performance consider internal control d perform and document risk assessment procedures f section 3000

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7 g document an understanding of the entity and its environment including each component of the entity s internal control in order to assess risks identify and document significant risks that require special audit consideration h assess and document the risk of material misstatements i 3013.04 performing audit procedures and evaluating evidence section 3300 a develop overall responses to risks b perform audit procedures responsive to risks of material misstatement obtain and document evidence to form a basis for conclusions 3013.05 evaluating audit findings communications and reporting section 3400 a perform analytical procedures b evaluate the sufficiency and appropriateness of audit evidence and document engagement conclusions c evaluate whether audit documentation is in accordance with professional standards d review the work performed by others to provide reasonable assurance that objectives are achieved e f g i document the summary of uncorrected misstatements and related conclusions evaluate whether financial statements are free of material misstatements consider the entity s ability to continue as a going concern retain audit documentation as required by standards and regulations prepare communications copyrighted material j 3013.06 h consider other information in documents containing audited financial statements accounting and review services engagements section 3500 a c plan the engagement prepare communications b obtain and document evidence to form a basis for conclusions 3013.07 professional responsibilities section 3600 a ethics and independence b other professional responsibilities section 3000

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8 3014 index of official pronouncements 3014.01 this reference manual covers all relevant pronouncements needed to prepare for the auditing portion of the cpa examination the information contained in the 3,000-plus pages of pronouncements has been distilled down to essential points and then arranged in an order conducive to classroom or self-study in this reference manual all references refer to aicpa codification numbers and use the following abbreviations au ar at et as auditing accounting and review attestation ethics auditing statements on auditing standards statements on standards for accounting and review services statements on standards for attestation engagements ssaes aicpa code of professional conduct public company accounting oversight board auditing standards thus au 508.04 means that the source of the referenced materials is section 508 paragraph .04 of the aicpa s codification of statements on auditing standards we do not use sas numbers because they are in chronological order not a logical topic order and they are not used in the student s basic reference which is the aicpa codification 3014.02 for those who want to find where we cover a particular sas or other pronouncement the following index cross-references sass codification numbers and section numbers in this reference statement sas 1 copyrighted material codification number au 110 au 110.05­.08 superseded by sas 16 au 210 au 220 au 230 au 310 superseded by sas 108 au 320 superseded by sas 55 au 331 au 332 au 338 superseded by sas 41 au 410 au 410.03­.04 superseded by sas 5 au 420 see au 508 for opinion au 431 au 510­515 superseded by sas 2 au 516 517 and 518 superseded by sas 26 au 530 au 535 540 and 541 superseded by sas 2 au 542 superseded by sas 58 au 543 au 543.18 superseded by sas 7 au 544 topic responsibilities and function of the independent auditor training and proficiency of the independent auditor independence due professional care in the performance of work inventories auditing derivative instruments hedging activities and investments in securities adherence to gaap consistency of application of gaap adequacy of disclosure in financial statements section number 3600 3329 dating of the independent auditor s report 3483 part of audit performed by other independent auditors lack of conformity with gaap 3151 section 3000

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9 statement codification number au 544.01 superseded by sas 2 au 545 superseded by sas 58 au 546 superseded by sas 53 au 547 superseded by sas 2 au 560 au 561 au 610 superseded by sas 29 au 620 superseded by sas 14 au 630 superseded by sas 38 au 640 superseded by sas 30 au 641 superseded by sas 30 au 710 superseded by sas 37 au 509 superseded by sas 58 au 321 superseded by sas 48 au 160 superseded by sas 25 au 411 superseded by sas 69 au 335 superseded by sas 45 au 315 au 315.11 superseded by sas 58 au 315 superseded by sas 84 au 550a au 322 superseded by sas 65 au 720 superseded by sas 24 au 336 superseded by sas 73 au 337 topic section number subsequent events subsequent discovery of facts existing at the date of the auditor s report 3338 3495 sas 2 sas 3 sas 4 sas 5 sas 6 sas 7 sas 8 sas 9 sas 10 sas 11 sas 12 sas 13 sas 14 sas 15 sas 16 sas 17 sas 18 sas 19 sas 20 sas 21 sas 22 sas 23 sas 24 sas 25 sas 26 sas 27 sas 28 sas 29 other information in documents containing audited financial statements 3480 copyrighted material au 519 superseded by sas 24 au 621 superseded by sas 62 au 505 superseded by sas 58 au 327 superseded by sas 53 au 328 superseded by sas 54 au 330 withdrawn by auditing standards board au 333 superseded by sas 85 au 323 superseded by sas 60 au 435 rescinded by auditing standards board au 311 superseded by sas 108 au 318 superseded by sas 56 au 721 superseded by sas 36 au 161 au 504 au 553 superseded by sas 52 au 554 withdrawn by sas 52 au 551a inquiry of a client s lawyer concerning litigation claims and assessments 3337 the relationship of generally accepted auditing standards to quality control standards association with financial statements reporting on information accompanying the basic financial statements in auditor-submitted documents adequacy of disclosure special reports for applying agreedupon procedures 3488 3480 sas 30 sas 31 sas 32 sas 33 sas 34 sas 35 au 642 superseded by ssae 2 au 326 superseded by sas 106 au 431 au 555 superseded by sas 45 au 340 superseded by sas 59 au 622 superseded by sas 75 section 3000

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10 statement sas 36 sas 37 sas 38 sas 39 sas 40 sas 41 sas 42 sas 43 sas 44 sas 45 sas 46 sas 47 sas 48 sas 49 sas 50 sas 51 sas 52 sas 53 sas 54 sas 55 sas 56 sas 57 sas 58 sas 59 sas 60 sas 61 sas 62 sas 63 sas 64 sas 65 sas 66 sas 67 sas 68 sas 69 sas 70 sas 71 sas 72 sas 73 sas 74 codification number au 722 superseded by sas 71 au 711 au 631 superseded by sas 49 au 350 au 556 superseded by sas 52 au 339 superseded by sas 96 au 552 amends various sass integrated in many sections au 324 superseded by sas 70 au 313 and 334 superseded by sas 110 au 557 withdrawn by the issuance of sas 52 au 390 au 312 superseded by sas 107 amends various sass integrated into many sections and superseded by sas 55 56 106 108 109 and 110 au 634 superseded by sas 72 au 625 au 534 au 411 superseded by sas 69 au 551a.15 au 316 superseded by sas 82 au 317 au 319 superseded by sas 109 and 110 au 329 au 342 au 508 au 341 au 325 superseded by sas 112 au 380 superseded by sas 114 au 623 au 801 superseded by sas 68 au 341.12 au 341.13 au 508.74 au 543.16 au 322 au 722 superseded by sas 71 au 330 au 801 superseded by sas 74 au 411 withdrawn by the auditing standards board au 324 title amended by sas 88 au 722 superseded by sas 100 au 634 au 336 au 801a topic filing under federal securities statutes audit sampling reporting on condensed financial statements and selected financial data omnibus statement on auditing standards section number 3613 3326 3483 3491 consideration of omitted procedures after the report date 3496 reports on the application of accounting principles reports on financial statements prepared for use in other countries omnibus sas 1987 illegal acts by clients 3491 3335 copyrighted material analytical procedures auditing accounting estimates reports on audited financial statements the auditor s consideration of an entity s ability to continue as a going concern special reports omnibus sas 1990 the auditor s consideration of the internal audit function in an audit of financial statements the confirmation process 3297 3242 3327 3410 3296 3332 3483 3470 3491 3153 3328 service organizations letters for underwriters and certain other requesting parties using the work of a specialist compliance auditing considerations in audits of governmental entities and recipients of governmental financial 3271 3152 3484 section 3000

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11 statement sas 75 sas 76 codification number au 622 withdrawn by sas 93 au 634 topic assistance amendments to statement on auditing standards no 72 letters for underwriters and certain other requesting parties amendments to statements on auditing standards no 22 planning and supervision no 59 the auditor s consideration of an entity s ability to continue as a going concern and no 62 special reports amendment to statement on auditing standards no 58 reports on audited financial statements section number sas 77 au 311 superseded by sas 108 au 341.13 au 544.02 au 544.04 au 623.05 3470 3491 sas 78 sas 79 sas 80 sas 81 sas 82 sas 83 sas 84 sas 85 sas 86 au 319 superseded by sas 109 and 110 au 508 au 326 superseded by sas 106 au 332 superseded by sas 92 au 316 superseded by sas 99 au 310 superseded by sas 108 au 315 au 333 au 634 3483 sas 87 sas 88 sas 89 sas 90 sas 91 sas 92 sas 93 sas 94 sas 95 sas 96 sas 97 sas 98 sas 99 sas 100 sas 101 sas 102 copyrighted material au 532 au 324 420 au 380 superseded by sas 108 au 333 au 380 superseded by sas 114 au 310 333 380 superseded by sas 100 and 114 au 411 effectively withdrawn upon the withdrawal of sas 69 au 332 au 315 au 411.01 withdrawn by the auditing standards board au 508 au 622 au 319 superseded by sas 109 and 110 au 150 au 339 superseded by sas 103 au 625 amends various sass integrated into many sections au 316 au 722a au 328 au 120 audit committee communications auditing derivative instruments hedging activities and investments in securities omnibus statement on auditing standards 2000 communicating between predecessor and successor auditor management representations amendment to statement on auditing standards no 72 letters for underwriters and certain other parties restricting the use of an auditor s report service organizations reporting consistency audit adjustments 3130 3339 3483 3160 3341 3494 generally accepted auditing standards audit documentation amendment to statement on auditing standards no 50 reports on the application of accounting principles omnibus statement on auditing standards 2002 consideration of fraud in a financial statement audit interim financial information auditing fair value measurements and disclosures defining professional requirements in statements on auditing standards 3000 3430 3481 3230 3333 section 3000

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12 statement sas 103 sas 104 sas 105 sas 106 sas 107 sas 108 sas 109 sas 110 codification number au 339 au 530 au 230 au 150 au 326 au 312 au 311 au 314 au 318 sas 111 sas 112 sas 113 sas 114 sas 115 sas 116 sas 117 sas 118 sas 119 sas 120 pcaob audit standard 1 as 1 pcaob audit standard 2 pcaob audit standard 3 as 3 pcaob audit standard 4 as 4 pcaob audit standard 5 as 5 pcaob audit standard 6 as 6 pcaob audit standard 7 as 7 pcaob rule 3100 pcaob rule 3101 pcaob rule 3501 3502 and 3520­3524 pcaob rule 3525 au 350 au 325 superseded by sas 115 amends various sass integrated into many sections au 380 au 325 au 722 au 801 au 550 au 551 au 551 topic audit documentation amendment to auditing standard no 1 on due care amendment to sas no 95 generally accepted auditing standards audit evidence audit risk and materiality in conducting an audit planning and supervision understanding the entity and its environment and assessing the risks of material misstatement performing audit procedures in response to assessed risks and evaluating the audit evidence obtained amendment to sas no 39 audit sampling omnibus sas 2006 the auditor s communication with those charged with governance communicating internal control related matters identified in an audit interim financial information compliance audits other information in documents containing audited financial statements supplementary information in relation to the financial statements as a whole required supplementary information references in auditor s reports to the standards of the public company accounting oversight board section number 3430 3481 3420 3210 3100 3250 3260 3320 3326 3160 3341 3494 3493 3485 3488 3480 3480 3480 copyrighted material au 558 superseded audit documentation reporting on whether a previously reported material weakness continues to exist an audit of internal control over financial reporting that is integrated with an audit of financial statements evaluating consistency of financial statements engagement quality review compliance with auditing and related professional practice standards certain terms used in auditing and related professional practice standards ethics and independence rules and related information audit committee pre-approval of nonaudit services related to internal section 3000

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13 statement pcaob rule 3526 ssae 1 ssae 2 ssae 3 ssae 4 ssae 5 ssae 6 ssae 7 ssae 8 ssae 9 ssae 10 codification number topic control over financial reporting communication with audit committees concerning independence section number revised/recodified by ssae 10 revised/recodified by ssae 10 revised/recodified by ssae 10 revised/recodified by ssae 10 revised/recodified by ssae 10 revised/recodified by ssae 10 revised/recodified by ssae 10 revised/recodified by ssae 10 revised/recodified by ssae 10 at 101 at 201 at 301 at 401 at 601 at 701 ssae 11 at 101 at 201 ssae 12 ssae 13 ssae 14 ssae 15 copyrighted material at 20 at 50 at 501 ar 100 ar 200 ar 300 ar 400 deleted by ssars 7 ar 600 amends ssars 1 ar 100 compilation and review of financial statements reporting on comparative financial statements compilation reports on financial statements included in certain prescribed forms communication between predecessor and successor accountants reporting on personal financial statements included in personal financial plans omnibus ssars 1992 amendment to statement on standards for accounting review services 1 compilation and review of financial statements omnibus statement on standards for accounting and review services performance of review engagements standards for accounting and review services 3500 at 301 at 101 attestation engagements agreed-upon procedures engagements financial forecasts and projections reporting on pro forma financial information compliance attestation reporting on an entity s internal control management s discussion and analysis agreed-upon procedures engagements financial forecasts and projections amendment to ssae no 10 attest engagements defining professional requirements in statements on standards for attestation engagements ssae hierarchy an examination of an entity s internal control over financial reporting that is integrated with an audit of its financial statements ssars 1 ssars 2 ssars 3 ssars 4 ssars 5 ssars 6 ssars 7 ssars 8 3500 ssars 9 ssars 10 ssars 11 amends ssars 1 4 amends ssars 1 ar 50 3500 3500 3500 section 3000

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14 statement ssars 12 ssars 13 ssars 14 ssars 15 ssars 16 ssars 17 ssars 18 ssars 19 codification number amends ssars 1 2 ar 110 ar 120 amends ar 100 amends ar 100 amends ar 100 amends ar 100 topic omnibus statement on standards for accounting and review services compilation of specified elements accounts or items of a financial statement compilation of pro forma financial information elimination of certain references to sass and incorporation of appropriate guidance into ssars defining professional requirements in statements on standards for accounting and review services omnibus ssars applicability of statements on standards for accounting and review services statements on standards for accounting and review services compilation and review engagements section number 3500 3500 3500 3500 sqcs 2 sqcs 3 sqcs 4 sqcs 5 sqcs 6 sqcs 7 statements of position superseded by sqcs 7 superseded by sqcs 7 superseded by sqcs 7 superseded by sqcs 7 superseded by sqcs 7 a firm s system of quality control copyrighted material 82­1 accounting and financial reporting for personal financial statements 3015 independent audit defined 3015.01 financial statement auditing is defined as a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users an independent auditor plans conducts and reports the results of an audit in accordance with generally accepted auditing standards gaas 3015.02 3016 auditing standards and procedures 3016.01 auditing standards are related to the quality of the cpa s work and to the objectives of the audit they are concerned not only with the auditor s professional qualities but also with the auditor s judgment exercised in the performance of the audit auditing procedures are acts that the auditor performs during the course of an audit to comply with auditing standards gaas apply to the performance of an independent audit and to the extent that they are relevant to all other services governed by statements on auditing standards 3016.02 3016.03 section 3000

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15 3017 the general standards 3017.01 the three general standards pertain to the personal qualifications of the cpa and apply to all phases of the audit 1st general standard the auditor must have adequate technical training and proficiency to perform the audit 2nd general standard the auditor must maintain independence in mental attitude in all matters relating to the audit 3rd general standard the auditor must exercise due professional care in the performance of the audit and the preparation of the report 3017.02 3017.03 3017.04 3018 the standards of fieldwork 3018.01 these three standards apply to the process of obtaining and evaluating evidence for the purpose of forming an opinion on the financial statements 1st standard of fieldwork the auditor must adequately plan the work and must properly supervise any assistants 2nd standard of fieldwork the auditor must obtain a sufficient understanding of the entity and its environment including its internal control to assess the risk of material misstatement of the financial statements whether due to error or fraud and to design the nature timing and extent of further audit procedures 3rd standard of fieldwork the auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit 3018.02 3018.03 3018.04 copyrighted material 3019 the standards of reporting 3019.01 3019.02 these standards apply to the preparation and communication of the auditor s report 1st standard of reporting the auditor must state in the auditor s report whether the financial statements are presented in accordance with generally accepted accounting principles gaap 2nd standard of reporting the auditor must identify in the auditor s report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period 3rd standard of reporting when the auditor determines that informative disclosures are not reasonably adequate the auditor must so state in the auditor s report 4th standard of reporting the auditor must either express an opinion regarding the financial statements taken as a whole or state that an opinion cannot be expressed in the auditor s report when the auditor cannot express an overall opinion the auditor should state the reasons therefore in the auditor s report in all cases where an auditor s name is associated with financial statements the auditor should clearly indicate the character of the auditor s work if any and the degree of responsibility the auditor is taking in the auditor s report 3019.03 3019.04 3019.05 section 3000

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