AUD Auditing and Attestation CPA Exam Study Guide 2015 UPDATES A comprehensive update document which highlights significant changes from 2014 to 2015 content

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Table of Contents Update 2015 ........................................................................................................................ 4 Example .............................................................................................................................. 4

Section 3000 Overview of the Auditing & Attestation Examination ......................................... 6

Section 3100 Engagement Acceptance and Understanding the Assignment ............................ 7

Section 3200 Understanding the Entity and Its Environment, Including Internal Control .......... 8

Section 3300 Performing Audit Procedures and Evaluating Evidence ...................................... 9

Section 3400 Evaluating Audit Findings, Communications, and Reporting ............................ 10

Section 3500 Accounting and Review Services Engagements ................................................ 11

Section 3600 Professional Responsibilities ............................................................................ 14

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Update 2015 This update document summarizes the changes made to the 2014 AUD CPA Study Guide published by

Fast Forward Academy. In the interest of space, any outline levels that did not change have been

omitted.

Example 2014 Text:

3014.01 AU Auditing Statements on Auditing Standards (Superseded)

AU-C Auditing Clarified Auditing Standards

AR Accounting and Review Statements on Standards for Accounting and Review

Services (Superseded)

AT Attestation Statements on Standards for Attestation Engagements

(SSAEs)

ET Ethics AICPA Code of Professional Conduct

AS Auditing Public Company Accounting Oversight Board

Auditing Standards

Update to 2015:

New 2015

3014.01

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Example of Renumbered Sections:

There are instances where a section is deleted and subsequent sections must be renumbered. See the

example below.

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Section 3000

Overview of the Auditing & Attestation

Examination

3014.01 AU Auditing Statements on Auditing Standards (Superseded)

AU-C Auditing Clarified Auditing Standards

AR Accounting and Review Statements on Standards for Accounting and Review

Services (Superseded)

AR Accounting and Review Clarified Statements on Standards for Accounting and

Review Services

AT Attestation Statements on Standards for Attestation Engagements

(SSAEs)

ET Ethics AICPA Code of Professional Conduct

AS Auditing Public Company Accounting Oversight Board

Auditing Standards

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Section 3100

Engagement Acceptance and Understanding

the Assignment

3160.10 In cases of auditing entities receiving funds from federal programs, the auditor must

determine if an audit is required and the percentage-of-coverage testing:

a. Audit requirement: An entity must have a single audit in any year when:

(1) the entity spends more than $750,000 in federal awards, grants, or funds; and

(2) the entity spends funds from one or more than one federal program.

b. Percentage of coverage: Under the “percentage-of-coverage rule” that is included in the

Single Audit Act Amendments of 2013, the auditor must determine the program type

(major and low risk) and testing coverage:

(1) Major programs must be audited. These are programs that account for at least 40% of

the federal funding spent by that entity.

(2) Low-risk programs allow for a percentage-of-coverage exception. When an entity

qualifies as low risk, the scope of audits under the “percentage of coverage” rule in

the Single Audit Act Amendments of 2013 can be reduced to as low as 20% of the

federal funding spent by the entity.

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Section 3200

Understanding the Entity and Its Environment,

Including Internal Control

3220.12 d. A financial statement disclosure that is not presented in conformity with the applicable

financial reporting framework

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Section 3300

Performing Audit Procedures and

Evaluating Evidence

3327.15 Ratio analysis is the comparison of relationships between financial statement accounts

(between two periods or over time), the comparison of an account with nonfinancial data, or

the comparison of relationships between firms in an industry. Ratio analysis is most

appropriate when the relationship between accounts is fairly predictable and stable.

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Section 3400

Evaluating Audit Findings,

Communications, and Reporting

3484.17 Compliance audits: The Office of Management and Budget (OMB) has raised the threshold

for OMB A-133 compliance audits of entities that receive federal award money from

$500,000 per fiscal year to $750,000 per fiscal year. The new rules took effect for single

audits of fiscal years beginning on or after January 1, 2015.

3484.18

d. None of the federal programs previously audited had audit findings in the last two years.

1. Type A program: A Type A program is any federal program within a recipient that

expends either $750,000 or more of federal assistance for recipients that expend between

$750,000 and $25 million in federal awards during the audit period. Type A programs

are classified as high-risk only if, in the most recent period they failed to receive an

unqualified opinion, had a material weakness in internal control, or had questioned costs

exceeding five percent of the program’s expenditures.

Type A programs are defined as follows:

Total Federal Awards Expended Type A/B Threshold

Equal to $750,000 but less than or

equal to $25 million $750,000

Exceed $25 million but less than or

equal to $100 million Total federal awards expended times

0.03

Exceed $100 million but less than or

equal to $1 billion $3 million

Exceed $1 billion but less than or

equal to $10 billion Total federal awards expended times

0.003

Exceed $10 billion but less than or

equal to $20 billion $30 million

Exceed $20 billion Total federal awards expended times

0.0015

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Section 3500

Accounting and Review Services Engagements

3512.07 While a successor accountant is not required to communicate with the predecessor accountant

in connection with acceptance of a compilation or review engagement, under some

circumstances it may be beneficial to obtain information from the predecessor that will assist

in determining whether to accept the engagement:

a. The information obtained about the prospective client is limited or appears to require

special attention.

b. The change in accountants takes place substantially after the end of the accounting period

for which statements are to be compiled or reviewed.

c. Frequent changes in accountants have occurred.

3512.08 The following chart summarizes the important distinctions among compilations, reviews, and

audit engagements.

3512.09 The accountant should not accept an engagement to be performed in accordance with SSARS

if :

a. the accountant has reason to believe that relevant ethical requirements will not be

satisfied;

b. the accountant’s preliminary understanding of the engagement circumstances indicate

that information needed to perform the engagement is likely to be unavailable or

unreliable; or

c. the accountant has cause to doubt management’s integrity such that it is likely to affect

the performance of the engagement. (AR-C 60.24)

As a condition for accepting an engagement to be performed in accordance with SSARSs, the

accountant should

a. determine whether preliminary knowledge of the engagement circumstances indicate that

ethical requirements regarding professional competence will be satisfied.

b. determine whether the financial reporting framework selected by management to be

applied in the preparation of the financial statements is acceptable.

c. obtain the agreement of management that it acknowledges and understands its

responsibility

i. for the selection of the financial reporting framework to be applied in the preparation

of financial statements.

ii. for the design, implementation, and maintenance of internal control relevant to the

preparation and fair presentation of the financial statements that are free from

material misstatement, whether due to fraud or error.

iii. for preventing and detecting fraud.

iv. for ensuring that the entity complies with laws and regulations applicable to its

activities.

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v. for the accuracy and completeness of the records, documents, explanations, and other

information, including significant judgments provided by management for the

preparation of financial statements.

vi. to provide the accountant with

(1) access to all information of which management is aware that is relevant to the

preparation and fair presentation of the financial statements, such as records,

documentation, and other matters.

(2) additional information that the accountant may request from management for

the purpose of the engagement.

(3) unrestricted access to persons within the entity of whom the accountant

determines it necessary to make inquiries. (AR-C 60.25)

3512.10 The following chart summarizes the important distinctions among compilations, reviews, and

audit engagements.

Comparison of Compilation, Review, and Audit Engagementsa

Compilation Engagement Review Engagement Audit Engagement

1. Level of assurance No assurance (AR-C 80.04) Limited assurance ( AR-C

90.04)

Reasonable assurance as to whether

the financial statements are free of

material misstatement (AU-C

200.06)

2. Knowledge of client’s

industry

Knowledge of the account-

ing principles and practices

of the industry, a general

understanding of the

business, and the application

of the applicable financial

reporting framework in the

entity’s industry. (AR-C

60.A17)

Knowledge of the

accounting principles and

practices of the industry

and a general

understanding of the

business (AR 90.08To

perform the review

engagement, the

accountant should possess

or obtain an understanding

of the industry in which

the entity operates,

including the accounting

principles and practices

generally used in the

industry, sufficient to

enable the accountant to

review financial

statements that are

appropriate for an entity

operating in that industry.

(AR-C 90.14)

Extensive knowledge of the

economy, the client’s business, and

the relevant industry (AU-C 300,

Planning an Audit) (AU-C 315,

Understanding the Entity and Its

Environment and Assessing the

Risks of Material Misstatement)

3. Inquiry procedures

required

Inquiries not required unless

information supplied by the

client is questionable (AR-C

80.A13)

Inquiry and analytical

procedures required plus

additional procedures if

the information appears

questionable (AR-C

90.17–.21)

Inquiry, analytical (AU-C 520,

Analytical Procedures)

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4. Omitted disclosures

Inadequate disclosure

requires modification of the

standard compilation report

(AR-C 80.24-.26)

Inadequate disclosure

requires modification of

the standard review report

(AR-C 90.56)

Inadequate disclosure requires

qualified (“except for”) or adverse

audit opinion (AU-C 705.A7)

5. Material departures

from GAAP

(or applicable financial

reporting framework)

Material departure from

GAAP (or applicable finan-

cial reporting framework)

requires modification of the

standard compilation report

(AR-C 80.27–.31)

Material departure from

GAAP (or applicable

financial reporting frame-

work) requires modifi-

cation of the standard

review report (AR-C

90.56–.60)

Material departure from GAAP (or

applicable financial reporting

framework) requires qualified

(“except for”) or adverse opinion

(AU-C 705.A4–.A7)

6. Accountant’s

independence

Accountant does not have to

be independent; report must

be modified to state that

accountant is not

independent (AR-C 80.07,

.A3)

Lack of independence

precludes issuing review

report (AR-C 90.07, .A10-

.A11)

Lack of independence precludes

issuing audit opinion (AU-C 200.15)

7. Engagement letter Accountant should establish

understanding with manage-

ment regarding the services

to be performed and docu-

ment such understanding

through a written communi-

cation with management

(AR-C 80.10)

Accountant should

establish understanding

with management regard-

ing the services to be

performed and document

such understanding

through a written

communication with

management (AR-C

90.11)

Required (AU-C 210.10)

8. Representation letter Not required Must obtain (AR-C 90.36) Must obtain (AU-C 580, Written

Representations)

a Adapted from Dan M. Guy, “Disclosure Needs in Financial Reporting for Closely Held Businesses,” University of Alabama,

1978, Accounting Research Convocation. Updated to reflect current standards.

3534.02 b. To a successor accountant when the successor decides to communicate with the

predecessor in accordance with AR-C 90.A89

Remove 3536.07 from after 3535.06 and replace under 3536.06

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Section 3600

Professional Responsibilities

3621.07 The firm’s policies and procedures should provide that personnel selected for advancement

have the qualifications necessary for fulfillment of the responsibilities they will be called on

to assume.

3621.08 Effective performance evaluation, compensation, and advancement procedures give due

recognition and reward to the development and maintenance of competence and commitment

to ethical principles.

3621.09 Appropriate competence includes the capacity to apply professional judgment.

3621.08 becomes 3621.10. Renumber the remaining paragraphs in this section.

3621.10 In practice, the competency requirements necessary for the engagement partner are broad and

varied in both their nature and number. Required competencies include the following, as well

as other competencies as necessary in the circumstances: