AUDITS AND ASSURANCE SERVICES The Attest Function Chapter 1
Attestation services To help improve the reliability and relevance of information Types: • Audit of financial statements – expressing an opinion about whether the financial statements are in conformity with GAAP • Review of financial statements • Agreed upon procedures
Non - Attestation services Types: • Accounting • Bookkeeping services • Tax services • Management consulting services • Litigation support • Fraud investigation • Personal financial planning
Economic Demand for Auditing Business risk – risk associated with a company’s survival and profitability Information risk – reflects the possibility that the information upon which the business risk decision was made was innacurate. Causes are: • Remoteness of information • Biases and motives of provider • Voluminous data • Complex exchange transactions
Nature of Auditing Auditing is the accumulation and evaluation about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person.
Types of Audits • Financial statements audits - to determine whether the overall financial statements are stated in accordance with GAAP • Operational audits – to review any part of an organization’s operating procedures and methods for the purpose of evaluating EFFICENCY & EFFECTIVENESS • Compliance audits – to determine whether the auditee is following specific procedures, rules, or regulations set by some higher authority
Types of Auditors • Certified public accountants – all types of audits • General Accounting Office – compliance and operational audits • Contralor de PR – compliance audits • Auditores de Hacienda – compliance audits • Internal auditors – compliance and operational audits
The CPA Profession Certified Public Accounting Firms: • Big Four: • Ernst & Young • Price Waterhouse Coopers • KPMG • Deloitte and Touche • National firms • Regional firms • Small local firms • Kiosks
Organizational Structure of a CPA Firm • Proprietorship • Partnership • Limited liability partnership • Professional corporation
Staff Levels and Responsibilities Staff – 0-2 years. Performs most of the detailed audit work. $40,000 Senior – 2-5 years. Coordinates and is responsible for the field work, including supervision. $45,000-$50,000 Manager – 6-10 years. Helps senior and manage the audit. $60,000-$85,000 Partner – Reviews the overall audit work, client’s relationship (tennis & golf). $100,000 - $250,000
American Institute of Certified Public Accountants • Voluntary membership • Standards and rules • Code of professional conduct • Professional requirements for CPA’s • Prepares and grades the exam • Publishes the Journal of Accountancy • Conducts research • Advocate for the accounting profession
Securities and Exchange Commission • Agency of the federal government • Assist in providing investors with reliable information upon which to make investment decisions • Requires audited financial statements every year • Requires unaudited quarterly financial statements every quarter • Sets generally accepted accounting principles and disclosures • Watchdog
$31,068 $44,133 $56,024 $58,920 $73,638 $51,831 $38,583 $59,346 $75,136 $90,389 $81,367 $69,322 Salaries by Age & Certification 19-29 30-39 40-49 50-59 Overall
THE NEW CPA EXAM CPA JUAN M. GARCIA MERCED
4 PARTS of the CPA EXAM • Auditing • Financial Accounting and Reporting • Regulation • Business Environment and Concepts Effective date: April 2004
80% Business enterprises 10% Governmental entities 10% Not for profit organizations Financial Accounting & Reporting
60% Taxation 40% Law and professional responsibilities Regulation
20% Business structure 10% Managerial (measurement) 70% All areas other than Business structure and measurement 40% of the content was not previously tested on the CPA exam Business Environment & Concepts
Testlet Approach • FAR, AUD, and REG will each contain 5 testlets; 3 multiple-choice and two simulations • FAR and AUD = 90 M/C • REG = 72 M/C • BEC will be three testlets of all multiple-choice questions (90 total).
Multiple-Choice Testlets • Answers are radio button approach (not A, B, C, D). • Calculator onscreen is only available calculator. • Candidate must complete testlets in order and cannot move ahead or back.
Simulations • Each simulation is approximately 20-40 minutes in length and will complement the multiple choice portion • Most of the simulation will contain some research activity, usually involving an electronic search or access to authoritative literature or IRS documents
Simulations Candidates are expected to know how to use common spreadsheet and word processing functions, including writing formulas for spreadsheets
Simulations • Candidates must also have the ability to use a financial calculator or a spreadsheet to perform standard financial calculations • Candidates will be asked to use authoritative literature in the creation of formal audit communications
Entry-level foundational knowledge (standards and regulations) Entry-level skill sets (communication, research, analysis and organization, understanding and judgment Comprehensive Assessment
Granting of Credit & Transitioning • Candidates will be allowed to sit for each section individually, and in any order • Candidates will retain credit for any section(s) passed for 18 months. • Candidates will not be allowed to retake a failed section(s) within the same examination window
The New Exam – Administrative Changes • Calendar year divided into quarters. Testing occurs in the first two months of each quarter and third month is “closed”. • Candidates can sit for one or more parts during any testing window, but not the same part more than once in a testing window. • Candidates can generally sit at any Prometric site authorized to administer the CPA Exam.
Application Process • Key is applying early!!! • Candidates apply to CPA Examination Services. • Expectation is that new applications will take approximately 4-6 weeks to process at state level. Re-examination candidates will take considerably less time.
Application Process EDUCATIONAL REQUIREMENTS MUST BE MET AT THE TIME APPLICATIONS ARE MADE FOR THE EXAMINATION
Application Process – First Step • Application form (notarized) • 2 x 2 photograph • Official transcript • Fee payable to CPA Examination (certified checks or money orders only) • Character Reference Affidavit • A receipt indicating that a Certificate of Good Conduct has been requested from the Police. The original certificate must subsequently be mailed directly to CPA Examination Services
Fees & Timing • Two fees: application fee and examination fee. • Application fees $210. • Examination fees are as follows: • AUD $187.00 • BEC $140.78 • FAR $175.44 • REG $152.33
Application Process – Step 2 • Receive your NOTICE TO SCHEDULE • This NOTICE TO SCHEDULE is valid for six months
Application Process – Step 3 • Schedule your examination • Have your Notice to Schedule ready • As soon as possible • Have a first, second, and third choice of dates for each section • Walk in are not accepted
Application Process – Step 3 • Options to schedule • Visit www.prometric.com/cpa (Confirmation by e-mail) • Call 1-800-580-9648 (No confirmation) • Call Prometric Puerto Rico
Application Process – Step 4 • Take your Examination • Arrive early • Bring your NOTICE TO SCHEDULE • Bring 2valid personal identifications • There are breaks, however, clock will keep running during the break!!!
Application Process – Step 5 • RECEIVE YOUR SCORES
Scheduling Parameters • Recommended to schedule 45 days before you want to sit. • Date chosen must be within the time period the NTS is valid and before it expires. • No appointments can be made fewer than 5 days from when you call (i.e. call Monday earliest can sit is Saturday).
Changing Schedules • Candidates can make changes, but fees may apply. • If canceling (without reschedule) or do not show, no refunds will be issued.
Test Center Procedures • Candidates must arrive 30 minutes before appointment time. • Candidate MUST bring NTS to the test center. • Security measures include digital photograph, two forms of identification (with signature and valid). • Specifics on types of approved identification are found in the Candidate Bulletin.
Test Center Regulations • All personal belongings must be placed in a small locker at the test center. • Candidates must remain in seats except when authorized by test center staff. • Scratch paper and pencils will be provided to candidates. • Most items are prohibited in the testing room. An extensive list is in the Candidate Bulletin. • Before beginning test, Confidentiality and Break Policy Statement must be accepted.
Scores • At start of CBT, advisory scores and diagnostic information will be sent by AICPA to NASBA at the end of each testing window. • NASBA then forwards scores to State Boards for distribution (approximately 1 week). • State Boards then decide when to release to candidates. • Appeal process is available.
Scoring & Weights • Questions were psychometrically evaluated and assigned weights. • Points are accumulated based upon correct responses. Overall scores are then adjusted to ensure scores for all candidates are comparable. • 75 is passing score that represents examination performance that represents knowledge and skills necessary to protect the public.
Scoring & Weights • Human graders will score all written communication questions. • Approximately 20% of questions will be pretest questions.