The three most common deficiencies all reflect engagement management problems affecting many areas of the audit: a failure to gather sufficient, competent evidence, lack of due care and lack of professional skepticism.
List the major deficiencies in the audit and state why they took place. B). What things should have been apparent to Brewer in the conduct of the ... Access to over 100 million course-specific study resources ... Get answer *You can change, pause or cancel anytime. Question. A). List the major deficiencies in the audit and state why they took ...
Feb 01, 2016 · According to the PCAOB in Staff Audit Practice Alert 11, some audit firms failed to 1) “test information technology general controls (ITGC) that are important to the effective operation of the applications that generated the data or reports,” 2) “test the logic of the queries (or parameters) used to extract the data or reports,” or 3) “address control deficiencies that …
Apr 23, 2018 · The long list includes major program determination, low-risk auditee status, testing on internal controls over compliance, reporting, and overall documentation matters. Recently, noncompliance with Generally Accepted Government Auditing Standards (GAGAS), often referred to as the Yellow Book, has surfaced as a significant problem—and has taken on increased …
Auditors can more extensively use the work of competent and objective third parties in low-risk areas because as the risk decreases, the necessary level of competence and objectivity decreases (AS 5). On the other hand, auditors should perform more extensive testing of the work done by third parties in high-risk areas involving significant judgment and fraud risk, particularly when the competency of those third parties is judged to be low.
The PCAOB inspection reports document numerous deficiencies in the testing of design of controls or operating effectiveness of controls of various accounts. AS 5 and AS 12, Identifying and Assessing Risks of Material Misstatement, require auditors to first obtain an understanding of internal controls designed to prevent and detect material misstatements, which should then help them select relevant controls to test for the identified risk. AS 5 cautions that auditors cannot infer effectiveness because no misstatements were detected by substantive procedures; instead, they should obtain direct evidence about a control’s operating effectiveness. The PCAOB identified several cases where auditors did not perform important assessments. Furthermore, the PCAOB has indicated that auditors sometimes fail to test all the relevant assertions of significant accounts and disclosures (PCAOB Staff Audit Practice Alert 11).
As part of its oversight mission, the PCAOB has sought to improve the quality of U.S. public company audits. A major part of its focus has centered on auditors’ assessments of companies’ internal controls over financial reporting (ICFR), as required under the Sarbanes-Oxley Act of 2002. This article assesses whether audit quality has improved by ...
Auditing Standard (AS) 5, An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements, effective since November 2007, requires auditors to integrate audits of internal control and financial statements, and provide opinions on the effectiveness of a company’s ICFR.
The Sarbanes-Oxley Act of 2002 (SOX) created the PCAOB to oversee public company audits in the United States by establishing auditing standards and registering and inspecting public company auditors. By the end of 2012, the PCAOB had registered 2,363 audit firms—1,452 U.S. firms and 911 foreign firms.
It also requires auditors to adopt a top-down risk-based approach that emphasizes such vital areas as entity-level controls and high-risk items. The PCAOB has indicated that auditors sometimes fail to test all the relevant assertions of significant accounts and disclosures.
In general, it appears that auditors were not responsive to the PCAOB’s feedback on their audits of ICFR and did not remediate observed deficiencies by the next inspection. Of the 131 inspection reports containing deficient audits related to ICFR, 16 auditors—8 annually inspected U.S. auditors and 8 foreign auditors, representing 75 inspection reports—had multiple inspection reports containing ICFR-related audit deficiencies. In comparison, 10 inspection reports with ICFR-related audit deficiencies were remediated by the next PCAOB inspections. Of the 10 subsequent reports, 6 were clean reports without any audit deficiencies and 4 contained other audit deficiencies that are not related to ICFR. No information about the outcomes of subsequent inspections was available for the remaining 46 deficient ICFR audits as of the end of the period examined (December 31, 2013). Based on the available information, it seems that auditors do not adequately address the ICFR-related audit deficiencies pointed out by the PCAOB inspections and improve the quality of subsequent audits of ICFR.
Another tricky area for auditors is the low-risk auditee status. If the data collection form was filed late or not filed at all in either of the previous two years, an auditee cannot be considered low-risk. The same is true if there was a material weakness in internal control reported within the last two years or if the opinion on the SEFA was modified. The impact of making a mistake on the determination of low-risk auditee status is that the auditor might not meet the correct minimum percentage of coverage when selecting major programs. Because the UG made several changes to the criteria for determining a low-risk auditee, auditors need to educate themselves on the changes and maintain up-to-date practice aids.
Generally Accepted Auditing Standards (GAAS), they must evaluate the skills, knowledge, and expertise (SKE) of the entity. A client must take responsibility for the nonaudit service, which must be overseen by a person possessing adequate SKE.
Under its Single Audit Quality Study, the Office of Management and Budget will soon be reviewing single audit engagements. To help auditors enhance the quality of the single audits they perform, this article analyzes the results of a Peer Review Program study of such audits and identifies common problems—specifically issues related to compliance with governmental auditing standards, the determination of major programs, low-risk auditee status, internal controls, and reporting. Auditors who wish to practice successfully in this complex area must keep on top of current issues and enroll in the proper education courses.
What were the common problem areas noted in the 2015 study and in recent peer reviews? The long list includes major program determination, low-risk auditee status, testing on internal controls over compliance, reporting, and overall documentation matters . Recently, noncompliance with Generally Accepted Government Auditing Standards (GAGAS), often referred to as the Yellow Book, has surfaced as a significant problem—and has taken on increased importance in the peer-review process.
As referred to above, one of the more common errors that led to non-conforming audits in recent peer reviews was the determination of major programs. To properly calculate major programs, it is critical to have an accurate SEFA. Often, in the planning stages of an audit, the SEFA used is based on preliminary information that can differ from the final audit. Changes resulting from audit adjustments, discovery of awards during the confirmation process that turn out to have federal pass-through funds, and other factors can alter whether a program is considered a “type A” program. This can affect the risk evaluation that needs to be performed and, ultimately, the determination of whether the program is high risk and should be tested as a major program; it can also affect whether the total programs tested met the minimum percentage of coverage (see below for other pitfalls when meeting the minimum percentage of coverage). Not combining as one program any federal awards that have the same catalog of federal domestic assistance (CFDA) number and not identifying all the programs that make up a cluster (which requires testing as one program) are two other common mistakes in calculating major programs. Thus, it is critical that a review of the major-program calculation be performed after the completion of fieldwork, but before sending out the report as a draft to a client.
The AICPA has increased scrutiny on peer reviewers, requiring greater reviewer qualifications and enhanced education on governmental auditing topics like single audits. In 2015, an AICPA Peer Review Program study of single audit engagements, which included a sample of 87 single audits reviewed by enhanced-oversight experts, was completed.
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