33:010:272 Chapter Notes - Chapter 7: Bank Reconciliation, Internal Control, Negotiable Instrument
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2 Mar 2019
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Required: After reading the Bye, Bye SOX? Article comment on the issue of small business compliance with Section 404 of SOX
Bye, Bye, SOX? | |
The Sarbanes-Oxley Act (SOX) | SOX compliance has been extended |
may be declawed by upcoming | four times, but they wonât need to |
U.S. Congress and | comply at all if the Garrett-Adler |
Supreme Court decisions. | amendment makes it to the Senate |
The House of Representatives | floor as a standalone bill. |
recently voted to approve the | SOX also established the |
Garrett-Adler amendment, which | PCAOB to oversee and regulate |
would exempt small companies | audit firms. PCAOB operates under |
from SOX Section 404 provisions, | the supervision of the Securities |
while the Supreme Court is considering | and Exchange Commission (SEC), |
the constitutionality of the | which also appoints PCAOB members. |
Public Company Accounting Oversight | It is funded by fees charged to |
Board (PCAOB). | audited firms. When it was established, |
These developments may have | Congress wanted the board |
long-term implications for SOX, the | to be separate, with its own funding |
2002 legislation passed in the wake | stream, and outside normal civil |
of the Enron, WorldCom, and Tyco | service laws so it could attract |
scandals. The outcomes may also | highly qualified specialists. PCAOB |
have implications for records managers, | membersâ salaries are more than |
information technology specialists, | $500,000 and are reviewed by the |
and compliance officers | SEC. |
who devise and implement company | Pro-business advocates, represented |
controls. | by the Free Enterprise |
Section 404 of SOX requires | Fund, argue that the PCAOBâs governance |
company auditors to attest to the | structure is unconstitutional |
soundness of the firmâs internal | because it is an independent |
controls and financial statements. | agency that does not allow for the |
Internal controls may include anything | president to appoint members. Additionally, |
from transaction approval authorizations | because only the president |
to records retention | can remove SEC commissioners |
programs. This provision is widely | for cause, and because |
blamed for an increase in auditorsâ | the SEC can only remove PCAOB |
fees, as well as increased expenditures | members for cause, some court |
to ensure that proper internal | members believe this is a formerly |
controls are in place. | unrecognized limit of the presidentâs |
Small firms â those with | powers that may contradict |
less than $75 million in | the constitution. |
market capitalization | The Supreme Court will take up |
â have protested that | the issue soon, and some legal experts |
compliance with SOX 404 would | believe that SOX could be |
cost them a disproportionate share | abolished completely if the court |
of their earnings. The complaint is | rules the PCAOB unconstitutional. |
supported by an independent study | |
conducted at Pennsylvania State | |
University, which showed that | |
firms just over the $75 million | |
mark paid nearly $700,000 more in | |
audit fees and had average earnings | |
of negative $1.4 million in 2004 |
2-30 | 2â30. Multiple Choice Questions | |||||||
Select the best answer for each of the following items and give reasons for your choice. | ||||||||
A | a. Which of the following organizations can revoke the right of an individual to practice as a | |||||||
CPA? | ||||||||
(1) The Public Company Accounting Oversight Board. | ||||||||
(2) The American Institute of Certifi ed Public Accountants. | ||||||||
(3) The Securities and Exchange Commission. | ||||||||
(4) The applicable state board of accountancy. | ||||||||
B | b. The AICPA over time has played an important role in standards setting. Which of the following | |||||||
standards are currently established by the AICPA? | ||||||||
(1) Accounting standards applicable to nonpublic companies. | ||||||||
(2) Auditing standards applicable to audits of nonpublic companies. | ||||||||
(3) Quality control standards applicable to audits of public companies. | ||||||||
(4) Standards for reviews of the interim fi nancial information issued by public companies. | ||||||||
C | c. Which of the following does the FASB consider a source of nonauthoritative guidance for | |||||||
use when there is no authoritative guidance available? | ||||||||
(1) The FASB Codifi cation. | ||||||||
(2) FASB Concepts Statements. | ||||||||
(3) SEC Rules. | ||||||||
(4) SEC Interpretive Releases | ||||||||
D | d. Financial statement audits performed under PCAOB requirements are designed to provide | |||||||
which type(s) of assurance with respect to the detection of material misstatements due to | ||||||||
errors or fraud? | ||||||||
Reasonable | Absolute | |||||||
1 | Yes | Yes | ||||||
2 | Yes | No | ||||||
3 | No | Yes | ||||||
4 | No | No | ||||||
E | e. A basic objective of a CPA fi rm is to provide professional services that conform with professional | |||||||
standards. Reasonable assurance of achieving this basic objective is provided through: | ||||||||
(1) Compliance with generally accepted reporting standards. | ||||||||
(2) A system of quality control. | ||||||||
(3) A system of peer review. | ||||||||
(4) Continuing professional education. | ||||||||
F | f. Which of the following is not explicitly included in a standard report for a nonpublic | |||||||
company? | ||||||||
(1) The CPAâs opinion that the fi nancial statements comply with generally accepted | ||||||||
accounting principles. | ||||||||
(2) That generally accepted auditing standards were followed during the audit. | ||||||||
(3) That internal control of the client was satisfactory. | ||||||||
(4) An identifi cation of the fi nancial statements audited. | ||||||||
G | g. The general group of the 10 PCAOB Auditing Standards requires that: | |||||||
(1) The auditors maintain an independent mental attitude. | ||||||||
(2) The audit be conducted in conformity with generally accepted accounting | ||||||||
principles. | ||||||||
(3) Assistants, if any, be properly supervised. | ||||||||
(4) The auditors obtain an understanding of internal control. | ||||||||
H | h. Which AICPA quality control standard would most likely be satisfi ed when a CPA fi rm | |||||||
maintains records indicating which partners or employees of the fi rm were previously | ||||||||
employed by the CPA fi rmâs clients? | ||||||||
(1) Professional relationship. | ||||||||
(2) Engagement performance. | ||||||||
(3) Relevant ethical requirements. | ||||||||
(4) Monitoring. | ||||||||
I | i. An audit provides reasonable assurance of detecting material: | |||||||
Fraudulent Financial | Misappropriation | |||||||
Reporting | of Assets | |||||||
1 | Yes | Yes | ||||||
2 | Yes | No | ||||||
3 | No | Yes | ||||||
4 | No | No | ||||||
J | j. Which of the following is not included in an integrated audit report on the fi nancial statements | |||||||
of a public company? | ||||||||
(1) The report states that the audit was performed in accordance with AICPA standards. | ||||||||
(2) The report indicates that the fi nancial statements are the responsibility of management. | ||||||||
(3) The report indicates that the auditors have also audited the effectiveness of the companyâs | ||||||||
internal control. | ||||||||
(4) The report is signed in the name of the CPA fi rm. | ||||||||
K | k. Audit fi rms that are subject to inspections by the PCAOB staff include: | |||||||
(1) All audit fi rms. | ||||||||
(2) Audit fi rms that are registered with the SEC. | ||||||||
(3) Audit fi rms that are registered with the PCAOB. | ||||||||
(4) Audit fi rms that are registered with a state board of accountancy. | ||||||||
L | l. Which of the following is not a difference noted when comparing the AICPA audit report | |||||||
to the international audit report? | ||||||||
(1) The international audit report may use the phrase âtrue and fair view.â | ||||||||
(2) The international audit report may be signed using the personal name of the audit | ||||||||
partner, the audit fi rm, or both. | ||||||||
(3) The international audit report requires inclusion of the city of the CPA fi rm offi ce that | ||||||||
performed the audit. | ||||||||
(4) The international audit report includes an opinion on internal control. |