Compare the attestation services provided by independent professionals with other assurance services provided by CPAs. Next, discuss at least two goals of each service and how the service contributes to decreasing the risk of reporting errors or misstatements in financial statements. Provide th e underlying principles supporting your response.
Attestation service refers to an engagement in which a written report is issued on non-historical financial statements, while assurance services refer to professional service offered by CPA. The assurance services include a transaction or financial document review, such as a financial website or load ( Frazer, 2020). Attestation services' goals are to acquire reasonable assurance of whether the Service Company's system description presents a designed and implemented system. It also obtains reasonable assurance on whether the controls are operated effectively to ascertain that management's description objectives for the service organization have been accomplished within the stipulated time. The goals for assurance Service Company include assisting companies in making appropriate decisions for their operations to facilitate financial growth and increasing the credibility of information provided to better resource allocations and lower transaction costs.
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Evaluate the effectiveness of the current quality control standards and practices in the accounting profession. Next, identify at least one standard or practice that merits improvement and the corresponding improvements recommended.
The quality control system in a company consists of the company's organizational policies and structures adopted to provide the company with reasonable assurance for conforming to professional standards ( Kanwal and Singal, 2019. The nature of these quality control policies suitably and comprehensively designed based on the company's size, personnel Authority degree, nature of firms benefits, the number of offices, and cost-benefits considerations. Quality control also helps in developing a product or service that is more economical and satisfy customer needs.
One practice that merit improvement is training; in most cases, organizations with the control department are prone to poor performance. Therefore, it is recommended that such organizations conduct workers training intending to improve quality-related problems
Week 2
Use the Internet or Strayer Library to research a publicly traded company that received an unqualified audit report from external auditors and faced accusations of reporting false or misleading accounting information.
Waste Management Inc., a public traded company, reported $ 1.7 billion fake earnings in 1998. It is alleged that the company had falsely increased depreciation time length for its equipment, plant, and property on the balance sheet. Eventually, the new management and CEO caught the company perusing the books and audits ( Webster, 2017). The company had violated the antifraud, record-keeping, and reporting guidelines provided by the federal securities laws. They were penalized by being asked to settle a shareholder suit for $475 million. The new CEO did a very good job to the society, shareholder, and company to reveal the unqualified audit report.
Discuss the departures from generally accepted accounting principles (GAAP) that you have researched, and give your opinion as to whether or not the Public Company Accounting Oversight Board (PCAOB) should levy sanctions against the CPA firm for issuing the unqualified report.
A company seeking to acquire investment opportunities or capital across a wide range is likely to face time and cost issues. Such companies need to harmonize their financial statements using suitable standard rules applied by the nation to avoid any kind of inconsistencies in accounting related practices.
Identify the sanctions and section of the report the company should have modified to address departures from GAAP. Support your position.
In the international trade sanctions field, several upcoming political developments are resulting from restrictions being imposed. Some of the report sections that the company ought to modify are the financial statement and basis of the opinion. The financial statement will represent the company's financial position and whether it is complying with accounting principles.
Compare the code of professional conduct for CPAs to the code of professional conduct for accountants who are non-CPAs.
CPA must meet specific education and state licensing requirements and must have passed the CPA exams. While for non-CPAs, the education and state licensing requirement is too general. CPAs are expected to follow fundamental principles within the professional code, such as objectivity, integrity, confidentiality, professional competence, and professional behavior, unlike the non-CPA with no specific professional code of conduct guidelines ( Remo, 2019).
Determine the major ethical issues created by the mergers of public accounting firms with non-CPA firms that perform accounting services. Explain your rationale.
The merging of CPA and non-CPA firms is raising serious ethical concerns based on the combinations and transactions. One main ethical concern is the client who may feel lost in the merger; the client's orientation might be affected hugely (Primoff and Kess, S. (2017). Another issue raising concern is about the staff, including junior accountants and partners who might miss a place in the combined firm. Other possible ethical concerns include intense competition, unfunded retirement plans, and succession gaps. Cases of financial malpractices might also be on the rise.
Week 3
Use the Internet or visit the U.S. Securities and Exchange Commission ( https://www.sec.gov/ ) Website to research at least two sanctions levied against companies that have violated general accounting principles.
Monsanto was ordered to pay an $ 80 million penalty for violating accounting provisions. The Securities and Exchange Commission (SEC) found that the company had did not have sufficient internal accounting controls ( Velikonja, 2019).
Securities and Exchange Commission also levied sanctions against PowerSecure International in 2016. SEC claimed that the company had violated financial books, record, and reporting by inaccurately identifying and disclosing operating result between 2012 and 2014 as demanded by Generally Accepted Accounting Principles ("GAAP")
Briefly analyze whether or not investors who were misled by relying on financial statements could hold the audit firm liable for audit failure either by common or securities laws. Provide a rationale for your response.
Many Accountants think that Federal securities laws do not apply to them because their practices are not associated with securities. But this is not the case; many accountants have been left in liability lawsuits. The securities laws apply to limited partners and traditional instruments such as debentures and stock options. Accountants should observe the provisions in Section 5 of the 1933 Securities Act, which states that they are accountable to any investor using their financial statement based on the security provisions
The accounting profession has long contended that an audit conducted in accordance with generally accepted auditing standards (GAAS) provides reasonable assurance that there are no material misstatements contained within financial statements. Suggest at least two alternative methods that auditors can use to provide a more concrete level of assurance to investors. Provide support for your responses with examples of such methods in use.
Most investors prioritize the company's audited financial statements when evaluating potential companies where they can allocate their resources. Therefore, auditors must make sure that the assurance provided to investors is more accurate and concrete. Auditors can use technology to ensure that thorough research has been conducted on what the investors seek in a company. They can also consult with all the stakeholders, following all the auditing standards accurately.
Week 4
Use the Internet or Strayer Library to research at least two companies that have experienced downgrades related to stock performance or bond ratings within the last five years.
Exxon Mobil Corp – an American-based multinational corporation is dealing with gas and oil. The company recorded a credit rating downgrade from AAA to AA + ( Mustofa, 2018)
Tesla Inc. –American-based energy and automotive company. it recorded a rating downgrade by Moody Investors Service from B2 to B3
Analyze the primary ways in which auditors would use the information from downgrades to assess business risk or evaluate the likelihood that the downgrades would impact the auditor's assessment of the client's business environment. Ascertain the major ways in which this information would impact the audit risk model equation. Support your position.
Reviewing the financial performance of the company to identify possible current or future business risks
Getting to understand the company's nature, including ownership structure, operations, and finance sources
Consulting with employees regarding the management and they take regarding the existing management state
Observing clients who are at work
The audit risk model can be used to determine the amount of risk related to audit and describe how the risk can be managed. The audit risk is calculated by multiplying control risk by detention risk by inherent risk.
Audit risk = Detection risk x Control risk x Inherent risk
The auditor considers reliability of audit evidence collected and the reliability of that evidence to reduce the risk of financial statements containing undetected material errors. Compare and contrast at least two types of evidence, and make a recommendation as to which you believe is the most reliable in reducing risk. Support your position.
The two types of evidence include internal evidence and external evidence. The comparison between the two types of evidence is described below ( Harvey et al., 2018):
For internal evidence, the auditor must not necessarily look anywhere to get the evidence because it possesses them. However, external evidence is only available to outside parties or third parties.
Internal evidence is created within the organization, for example, sales invoices or vouchers. In contrast, external evidence is not sourced from the organization's records. Examples of external evidence include purchase invoice and supplier's note.
The information extracted from external evidence is likely to be more accurate as compared to information extracted from internal audit, this is because external evidence originate from third parties with no interest in the company
The internal evidence auditor adopts a risk assessment procedure include inquiries with employees or management. Whereas, the risk assessment procedure adopted by the auditor in external evidence involves inquiries with the company's debtors and banks.
References
Frazer, L. (2020). Does Internal Control Improve the Attestation Function and by Extension Assurance Services? A Practical Approach. Journal of Accounting and Finance , 20 (1).
Harvey, G., McCormack, B., Kitson, A., Lynch, E., & Titchen, A. (2018). Designing and implementing two facilitation interventions within the 'Facilitating Implementation of Research Evidence (FIRE)' study: a qualitative analysis from an external facilitators' perspective. Implementation Science , 13 (1), 1-14.
Kanwal, F., & Singal, A. G. (2019). Surveillance for hepatocellular carcinoma: current best practice and future direction. Gastroenterology , 157 (1), 54-64.
Mustofa, A. (2018). MNC ON OIL AND GAS EXPLORATION: ExxonMobil Gas and Oil Exploration in The Spratly Islands. Mediasi: Journal of International Relation , 1 (2).
Primoff, W., & Kess, S. (2017). The Equifax Data Breach: What CPAs and Firms Need to Know Now. The CPA Journal , 87 (12), 14-17.
Remo, A. (2019). Certified public accountants' attitudes towards the public interest and the factors that impact those attitudes (Doctoral dissertation, University of Wisconsin--Whitewater).
Velikonja, U. (2019). Public Enforcement After Kokesh: Evidence from SEC Actions. Geo. LJ , 108 , 389.
Webster, T. T. (2017). Successful Ethical Decision-Making Practices from the Professional Accountants' Perspective.
