1. When one talks about "completeness" assertion, the same assertion has different meaning for account balances, transactions and events, and presentation and disclosure. Please explain the meaning of "completeness" as one assertion under "presentation and disclosure".
2. When was the SEC created? What's the primary responsibility of the SEC as a federal agency? When was the annual audit requirement introduced for all publicly traded companies in the U.S.A?
3. Since 1950s, the wording of auditor's opinion has been switched from "a true and accurate view of financial position" to "present fairly in all material aspects". Please provide at least 2 reasons why "fairness" took over and became the new focus of financial statement audit.
4. In late 2001 through 2002, the accounting profession faced a "crisis of credibility." You are now familiar with the Enron fraud, but not the Worldcom case. Please consult "Professor Google" and briefly describe the Worldcom case to me (e.g. what did the CFO do to inflate reported profit, key accounts involved in this fraud, how large was the total misstatement, who was the external auditor before Worldcom's final collapse, and whowhistle-blowedthis accounting fraud to the audit committee?). Tip:https://en.wikipedia.org/wiki/MCI_Inc.
5. The Sarbanes-Oxley Act of 2002 established a new regulator over the CPA firms that audit the publicly traded companies in the U.S. Please name this new regulatory agency and explain the major responsibilities of this board. (FYI, in the 2020-2021 federal budget, the Trump administration proposed to consolidate PCAOB into the SEC by 2022. It is not going to happen in the near future, at least for 2020 and 2021).
6. For how long does the Sarbanes-Oxley Act require auditors of public companies to retain audit documentation?
7. What are the impacts of the SOX Act of 2002 on auditors and management? If an executive tampers accounting records and manipulates reported numbers at a publicly-traded firm, what's the maximum prison term he can get under the Sarbanes-Oxley Act of 2002?
8. After 2003, AICPA and PCAOB have different regulatory powers in the audit market. Please describe the details to the professor.
9. The professor mentioned that a firm faces both business risk and information risk. Please briefly discuss the definitions of these two risks? Which risk is directly affected by the auditor?
10. Please list the four management assertions on account balances and five management assertions on transactions. Please briefly explain those assertions to your professor. Professor might give you examples and ask you to identify the relevant account balance assertions or accounting transaction assertions.
11. Distinguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between these two types of frauds on the fair presentation of financial statements.
12. What's the purpose of audit according to the 11 AICPA audit principles?
13. What is "professional skepticism"? Why professional skepticism is important to today's auditors.
14. Explain why auditors need an understanding of the client's industry.
15. In today's world, why auditor can only provide reasonable assurance as to the fairness of financial statements?
16. Who is primarily responsible for the fairness of the financial statements at a publicly traded firm? The management, board of directors, auditor, or the SEC?
17. In the banking industry, "non-performing loan ratio" is a useful risk indicator. Please explain to the professor what is a non-performing loan? BTW, some countries also call the ratio "non-accrual loan ratio". Tip: Definition is available athttps://www.investopedia.com/terms/n/nonperformingloan.asp; U.S. historical data/graph are available here: https://fred.stlouisfed.org/series/NPTLTL.
18. Apex LLP is the auditor of ZCoupon Inc., a private startup with 20 employees based in Santa Ana, California. Its 2016 audit report contains one paragraph on auditor's responsibility. It is copied and pasted below. Please identify wording errors and correct them. "Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards established by PCAOB. Those standards require that we plan and perform the audit to obtain great confidence as to whether the consolidated financial statements are free of financial misstatement".
19. What is "critical audit matter"? Please briefly explain the meaning of this term. You are an auditor at KPM-LST and assigned to audit a global oil producing firm, such as Chevron. You senior is a graduate from Catalina State University and has no idea about the oil and gas industry at all. Can you enlighten him or her with at least one example of "critical audit matter"?
20. Who sets up the accounting standards in the U.S.A? PCAOB, AICPA or the SEC or others?
21. When are analytical procedures useful? Before the audit, during the audit, or at the end of annual audit?
22. What are the primary and secondary functions of audit working papers (documentation)?
23. Confirmation through an independent third-party has been widely used to obtain reliable audit evidence to verify some asset or liability accounts on the balance sheet. Please list at least 3 asset accounts which can be audited by confirmation.
24. Today, American auditors can easily verify client's asset or liability accounts through electronic confirmation. Please name the firm that provides this online e-confirmation platform?
25. Please explain to the professor briefly the definition of "materiality" as defined by the FASB?
26. Publicly-traded firms in the U.S. regularly file two kinds of financial accounting reports with the SEC: 10-K and 10-Q. Please explain the differences.
27. (Chapter 25) Compilation, review, and exam (audit) provide different levels of assurance. Please briefly describe their differences here.