Obtain written representation from management that all litigation, asserted and unasserted claims, and assessments have been disclosed in accordance with FASB ASC Topic 450.

1. The three types processed through the revenue process: Sale of goods or rendering services for cash or credit.
Receipt of cash from customer in payments for goods/services. The return of goods by the customer for credit or
cash.
Steps during Observation of physical inventory count: 1- No production scheduled, if scheduled, with proper controls
to prevent double counting. 2- No movement of goods during count. 3- Counting team follows instructions. 4-
Inventory tags issued to each department. 5- Perform test counts and record them in the working papers. 6- Obtain
tag control information for testing the inventory compilation. 7- Obtain cutoff information (# last shipping &
receiving docs issued). 8- Observe the condition of the inventory items that may be obsolete, slow moving or in
excess. 9- inquire about goods held in consignment.
Auditing inventory – causes of book-to-physical differences: 1- Inventory cutoff errors. 2- Unreported scrap or
spoilage. 3- Pilferage or theft.
Internal auditor roles: 1- evaluating risks & controls. 2- reviewing compliance. 3- financial auditing. 4-operational
auditing.
2 fieldwork’s attestation standards: 1- Adequate planning & supervised assistants. 2- Obtain sufficient evidence.
3 types of transactions important when auditing stockholders’ equity: 1- issuance of stock, such as sale for cash,
exchange for assets, services, or convertible debt, or stock splits. 2- Repurchase of stock including both reacquisition
/ retirement of stock. 3- Payment of dividends including cash/stock.
Ch18 – Standard unqualified report: issued auditor gathered sufficient evidence, performed according to PCAOB
standards & financial statements conform with GAAP. (Report title, addressee, intro paragraph, scope paragraph,
opinion paragraph, explanatory paragraph to audit of ICFR, name of Auditor, & Audit report date.
The standard unmodified report: issued when auditor gather sufficient evidence, performed according to GAAS,
financial statement conforms with GAAP. (Report title, addressee, intro paragraph, mgt’s responsibility, auditor
responsibility, scope paragraph, opinion paragraph, name of auditor, & date).
Changes affect consistency: Accounting Principles, Reporting Entity, Correction of misstatement.
Not affecting consistency: Accounting estimates, classifications/reclassifications, changes expected to have future
effect.
Conditions for departure from unqualified/unmodified report: Scope limitations, Departure from GAAP, Lack of
auditor independence -> (Qualified with exceptions, disclaimer, adverse).
Scope limitation – can’t obtain sufficient/appropriate evidence of some components of F/S – Qualified or Disclaimer.

2. Non-conformant with GAAP – Resulting in F/S materially affected – Qualified or adverse.
Auditor not independent – A form of prohibited relations with entity – Disclaimer.
Ch19 – Ethics: system of Code of conduct based on moral duties & obligations that indicate how an individual should
interact with others in a society.
Professionalism: Conduct, aims, or qualities that characterize or mark a profession or a professional person.
Independence - Rule 101: A member in public practice shall be independent in the performance of professional
services as required by standards promulgated by bodies designated by Council.
An individual on the attest engagement team, An individual in a position to influence the attest engagement, A
partner or manager who provides nonattest services to the attest entity beginning once he or she provides 10 hours
of nonattest services, A partner in the office in which the lead attest engagement partner primarily practices in
connection with the attest engagement, The firm, including the firm’s employee benefits plan, An entity whose
operating, financial, or accounting policies can be controlled by any of the individuals or entities described above or
by two or more such individuals or entities if they act together.
Prohibited financial relationships (except personal loans from financial institutions):
Direct – financial interest that is owned directly by individual/entity, or under their control.
Material indirect – when covered member has financial interest in entity associated with attest entity.
Prohibited business relationships: Rule 101 and relevant interpretations essentially indicate that the independence of
a CPA is impaired if the CPA performs a managerial or other significant role for an entity’s organization during the
time period covered by an attest engagement. Interpretation 101-2 indicates that a firm’s independence will be
considered to be impaired with respect to an entity if a partner or professional employee leaves the firm and is
subsequently employed by or associated with that entity in a key position unless a number of conditions are met.
Effect of family relationships: A covered member’s immediate family (spouse, spousal equivalent, or dependent) is
subject to Rule 101 and its interpretations and rulings. Two major situations with close relatives that can impair
independence: (1) A close relative has a financial interest in the entity that is material to the close relative, and the
CPA participating in the engagement is aware of the interest. (2) An individual participating in the engagement has a
close relative who could exercise significant influence over the financial or accounting policies of the entity. # Close
relatives include nondependent children, brothers, sisters, parents, grandparents, parents-in-law, and their
respective spouses.

3. Effect of Actual or Threatened Litigation: # The commencement of litigation by management alleging deficiencies in
audit work for the entity would be considered to impair independence. # An expressed intention by management to
commence litigation against the CPA alleging deficiencies in audit work would also impair independence if the
auditor concluded that it is probable that such a claim will be filed. # The commencement of litigation by the CPA
against management alleging management fraud or deceit would be considered to impair independence.
Provision of Nonattest Services: # The AICPA Code of Professional Conduct restricts the types of nonaudit services
that can be provided to attest entities. # The SEC has even more restrictive independence rules for audits of public
companies.
SEC and PCAOB Independence Requirements for Audits of Public Companies: 1- An auditor should not audit his or
her own work. 2- An auditor should not function in the role of management. 3- An auditor should not serve in an
advocacy role for the entity. Prohibited nonaudit services: Bookkeeping, Financial Information System design &
Implementation, Appraisal/Valuation, Actuarial, internal audit outsource, management functions or HR,
Broker/dealer, Legal, Expert.
Partners are limited to 5 consecutive years, 1 year cooling off period.
201 – Integrity & objectivity: performance of any professional service, a member shall maintain objectivity &
integrity. Free from conflict of interest, not knowingly misrepresent facts or subordinate their judgement to others.
#1 professional competence #2 due professional care #3 planning & supervisions # sufficient relevant data.
301 – Confidential client info : Shall not disclose any confidential client info without consent. 5 situations to disclose
confidential info: #1 meet GAAP/GAAS disclosure reqs. #2 Comply with Subpoena. #3 Required by authorized peer
review. #4 part of an investigation or disciplinary proceedings. #5 connection with purchase, merger, sales of the
practice.
Audit Procedures for Identifying Contingent Liabilities: Specific Audit Procedures Conducted Near Completion of
Audit: Inquire and discuss with management about its policies and procedures for identifying, evaluating, and
accounting for contingent liabilities. Examine documents in the entity’s records such as correspondence and invoices
from attorneys for pending or threatened lawsuits. Obtain a legal letter that describes and evaluates any litigation,
claims, or assessments. Obtain written representation from management that all litigation, asserted and unasserted
claims, and assessments have been disclosed in accordance with FASB ASC Topic 450.