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Module 1: Professional Responsibilities 4. International standards in the area of going concern include time horizon of at least, but not limited to, twelve months, while PCAOB standards limit the foreseeable future for a going concern consideration of up to twelve months. Additional differences not included in the above report as substantive differences include

Topic Compliance with GAAS

International Auditors comply with requirements except in “exceptional circumstances” in which case alternate procedures are performed.

US Standards (both AIPCA and PCAOB) PCAOB standards establish three responsibility levels for compliance: (1) unconditional, (2) presumptively mandatory, and (3) responsibility to consider. Auditing Standards Board standards only include the first two categories (see Chapter 5 under Statements on Auditing Standards) Confirmation is presumptively required unless accounts receivable are immaterial, the use of confirmations would be ineffective or the combined assessed level of inherent and control risk is low.

Confirmation of accounts receivable

Not required. In making a determination on whether to confirm, the auditor should consider the assessed risk of material misstatement at the assertion level and how the audit evidence from other planned audit procedures will reduce the risk of material misstatement at the assertion level to an acceptably low level. An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.

Fraud definition

An intentional act that results in a material misstatement in financial statements that are the subject of an audit. NOTE: While the international definition is broader, it may have limited significance in that both an audit following International Standards and one following US Standards aim at obtaining reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. Not required. However, various representations on fraud are obtained (management’s knowledge of its responsibility, management’s knowledge of fraud, allegations of fraud). The audit obtains reasonable assurance of detection of illegal acts that have a direct and material effect on financial statement amounts; if evidence about possible illegal acts with an indirect effect comes to the auditor’s attention it is considered. In addition to the AICPA SAS requirement, auditors must determine that the internal audit function applies a systematic and disciplined approach, including quality control. Presumptively required. This statement is not included in standards.

Fraud

Auditors should obtain a written representation from management that it has disclosed to the auditor the results of its assessment of the risk of fraud. The auditor’s concern is with whether laws and regulations may materially affect the financial statements. No explicit distinction is made between direct and indirect effect illegal acts. Auditors evaluate internal auditor objectivity, competence, and work performance before using their work. Only required when an auditor “assesses a risk of material misstatement.” The standard states that this may provide sufficient appropriate audit evidence on opening balances. The auditor should withdraw and consider whether there is an obligation to contact other parties. Audit opinion may be on either (1) the fair presentation of the financial statements or (2) that the financial statements “give a true and fair view.”

Illegal acts

Use of the work of internal auditors

Sending letter of audit inquiry to lawyers Reviewing predecessor auditor’s working papers for evidence on beginning balances Terms of audit engagement change, and auditor is unable to agree on new terms Opinion on financial statements.

There is no explicit obligation to consider contacting other parties. Audit opinion may only be on fair presentation of financial statements