Accounting Statements

Respond to following questions and answers.....elaborate more

1.

1. From the Key Players: Why is it important for the auditor to report to the audit committee?

The audit committee oversees the work of the auditor. They select the auditor, the amount they earn, and oversee the tasks the auditor completes. The audit committee is essentially the boss of the auditor while they perform work. The audit committee should clearly define the actions of the auditor and what information that is necessary to firmly attest to the company's financial statements. It is important to maintain independence of the firm while also ensuring integrity and honesty in the facts that are represented by the financial statements. It is not only the auditor's responsibility to ensure that the financial statements are correct, but it is that of the audit firm's reputation on the line when ensuring accuracy to that of its shareholders, financial investors, and governing firms.

2. If the CPA auditor's spouse is a senior manager at the company to be audited, does the auditor have independence (may require some CPA literature research).

The auditor would not have independence in this situation as they have family or a close personal friend working for the company in a senior position. The auditor must be independent, meaning they have no conflict of interest within the company, such as being a stockholder, having friends or family as employees, owning a piece of the company, or being a customer or vendor to the company. Some public companies employ an internal auditor, but this is to ensure that work is prepared year round in accordance with GAAP standards and the internal auditor does not perform the attestation of the financial statements prepared for year-end reporting. It is important that every year an auditing firm reassess its situation with maintaining independence from the firm that it is auditing. If the situation was to change, then the auditing firm would have to take the steps necessary to ensure that the company could be audited with integrity and independently before reassigning to the client.

3. What is the PACOB and why is it important for CPA's?

The PCAOB is the Public Company Accounting Oversight Board, and its role is to protect investors from fraud and misrepresentation of public companies by overseeing the audit and financial reporting process. CPA's need to be aware that they are being watched by not only the firm they represent but that of the governing agency. They need to be aware that theyd are in a highly responsible position for reporting and attesting that a company's financial statements are accurate. The PCAOB is responsible for the development of the standards and requirements that audit firms use and they oversee those audit firms.

4. Give an example of an Audit firms systems of quality control.