Understanding Auditing Standards and Risks for 1040 Returns

Your 1040 Return ●Professional Standards ○Publicly traded company = PCAOB ○Private = AICPA ■AU-C 315 - understanding the entity environment / romm ■AU-C 330 - performing audit procedures in response to the risk assessment ■AU-C 540 - Auditing Accounting Estimates to include fair value ●Question 1A ○If they do not do well with this audit they could potentially lose line of credit ○Management may be incentivized to fraudulently report to make the business look better than it is ●Question 1B ○Understand the entity and its environment ○IT system understanding ○Internal controls ○Understand flow of transactions ■All of the understanding will dictate the nature, timing, and extent of audit procedures ●Question 1C ○Customer Demand ■Do not like putting financial information online ○Revenue Recognition risks ○Risk of server crashing ■If large server crashes then customers unable to access site ○Customer Privacy ○Electronic only evidence ○Inexperienced staff ●Question 1D ○Privacy controls ○Segregation of Duties ○More experienced staff ○Revenue recognition controls ○Contracts in place for advertising - recognizing revenue and complying with contract ●Question 1E ○All electronic → modify the opinion / scope limitation ■unable to accept client ■if they already signed engagement letter → withdraw at later date ●Question 1F ○Memory backup ●Question 1G ○ASC 606