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AUD > Engagement reports > Flashcards

Engagement reports Flashcards

1
Q

What are the 2 major situations that would cause an auditor to issue an opinion other than an unqualified opinion?

A

Scope limitation

GAAP departure

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2
Q

What are the 2 opinions an auditor can issue with a scope limitation?

A

Qualified

Disclaimer

Depending on materiality

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3
Q

What situations would lead to an additional explanatory paragraph being added to the audit report without the other paragraphs?

A

Emphasis of matter

Change in application of accounting principle

Going-concern assumption

Alert the reader of inconsistency of other information being submitted with F/S

Justified GAAP departure

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4
Q

How does the auditor deal with an acceptable change in accounting estimates that have a material effect on the F/S?

A

add an explanatory paragraph to draw emphasis to the matter before or after opinion paragraph

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5
Q

How does an auditor deal with a client who got a qualified opinion due to GAAP departures but since have corrected the issues appropriately and have asked the auditor to reissue the report?

A

The auditor would issue an unqualified opinion assuming all conditions to do so. This could cause confusion to reader so the auditor adds an explanatory paragraph before the opinion paragraph. The report is dual-dated in regard to the proper changes to the GAAP departure.

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6
Q

What creates the need for a dual-dated audit report?

A

when the auditor becomes aware of subsequent events that affect the F/S or disclosures that occurred after the report date.

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7
Q

What is the structure of a dual-dated reference?

A

earlier date is normally the last day of fieldwork.
later date is the last day of testing for subsequent events that caused changes in the F/S

Ex.”June 1, Year 1, except for the transaction referred to in Note R, for which a date of July 9, Year 1 applies”

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8
Q

What type of opinion should an auditor give if he discovers a material misstatement and management refuses to make the appropriate adjustments or change the F/S to correct the misstatement?

A

Qualified - except for the effects of X item

Adverse

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9
Q

What type of opinion should an auditor give if there is substantial doubt about the company’s ability to continue as a going-concern for 12 months from the balance sheet date even after obtaining a copy of management plans to remedy noted problems?

A

Qualified with explanatory paragraph added after opinion paragraph

Disclaimer - AU 341 allows but does not require a disclaimer criteria are not stated so such a report is rarely issued

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10
Q

What specific phrase must be added to an explanatory paragraph to indicate auditor concern as to the company’s ability to continue as a going concern?

A

must explicitly include in a explanatory final paragraph that there is substantial doubt that the company can continue as a going-concern for a period not exceeding 12 months from the balance sheet date

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11
Q

An auditor is not independent but is however associated with a companies F/S. What type of report should be rendered by this auditor?

A

Disclaimer is the only appropriate opinion

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12
Q

A company’s F/S do not comply with a recent codification standard though it is able to demonstrate that, due to an unusual circumstances, it’s F/S would be misleading if in compliance. What opinion should be rendered by the auditor?

A

Unqualified may still be issued. An explanatory paragraph should be added to discuss the non-compliance and rationale for non-GAAP reporting.

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13
Q

Where is an explanatory paragraph positioned when an auditor is not able to issue an unqualified opinion?

A

Immediately before the opinion paragraph.

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14
Q

A company omits a statement of cash flows from the F/S presentation what opinion should be issued by the auditor?

A

Qualified opinion

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15
Q

An entity is required to submit supplemental information with its F/S. It is viewed outside the basic set of F/S and related footnotes. Management chooses to omit this info. What type of report should be issued?

A

An Unqualified opinion may be issued with an explanatory added after the opinion paragraph to alert the readers to the missing supplemental info since it is not part of the basic F/S.

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16
Q

What type of audit opinion is issued when the reporting entity prevents the auditor from carrying out a significant audit procedure?

A

unless there is significant justification for the action, the auditor would normally issue a disclaimer of opinion

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17
Q

If management refuses to disclose illegal activities, what type of opinion should the auditor issue?

A

Qualified or adverse depending on the estimated material effects on the F/S

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18
Q

What type of opinion is rendered in each of the following cases? Assume each problem is separate and material to the F/S?

  1. Incorrect capitalization of several operating leases.
  2. non-confirmation of accounts receivable and can’t gain satisfactory evidence for the balances by alternative procedures.
  3. failing to to include adequate disclosure of several year-end contingencies.
  4. failing to obtain corroborating evidence for the amounts reported in connection with contingent liabilities at year end.
A
  1. Qualified or adverse depending on materiality
  2. Qualified or disclaimer due to scope limitation
  3. Qualified or adverse depending on materiality
  4. Qualified or disclaimer due to scope limitation
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19
Q

The auditor obtains sufficient and appropriate evidence for all amounts except for inventory balance at the beginning of the year. If the balance is considered material, what type of opinion should be rendered on the F/S?

A

Balance sheet - Unqualified

Other F/S - Qualified or disclaimer

20
Q

What is the significance of the audit report date?

A

The final day an auditor performed any testing to support an opinion. Typically the auditor’s responsibility ends on that date.

21
Q

F/S can be presented with other entity info. What is the responsibility of the auditor in regard to this other info?

A

The auditor must read any info that accompanies the F/S and consider whether it is consistent with the info presented.

If the info is required by FASB or GASB the auditor must make certain it follows the appropriate guidelines.

If it is materially inconsistent with the F/S and the company refuses to make revisions an explanatory paragraph should be added at the end of the report.

22
Q

An auditor adds an explanatory paragraph to an audit report without making any change in the opinion being rendered. Where is this paragraph placed? How does this change the wording of the other paragraphs in the audit report?

A

If the auditor wants to add an explanatory paragraph without changing the opinion no change should be made to the other paragraphs.

Generally in an unqualified opinion an explanatory paragraph would follow the opinion paragraph.

In a qualified, adverse or disclaimer of opinion the explanatory paragraph would precede the opinion.

Exception would be justified GAAP departure and emphasis of matter – before or after the opinion paragraph

23
Q

In the scope paragraph of a nonissuer’s unqualified opinion audit report, what info is given about the auditor’s testing of internal control?

A

internal control is not mentioned in the standard unqualified opinion audit report

24
Q

In the scope paragraph of a nonissuer’s unqualified opinion audit report, what assurance is indicated?

A

that the auditor is seeking to provide reasonable assurance that the F/S contain no material misstatements

25
Q

In the scope paragraph of a nonissuer’s unqualified opinion audit report, what specific testing procedures are mentioned?

A

Specific testing procedures are never mentioned

26
Q

The auditor cannot determine the legality of certain acts what action should the auditor take?

A

Gain an understanding of the nature of the act and its impact on the entities F/S

Inquire of management at a level above those involved

Consult with the client’s legal counsel about the application of relevant laws and regulations

27
Q

How does a scope limitation qualification differ from the standard unqualified opinion?

A

Intro paragraph - no changes

Scope paragraph - in referring to GAAS the phrase “except as discussed in the following paragraph…”

Explanatory paragraph - inserted paragraph describes the situation and possibly refers to a footnote

Opinion paragraph - add phrase “except for any potential adjustments that might have been found necessary due to the matter referred to above…”

28
Q

What title should be used for the auditor’s report?

A

Private - “Independent Auditor’s Report”

Public - “Report of Independent Registered Public Accounting Firm”

29
Q

An auditor issues a disclaimer how does this report differ from the standard unqualified opinion audit report?

A

Intro paragraph - indicates the auditor was “enaged to audit” rather than “audited”

Scope paragraph - omitted entirely

Explanatory paragraph - describes the problem the auditor encountered and possibly refers to a footnote to the F/S for more info

Opinion paragraph - states that “…because the auditor was unable to…” and problem described again then states “…the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on these F/S…”

30
Q

How does a GAAP departure qualification differ from the standard unqualified opinion?

A

Explanatory paragraph - describes the problem with the F/S and often refers to a footnote for more info

Opinion paragraph - in providing the opinion, the auditor adds a phrase such as, “…except for the effects of…” and then the problem is mentioned again.

31
Q

How many paragraphs are in a nonissuer’s standard unqualified report? What are the names? what is the purpose?

A

Intro paragraph - ID’s the F/S, outlines the responsibilities of management and the auditor

Scope paragraph - describes the work of the auditor

Opinion paragraph - spells out the opinion being rendered by the auditor concerning the F/S being presented

32
Q

How are the statements ID’d in the intro paragraph?

A

By the name of each statement

By the date of each statement

By the name of the reporting entity

33
Q

What are the responsibilities of management and the auditor?

A

management is responsible for the F/S

Auditor is responsible for expressing an opinion on those F/S

34
Q

Describe the 5 sub-sections of the scope paragraph?

A
  1. audit conducted in accordance with GAAS
  2. the audit was planned an performed to obtain reasonable assurance about whether the F/S are free of material misstatements
  3. examining, on a test basis, evidence supporting the amounts and disclosures in the F/S
  4. includes assessing the accounting principles used and significant estimates made by management, as well as evaluation the overall F/S presentation.
  5. the audit provides a reasonable basis for the opinion being rendered
35
Q

What is the significance of stating evidence supporting balances and disclosures have been examined on a test basis?

A

the auditor is informing the reader that every transaction has not been reviewed but is providing reasonable assurance about whether the F/S are free of material misstatements.

36
Q

How does an auditor indicate that reasonable assurance on the F/S is being given?

A

the auditor conveys in the opinion that “the F/S presented fairly, in all material respects, the financial position of the of the client as of a certain dated, the results of its operations, and its cash flows for the year then ended in conformity with US GAAP”

37
Q

An auditor issues an adverse opinion how does this report differ from the standard unqualified opinion audit report?

A

Explanatory paragraph - describes the problem and often refers to a footnote for more info

Opinion paragraph - in providing the opinion, the auditor adds a phrase such as, “…except for the effects of…” and then the problem is mentioned again. the auditor goes on to state ..the F/S referred to above do not present fairly..”

38
Q

Is the auditor allowed to issue an audit report on only one F/S?

A

Yes this is a limited reporting engagement.

If the statement was a statement of income/operations a statement of cash flows would need to be presented with it

39
Q

An auditor issues an disclaimer of opinion on a company’s F/S but believes the company’s investment account is presented fairly. What assurance can the auditor provide about this account?

A

The auditor must not issue a piecemeal opinion.

Under conditions of special reporting one account can be given assurance under they are presented fairly on the basis indicated.

40
Q

What are the two types of governmental audits under GAGAS?

A
  1. Financial audit

2. Performance audit

41
Q

Which organizations are typically required to obtain an audit performed under GAGAS?

A

Government entities, programs, activities, and functions and to federal and state government assistance programs administered by contractors, nonprofit entities, and other nongovernmental entities when the use of GAGAS is required or is voluntarily followed.

42
Q

What are the standards to be followed in an GAGAS financial audit engagement?

A

GAGAS standards incorporate the AICPA standards of field work and reporting and the related SAS unless specifically excluded or modified by GAGAS

GAGAS describe certain required ethical principles and establish independence and other additional General standards, fieldwork standards and reporting standards beyond those specified by the AICPA.

auditors may use GAGAS in conjunction PCAOB or IAASB standard

GAGAS are issued by the GAO and monitored by comptroller general of the US.

Yellow Book

43
Q

What specific areas must a GAGAS financial audit cover?

A
  1. independent assessment of and reasonable assurance about whether an entity’s reported financial condition, financial results and use of resources are presented fairly in accordance with GAGAS
  2. reports on internal control
  3. reports on compliance with laws and regulations and provisions of contracts and grant agreements as they relate to financial transactions, systems and processes.

4 Financial audits performed under GAGAS actually include F/S audits and other related financial audits.

44
Q

What information should be included in the CPA’s report on compliance with laws?

A

should report, as applicable to the objectives of the audit and based on the audit work performed, violations of provisions of contracts or grant agreements and abuse that could have a material effect on the entity’s F/S. All instances of fraud and illegal acts, unless inconsequential, should also be reported to the appropriate parties.

45
Q

What information should be included in the CPA’s report on internal control?

A

describe the scope of testing of internal control over financial reporting. whether the tests performed provided sufficient appropriate evidence to support an opinion on the effectiveness of internal control. should list all significant deficiencies and material weaknesses in the design or function of internal control

46
Q

In a GAGAS audit, what are some types of performance audit subject matter?

A
  1. assessing the extent to which legislative, regulatory or organizational goals and objective are being achieved
  2. analyzing the relative cost-effectiveness of a program or activity
  3. determining whether a program produced its intended results or produced results that were not consistent with the program’s objectives
  4. assessing the extent to which programs duplicate, overlap, or conflict with other related programs

5 evaluating whether the audited entity is following sound procurement practices.

AUD (20 decks)

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