Final ch 17 Flashcards
Identify the sections of the standard audit report for a nonpublic company.
Management’ s Responsibility for the Financial Statement indicates responsible for preparation & fair presentation of f/s in accordance w/GAAP and internal control.
Auditors Responsibility indicates responsible to express an opinion on F/S based on audit conducted in accordance with GAAS, outline nature of audit, conclude that belief that sufficient appropriate audit evidence has been obtained.
Opinion Section presents opinion on whether F/S are presented fairly in conformity with GAAP in US.
What is the function of notes to financial statements?
It properly disclose information required by GAAP that can’t be adequately conveyed on the face of the financial statements.
List three primary differences between the audit report for nonpublic entities and the one for public entities.
PCAOB reports:
Includes the word “registered” in the title.
References standard of the PCAOB rather than GAAS.
Includes additional paragraph indicating that the auditors have also issued a report on the client’s internal control over financial reporting
Doesn’t include section headings.
When the current auditors make reference to the work of the component auditors, does this result in expression of a qualified opinion?
Yes, it is dividing responsibility for the engagement among the group and competent auditors. Only if the component auditors modify the opinion of their report on the component will the group auditors needs to evaluate materiality of the matter in relation to the consolidated F/S and possibly modify their opinion.
Explain three situations in which the wording of a report with an unmodified opinion might depart from the auditors’ standard report.
If an unmodified opinion with an emphasis-of-matter paragraph is included or required.
Unmodified opinion with an other-matter opinion included.
Unmodified opinion on group F/S is written.
At the beg. of the current year, Wade company changes its method of inventory valuation from ave cost to LIFO. What effect, if any, will this situation have on your audit report for the current year?
The auditors have to obtain sufficient appropriate audit evidence to conclude that the F/S as a whole are free from material misstatement and a required emphasis-of-matter paragraph following the opinion paragraph is included stating that the audit opinion is not modified w/respect to the matter.
What are the two circumstances that result in modified opinions?
Materially misstated F/S - auditors concluded that the F/S as a whole are materially misstated.
Inability to obtain sufficient appropriate audit evidence - auditors are unable to obtain sufficient appropriate audit evidence to conclude that the F/Ss as a whole are free from material misstatement.
What factors determine whether a misstatement is considered pervasive?
When they meet one or more of the criteria: (1) they are not confined to specific elements, accounts, or items of the financial statements,(2) if confounded, they represent or could represent a substantial proportion of the F/S, (3) In relations to disclosures, they are fundamental to users’ understanding of the financial statements.
