A1 Outline

Question 1

The external auditor is unable to obtain absolute assurance that the entity’s financial statements are free from material misstatement due to:

Answer 1

1. Level of subjectivity contained in financial reporting
2. The practical (cost vs. benefit) & legal limitations in obtaining audit evidence during an audit engagement.
3. The need for timely financial reporting to financial statement users

Question 2

The PURPOSE of an audit:

Answer 2

Provide financial statment users with an opinion on whether the entity’s financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Question 3

In essence, the auditor’s report provides:

Answer 3

Creditability to the entity’s financial statements.

Question 4

The three levels of auditing guidance include: (highest to Lowest authority)

Answer 4

1. SAS published by the ASB (nonissuers) & PCAOB (issuers)
2. Interpretive publications (reccommendations for how SAS should be applied in certain situations)
3. Other Auditing Procedures (have no authoritative status but may be helpful for the auditor)

Question 5

When conducting a financial statement audit, the overall objectives of the auditor are to:

Answer 5

1. Obtain reasonable assurance that the financial statements are free of material misstatement due to error or fraud, enabling the auditor to express an opinion on whether the financial statements are presented fairly in accordance with the applicable financial reporting framework.
2. Report on the financial statements and communicate the auditor’s findings.

Question 6

What are the GENERAL REQUIREMENTS for the conduct of an audit:

Answer 6

1. Professional Skeptisim
2. Ethical Requirements
3. Professional Judgment
4. Sufficient Appropriate Audit Evidence (to reduce audit risk)
5. Complying with GAAS

Question 7

What is the auditor’s RESPONSIBILITY?

Answer 7

Expressing an OPINION on the financial statements based on the audit. Having appropriate COMPETENCE & CAPABILITIES to perform the audit, comply with relevant ETHICAL REQUIREMENTs, maintain PROFESSIONAL SKEPTISIM, & exercise PROFESSIONAL JUDGMENT throughout the planning and performance of the audit.

Question 8

To provide financial statement users with an opinion on whether the financial statements are presented fairly, in all material respencts, in accordance with the applicable financial reporting framework.

Answer 8

PURPOSE of an audit

Question 9

The applicable financial reporting framework is the financail reporting framework that is:

Answer 9

Acceptable in veiw of the nature of the entity and the objectives of its financial statements, or that is required by law or regulation.

Question 10

The document containing audited financial statements may contain “other information” that is materially inconsistent with the audited financial statements. If the auditor identifes a material inconsistency, the he or she should:

Answer 10

Determine whether the audited financial statements require a revision for a material inconsistency.

Question 11

If management refues to make a revision for a material inconsistency in other inforamation containing audited financial statements, the auditor should:

Answer 11

Modify the audit opinion and communicate the matter with those charged with governance.

Question 12

The auditor is not required to reference the other information in the auditor’s report on the financial statements (optional). If the auditor does choose to reference the other information, he or she may do so but should:

Answer 12

Disclaim an opinion on the “other information,” in an OTHER-MATTERS paragraph.

Question 13

When reporting on supplemental information in relation to the financial statements as a whole, additional audit procedures must be performed, which generally:

Answer 13

Use the same materiality levels as used in a financial statement audit

Question 14

The auditor’s report on supplementary information may be presented in:

Answer 14

An other-matter paragraph or explanatory paragraph in the audit report for a nonissuer and issuer, respectively, or in a separate report.

Question 15

An entity may be required by a given standard setter to prepare specific information that is supplemental to the primary financial statements. Unless stipulated as a requirement in a particular engagement, the auditor’s opinion on the financial statements:

Answer 15

Will NOT cover this required supplemental information, however the audit report should include an other-matter paraprah to explain the circumstances and disclaim an opinion on the supplemental information.

Question 16

An accountant in public practice other than the continuing accountant who prepares a written report or oral advice on:

a. The application of the requirements of an applicaple financial reporting framework to a specfic transaction,
b. the type of report that may be rendered on a speficic entity’s financial statements

Answer 16

Reporting Accountant

Question 17

A report may be prepared that addresses the appropriate application of accounting principles under a given financial reporting framework. The procedures used by the reporting accountant include:

Answer 17

1. Obtain an understanding of the form and substance of the specific transactions or the conditions relevant to the type of report that may be issued on a specific entity’s F/S
2. Review the relevant requirements of the applicable financial reporting framework
3. If appropriate consult with other professionals, experts, regulatory authorities, or perform additonal research.

Question 18

Reporting accountants report on the application of the requirements of an applicable financial reporting framework should be addressed to the requesting party an include:

Answer 18

a. Description of the nature of the engagement.

b. State it was performed in accordance with AICPA standards.

c. If not independent must state lack of independence.
d. Separate paragraph at the end of the report restricting the use.
e. Statement that prepares (mgt.) are responsible for proper accounting treatment.
f. Stmt describing appropriate application requirement (including country of orgin)

Question 19

A reporting accountant may not report on the application requirements of accounting principles to:

Answer 19

A HYPOTHETICAL TRANSACTION

Question 20

A practicing auditor in the US may be engaged to report on financial statements prepared in accordance with a financial reporting framework generally accepted in another country. Prior to engagement acceptance the auditor should determine if the financial reporting framework:

Answer 20

Is a fair presentation framework under the circumstances.

*Auditor should comply with GAAS and consider the circumstances of the engagement and whether applying the auditng standards of another country of the ISAs is necessary.