A1 Audit Report

Question 1

M1 Professional Standards:

Answer 1

An audit engagement requires the auditor to performed the audit in accrodanace with generally accepted auditing stanadards (GASS). Statement of Audit Standards (SAS) AU-C the standard body is the AICPA for nonissuers or private co. : audits of historical f/s, special reports, interim f/s(where the annual f/s has been audited. Public co.accounting oversight bd.(PCAOb); audiing standards PCAOB AS are for issurers or public co.: audits of historical f/s, special reports, interim f/s. Generally Accepted Gov. Auditing standards (GAGAS) for Governmental Accountability Office: for government agency, organizations, programs and entities that recieve governemtn funds.: financial of performance audits of gov. organization, programs and agency that recieved govt. fundng. Statement of Standards for Attestation Engagements (SSAE) AT-c governed by the AICPA to provide guidnance for attestation enegaements : examination, review, or agreed-upon procedures report on a subject matter or an assertation about a subject matter that is the responsibilty of another party. Statement of Standards for accounting and review services (SSARS) ar-c VIA aicap to provide guidance on unaudited f/s and financial information for nonissurers (private): prepation, compilation,and review of historical financial statements,information and proforma, and forecast. Code of professional conduct: ET, AICPA provide members (AICPA) with guidelines for behavior in the conduct on the professional affairs. Statement of QC standards QC AICPA: Guidance on CPA firms qc systems consisting of policies and procedures designs in compiling with standards and legal and regulatory requirement reporting. for CPA firms providing audits, attestation, accounting and review services.

Question 2

What are the audit guidance for the GAAS hierarchy

Answer 2

1. Most Authoritative: Apply professional judgement based on SAS nonissurers (private) and PCOAB issurers (public) and be prepared to justify any departure from presume mandatory requirements. Specific language that used within standards to clarify the auditors level of responsibility: Must or is required: Unconditional requirements that must be followed which requirements are relevant. Should: Indicate a presumed mandatory requirement must be followed except in rare circumstanances when departure from standard is permitted if there is appropriate justification, alternative and documentation. May, might, and could: indicate explanatory material that DOES NOT impose a professional requirement for performance. 2. Interpretive Publications: (Right in the middle most authoritative and least authoritative): are publication on how SAS should be applied. They are not considered standards. they are considered guidance for auditors. auditors must be able to explain and justify how achievement done without uses standards. Examples include: Auditing interpretation of GAAS, exhibits to GAAS, auditing guidance in AICPA Audit an dAccounting Guides, and AIPCA Audinging Statement of Positions (SOP). 3. Other Auditing Publications: (Least Authoritative) /these publications are helpful to auditors: Condiered proving guidance Be able to expain when doing procedure with out publications. Publication references: Auditing articale : Journaly of accounting or other a=professional accoutning journal, aditing articles, AICPA CPA lettes textbooks,.

Question 3

A defition of the term GAAS

Answer 3

Is a measure of the quality of an auditors performance and guide the auditor in a properly planned audit.

Question 4

In the hierarchy of authoritative language, could means

Answer 4

Could, May, and mght, indicate explanatory material that DOES NOT impose a professional requirment for perfomance.

auditor must have a attention and understanding of subject matter. must used his professional judgement.

Question 5

the term GAAP is an accounting term that

Answer 5

GAAP changes over time so: GAAP : encompassed the convention, rules, and procedures necessary to define U.S. accepted accounting practices at a particular time.

Question 6

Most authoritative guidance for issuser and nonissurers are

Answer 6

PCOAB and AS issuer public. AICPA SAS non issurer private.

Question 7

Which term is used within standard as presumed mandatory

Answer 7

Should: all case must follow

Question 8

M2: Audit Engagement.

Answer 8

Auditor comply to applicable framework: GAAP, IFRS, Special Purpose: contractual or regulation procedure. Management responsibility is with: F/S and I/C in accrodance with their framework. Auditor responsibility is to Attest (examin) functions and give an opinion on f/s based on 1. professional skepticism: : -judgement, make assessment yourself each year and DO NOT RELY ON OTHER AUDITORS OPINION WHO CONDUCTED AUDIT PROEVIOS YEAR. - audit evident that contradicts other auditors evidence. - rely on documentation and respond to inquiries that may be used as audit evidence -indicate possible fraud - in some case suggest the need for audit procedures in addition to GAAS. - auditors should never assume that mangment is dishonest nor assume unquestioned honesty. -use third party confirmations 2. comply with relevant eithical requirements: - comply with egagement and be independent in both fact and apperance. - AICPA Code of Professional Conduct. -State Board -applicable regulatory agencies -comply with GAAS 3. excercising professional judgement throught the audit: - in planning and performing audit -make decision on 1 materiality 2. audit risk 3. NET: Nature: (a) control test on segration of dututies, approval by management on certain dollar thresholds and reconciling accounts and (b) substance test: proving intangible asset, cash, a/r and inventory balance; Extent based on I/c is more work need or less work based on strength of I/c; and timing: strong accounting system review interim f/s or weak review y- bal. 4. evaluate whether sufficient appropriate evidence ( to support audit opinion and not f/s) has been obtain. 5. Drawing conclusion based on the audit evidence obtained. 4. obtain sufficient appropriate audit evidence: must have reasonable assurance based on obtaining evidence to reduce risk to an acceptable low level on audit opinion. EXAM TRICK; WEAK I/C DOES NOT EQUAL ADVERSE OPINION. SOME TIMES MORE WORK NEEDS TO BE CONDUCTED ON WEAK SYSTEM AND LESS ON STRONG SYSTEMS. 5. comply with GAAS: via audit standards of PCOAB ( public issurers; Interational standards on Auditing ISA for IFRS; Gov. auding standards:GAGAS; audit standards for specific jurisdication or countries. Reasonable Assurance and inherent (can happen any way) limitation of an audit; Must have reasonable assurance that audit is free from material misstatements whether due to error or fraud. high but not absolute level of assurance.in or to obtain reasonable assurance auditor must : 1. plan the work and supervise 2. determine and apply materiality levels 3. identify and assess risk of material misstatement,whether fraud or error. 4. obtain sufficient appropriate evidence. Nature of Financial reporting: some f/s are subject to inherent levels of variability must test a/r and bad debt, inventory and obsolete, PPE, life and salvage; Intangible cash and cash equiv, invest balances, impairments, and warranties; contingencies and lawsuits. Nature of audit procedures; there must be practical and legal limits on an auditors ability to obtain evidence including : managment may not have given auditors all the information, fraud concealed that it is difficult to detemine. An audit is neither an investigation into wrong doing nor does the auditor have specific legal powers. Fraud are intentional and errors are unintentional. Timeliness of financial reporting and the balance between cost and benefit; - plan audit so that it is performed effectively -direct audit to the most expected risk area of materaial misstatement -using testing and other means of examining population of missistatements. Determine nature and scope of the engagment by auditors, aucdit committee and management: -some audits are single periods ( 1 FY) or multi periods -may be on complete f/s, single f/s or specific elemnent (A/r), account, programs, or items of a f/s. Overall objective of audit engagement: 1 of 2 objective of F/s audit: to obtain reason assuarnce that they are free from material misstatements due to fraud or errors.which enable an auditor to form an opinion required by GAAS. non issure+ 20f 2 objective of f/s and i/c: issurer: Express an opinion on the effectiveness of company’s i/c of f/s -Plan and perform the audit to obtain reasonable assuarnce that they are free from material misstatements due to fraud or errors.which enable an auditor to form an opinion required by GAAS. non issure+

Question 9

A term that identifies a requirement of audit evidence is

Answer 9

Getting the APPROPRIATE information to determine the audit evidendence to obtain a reasonable opinion. Non get resonable. resonable is based on audit opinon.

Question 10

An auditor is exercising professional skepticism if he does not rely on information given to him by client or authenticate

Answer 10

does not rely and not authenitcate.

Question 11

To obtain reasonable assurance should an auditor that an audit is free from material misstatement he should paan and supervise assistant work or examin all evidnence

Answer 11

plan and supervise assistant. No reviewing all evidence not a effiecient or effective way to conduct an audit.

Question 12

M3: Forming an Audit Opinion

Answer 12

An auditor should form an opinion f/s are presented fairly in all material respect in accordance to financial reporting framework, GAAP, IFRS, Auditor should take into account the following - sufficient evidence was obtain require by GAAS - f/s are prepared in accordance with framework/ - f/s adequately disclose the significant accounting policies selected and applied and including a decription of applicable framework. - reasonable accounting estimates by management -f/s is relevant, reliable, comparable, and understandable - f/s provide adequate disclosure to enable the intended users to understand the effect of materials transactions and events the information conveyed. - termanology used on f/s including titles are appropriate - overall structure of f/s are presented fairly. f/s include related notes of underlying tranasctions and events in a manner that achieve fair presentation. DEPARTURE FROM GAAP IS PERMISSABLE IF F/S WOULD OTHERWISE BE MISLEADING { UNMODIFIED.UNQUALIFIED OPINION} MUST EXPLAING WHY DEPARTED FROM GAAP. Auditor uses GAAS guidelines to perform audit ( how inventory s/b observed). Auditor refers to GAAP for financial reporting framework. to evaluate how transaction are recorded and reported fairly presented.( land should not be depreciated.) Types of Opinions: 1. Unmodified (non issuer) or Unqualifed (issuer) = Clean opinion.f/s present fairly, in all material respect, the financial position, results of ops, and CF of the entity in conformity with applicable financial reporting frameworks. Doesn’t mean good resource for investor if company is doing bad audit f/s are presented fairly. things that are non material are considered unmodified or unqualified. 2. Modified: f/s as a whole are materially misstated or auditor is unable to obtain sufficient appropriate audit evidence to conclude that the f/s as a whole are free from material missstatments. 2A. Types of modified opinions: a. Qualified opinion: GAAP or GAAS: except for the effects of the matters to which the qualifiication relates, the f/s are presented fairly in all material respect to financial position, results of ops. CF in conformity with framework. If there is a failed GAAP disclosure on one line item, it would be considered Qualified opinion due to f/s issue. If audit could not obtain vendor inform on ap and represent 20% of liab, would be considered a Qualified opinion due to audit issue b. Adverse :GAAP f/s do not present fairy the financial position…… if management refuse to correct an transaction, ie, fixed assets are not properly depreciated then f/s are not presented fairly. adverse opinion. Pervasive and GAAP problem. B/s wrong, i/s wrong, RE, wrong. c. disclaimer GAAS: auditor does not express an opinion of the f/s. don’t know and don’t say. No piece meal ( part if uqualified and part is disclaimed.) Definition of pervasive: effects on the f/s on the auditors professional judgement based on: -thing are not confined to specific elements, accounts, or items on f/s -if so confined, represent substantial proportion of the f/s ; or - are disclosures fundamental to the users understanding of the f/s GAAP GAAS Materiallity of problem f/s are material inability misstate to obtain sufficient appropriate audit evidence none material unmodified unqualified material problem but non pervasive qualified qualified material and pervasive adverse disclaimer very material problem withdraw: F/s: false, fraud, deceptive, missleading.

Question 13

does change in estimated on f/s require an emphasis on matter of fact paragraph

Answer 13

no estimate do not require this writing.

Question 14

A1 Sim 1: When you can not gather enough information to from an opinion is this a GAAP problem or GA;AS problem

Answer 14

First thing is to find out if the problem is a GAAP or GAAS problem. This is a GAAS problem not enough information. Scope limitation. This Sim was based on group audit and auditors were unable to get all financial information. in this type of problem ask; is the a gaap or gaas problem. this is a gaas problem due to scope limitation. if material = qualified if material and pervasive; disclaimer if something is non material = unmodified or unqualified. if material and pervasive yet not scope limitation than adverse. or gaap problem Scope limitation: if material but not pervasive than it is an qualified opinion.: also called MODERATE Flow on audit: opinion: modified; intro paragraph: no need to change intro; auditor responsibility paragraph: modify sentence should be for the basis of opinion; Opinion paragraph: modify; Basis of opinion: ALWAYS A CHANGE IN BASIS WHEN THERE IS QUALIFIED (insert preceeding (or before) or insert following: insert preceeding or before to explain basis of modified opinion. If problem is material and pervasive than it is disclaimer also called: HIGH Flow on audit: opinion: disclaimer; intro paragraph: modify always whether it is GAAP of GAAS” we were engaged to audit f/s and not we audited f/s; auditor responsibility paragraph: modify; Opinion paragraph: modify; Basis of opinion: (insert preceeding (or before) or insert following: insert preceeding opinion If it is non or immaterial than it is unmodified or unqualified. Flow on audit: opinion: unmodified; intro paragraph: no change; auditor responsibility paragraph: no change; Opinion paragraph: no change; Basis of opinion: (insert preceeding (or before) or insert following: not required GAAP problems are adverse problem: we have enough information but the F/s are wrong.

Question 15

M4: Unmodified nonissurer private (clean opinion)

Answer 15

1. Contents for Audit report: - Title: auditors independents should be put in the title section - Addressee: GR; report should be addr ess to BOD or Audit committee etc. not Management. - Intro Paragraph: ID entity of audited f/s; state f/s have been audited; identify title of each f/s (b/s, i/s sfc, oe); and specify date(s0 of period(s) covered by each f/s. -Mgt Responsible:Mgmt responsible for f/s and the desgn, implementation and maintenance of i/c relevant to prep. and fair presentation of f/s free from material misatement due to fraud and errorwithing the framework of GAAP (IFRS) -Auditor responsibilty section: Resonsible to express and opinion of f/s om accordance with GAAS and auditor has planned and perform audit and assess risk to obain evidence for reasonable assurance that f/s are free from material misstatements due to fraud or error. Also has considered and test i/c relevent to f/s and evaluated mangement accounting estimates and accounting policies used. -Auditor Opinion: Explicit statement on f/s were presented fairly on f/s titles and ID applicable framework could also include PCAOB if required.. -Other responsibilities: report inany other legal or regulatory responsibilities -Auditor signature: manual and printed plus firms names -Auditors adrress -date of auditors report: should be dated no earlier than the date on which suditor has obtained sufficient appropriate audit evidence to base f/s: such as documentation. all f/s including notes, management has state is it respnisble for f/s when there are comparative sttements, the most recent audit shoud be used for date. There can be two sets of standards: GAAS in the Audit responsibilty and PCAOB in accordance with GAAS in the opinion section.

Question 16

Unqualified issuer public opinion (clean opinion)

Answer 16

2. content of the Audit Report: - title: must include Report of independent registered public accounting firm (PCAOB compliance) -Addressee: to BOD and Shareholders. Not Mgmnt -Opinion (in the 1rs section): name ofcompany being audited; statement ID each type on f/s; date of period covered by f/s and related schedule that has been audited; Explicit statement on f/s were presented fairly on f/s titles and ID applicable framework could also include PCAOB if required. Basis of opinion: a statement that says managemt is responsible for f/sand auditor responsible to express and opinion; auditior are registered with PCAOB and required to be in conducted in accordance with PCOAB standards and apply rules and regs of SEC; auditors plan and perform audit to otain reasonable assurance of ff/s free of material and missleading statement due to error and fraud, perform procedures to assess risk,; examin and test i/c and evidence n f.s; evaluate accounting prin and estimates and overall f/s critical audit matter(CAM) this is person judgemtn section that auditors do, It does not alter opinion. CAM ID in ID CAM; decription of principal conderations that led to auditors CAM, descrip of how CAMwas addressed; refererence f/s account or disclosure and include items discussed on CAM. If CAM not ID, auditor included in letter there were no CAM after discussing CAM requirements. -Language that could be disclaiming, qualifying,restricted or minimizing auditor’s responsibility is not appropriate and not used in CAM -Auditor has the option of discussing prior CAM matters- -Based on SEC act 17a-5 (broker and dealers, ( and Invest Co. Act 1940( other than BD companies, companys such asemplyee puch, saving, and simular paln and emerging growth com are not applicaable to CAM. -Management report of IC: normally unqualified co. must have audit and IC reports A5. If not or auditor was not engage to perform ic, he must write something that saids that. -Required auditor reporting of certain audit participants: Form AP for public co for each audit must be submitted to PCAOB within 35 daysof file with SEC about the audit with the follwing: Name of audit firm, name if issurere, date of audit report; date of most recent f/s in audit report; name of engagement partner on recent audit prior ID number,; city and state, whether another firm participated (just lie staff, full name, back ground check needed, and % of number of hours worked.

Question 17

M4 MCQs: should the audit report include a reference to the US for GAAP and GAAS

Answer 17

yes

Question 18

is obtaining evidence that is sufficient and appropriate and explicit statement and consistent application of accounting principles and implicit statement

Answer 18

Yes. We believe that the audit evidece = explicit Consistent and examination are implied.or implicit.

Question 19

Is the audit included evaluating significant est. made by mngmt and disclosure provided reasonable assurance a basic statement in the audit report

Answer 19

audit included evaluating significant est. made by mngmt= yes disclosure provided reasonable assurance a basic statement in the audit report = no

Question 20

Where is the audit responsibilty to express and opinion on f/s for non issure under GAAS

Answer 20

Under the Auditors responsibility

Question 21

When an auditor is asked to do an audit by his client on anther company. Who does the auditor address the audit report to

Answer 21

the Client

Question 22

If there is an single yera audit conducted will audit review prior audit to make sure auditor gave an unmodified opinion

Answer 22

No. this is not relevant. he would still express unmodified.

Question 23

Does the introductary paragraph speak to nature of engagemetn and specific f/s covered and dates covered.

Answer 23

Yes.

Question 24

A veer from uS GAAP that leads to an unmodified would not included a statement on sampling risk factors

Answer 24

It would not include this.

Question 25

Opinion should not include reviews in explicit statement

Answer 25

correct

Question 26

Is performing procedures to obtain audit evidence an disclosures in f/s part of audit report expressing unmodified or other opinions

Answer 26

yes. this is in the auditors responsibility.

Question 27

If an opinion is material but not pervasive what type of opinion is it

Answer 27

Qualified

Question 28

A1 M4 Sim 1:

Answer 28

Remember you first want to know if something is an accounting issue or an audit issue. 1. For example a change in Dep method and using new est and methods prospectively. is fin. So this is an accounting issue but done correctly, however not consistent from last year. Would give a unmodified report and write an emphasis of matter paragraph folowing the opinion paragraph to let readers know o new method was not consistent with previous years. 2. Contingency loss that is possible but not prob. and can not est loss based on attorney letter that was given to auditor. Here, this is another accounting issue wher company followed gaap so auditor should give unmodified and issue wothout modification report becasue audit shoud not ad condition when not necessary. 3. Client refuse to make material JE on capitalization of Lease. No audit problem auditor got information. this is GAAP problem. since can’t determine could be qualifeid or adverse . Modify audit responsibility, Modify opinion because client did not make adjustments thate were not in line with gaap. and add basis for opinion preceeding opinion paragraph.

Question 29

M5 Modified Opinion Due to F/S issues

Answer 29

GAAP problems: qualified opinion: misstatement is material but not pervasive Adverse: when both material and pervasive Common GAAP problems that I will see on exam: 1. GAAP consistency change ( unjustified) = auditor disagree. 2. Inadequate Dlsclosure 3. Departure from GAAP not jusitified 4. Unreasonable accounting est. Other non GAAP problems 1. Nature of Material Misstatement: based on - appropriation and application of accounting policies - appropriation and disclosure of presentation of f/s 2. Appropriateness of accounting policy: - not in accordance to framework i.e. GAAP - transaction are not presented in a way to achieve fair presentation -had not compiled financial reporting in framework of GAAP 3 Application of Accounting Policies -not applying accounting policy with framework -not applyied policy between periods consistently -there are errors in accounting policy 4. Appropriateness of f/s presentation or disclosure -f/s does not include all disclosure -f/s does not provide disclosure needed to achieve fair presentation -Certain financial statements (SCF) have been omitted or left out of presentation. Lead to a qualified opinion. None issuer Qualified Opinion Audit Report: -Intro Paragraph same -Management responsibilty same - Auditor responsibility: modify to state that “Auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for a qualified audit opinion. -Basis for Q opinion: this is before opinion paragraph and states reason for qualified: *description and quantification of financial impact *an explanation of how disclosure are misstated if there is a material misstatement *a description of nature of omitted information and inclusion of the omitted information or practicable information was reasonable but SCF was left out. -Qualified Opinion paragraph: this will state the auditor for a fair free stated f/s “except for matters describe in opinion. Make sure omission does not include: fraud, false, deceptive, misleading information, if it does withdraw,=. Audit responsibility has ‘basis of opinion’ actually written is it. Basis for Qualified opinion: give reason for opinion Qualified opinion paragraph express opinion and reinterate basis paragraph. Adverse Opinion Report: both very material and pervasiive GAAP problem None issuer Qualified Opinion Audit Report: -Intro Paragraph same -Management responsibilty same - Auditor responsibility: modify to state that “Auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for an adverse opinion. -Basis for Adverse opinion: this is before opinion paragraph and states reason for Adverse: *description and quantification of financial impact *an explanation of how disclosure are misstated if there is a material misstatement *a description of nature of omitted information and inclusion of the omitted information or practicable information was reasonable but SCF was left out. -Qualified Opinion paragraph: this will state the auditor for a fair free stated f/s “except for matters describe in opinion. Make sure omission does not include: fraud, false, deceptive, misleading information, if it does withdraw,=. Audit responsibility has ‘basis of opinion’ actually written is it. Basis for Adverse opinion: give reason for opinio Adverse opinion paragraph express opinion, because of the significance of the matters describe in the basis for the adverse opinion paragraph. the f/s do not present fairly in accordance with applicable framework GAAP. Signature we have served on audit section city and state Date

Question 30

Qualified Opinion Issuer

Answer 30

1st section section title and first sentence are the same -2nd sentence has opinion section: is modified to include appropriate language (except for, or with the exception of ) and reference to the paragraph that the disclosure all of the qualified opinion. - Additional paragraph no heading and include all substantive reason for qualified opinion; this is before opinion paragraph and states reason for qualified: *description and quantification of financial impact *an explanation of how disclosure are misstated if there is a material misstatement *a description of nature of omitted information and inclusion of the omitted information or practicable information was reasonable but SCF was left out. -Basis for Opinion: same a standard -CAM- Same as standard. Signature we have served on audit section city and state Date Adverse: 1st section section title and first sentence are the same -2nd sentence has opinion section: is modified to include appropriate language (except for, or with the exception of ) and reference to the paragraph that the disclosure all of the adverse opinion. financial statements do not present fairly stated in conform with GAAP in US - Additional paragraph no heading and include all substantive reason for qualified opinion; this is before opinion paragraph and states reason for qualified: *description and quantification of financial impact *an explanation of how disclosure are misstated if there is a material misstatement *a description of nature of omitted information and inclusion of the omitted information or practicable information was reasonable but SCF was left out. -Basis for Opinion: same a standard Reason -CAM- Same as standard. Signature we have served on audit section city and state Date

Question 31

M5 MCQS: When would a Diclaimer happen and not happen

Answer 31

Disclaimer are when something major is negative to audit such as:; unable to obtain f/s on consolidated entity; management refuse access to information need for audit,; inventory was not counted at year-end. Not disclaimer but could be qualified opinion: management can not justify change in accounting principle or unable to contain adequate related party transactions or omission of SCF.

Question 32

unmodified opinion would not be justified when something bad is material

Answer 32

Yes. Also an unjustified departure from GAAP that is not material can still be unmodified.

Question 33

When an adverse opinion is giving should there be a separate paragraph disclosing basis for the opinion

Answer 33

Yes. Also remember that substansive reason is in the basis adverse opinion section

Question 34

substansive reason is in the basis adverse opinion section is before the opinion paragraph

Answer 34

yes

Question 35

Can an audit use in our opinion with accounting principles vary from GAAP but statements are fairly presented

Answer 35

No. It must say in our opinion except for. The original sentence would be considered inappropriate.

Question 36

During an audit management does not let auditors speak with legal is this an adverse or withdrawal situation

Answer 36

it is a withdraw.

Question 37

Disclaimer or withdraw happen when auditors can’t get information. Adverse happens when auditor have information and it pervasive and very material misstated. Qualified just material and not pervasive.

Answer 37

Yes

Question 38

M6 Modified Opinions Due to Aud”it Issues

Answer 38

Audit Issues that are GAAS Problem =”Except for” in the basis of opinion. : Either Qualified Opinion or Disclaimers 1.1 Qualified Opinion that are GAAS problems. Happens when auditor is unable to obtain sufficient appropriate audit evidence on which to opinion and any undedected misstatements could be material but not pervasive. Disclaimer: Auditor is unable to obtain sufficient appropriate audit evidence on which to base opinion and undetected misstatement could be both MATERIAL AND PERVASIVE or auditor in not independent ( could be an accountant with company). Example of Scope limitations The following are GAAS problems 1. insufficient evidence 2. Going concerns 3. Auditor is not independent 4. time constraints 5. Inability to obtain appropriate audit evidence on: -observe inventory -confirm a/r - unable to obtain audited f/s of a consolidated investee -restricted use of audit procedures -inadequacy of accounting records 5. Refusal of management to provide written Cause of Scope limitation: if auditors can not confirm inventory that means COGS is not confirmed which means Net income not confirmed which means i/s not confirmed and RE not confirmed and b/s not confirmed. However if managment does not give auditor customer list for a/r confirmed but auditor can find alternative for example look at one customer on a/r and see if he paid account balance that is approved by management then use it. Management Scope limitation then this would be a qualified opinion or disclaimer. EXAM TRICK: IF MANAGEMENT WON’T LET YOU REVIEW, NEVER ADVERSE OPINION JUST QUALIFIED ( material)OR DISCLAIMER ( very material and pervasive). if auditor work is substantial completed then withdraw not possible, he would chose to put in the other-matter paragraph of audit: describing the reason why auditor can not withdraw when due scope limitation. Unaudited f/s GAAS problem; when accountant is associated with company and presents f/s and used his name or prepard f/s. Must Disclaim: For PCAOB standard without audit or review,it is a disclaimer. Requirement for unaudited: 1/ associated accountant must read the f/s for errors 2. Disclaim my accompany unaud f/s or placed on them 3. “unaudited must be marked on each page 4. If client refuses to correct errors, auditor should add a paragraph explaining the nature and the departure from GAAP. Also Audit should considered withdrawing also due to false,deceptive, fraud, misleading.

Question 39

Nonissuer Reports Qualified Opinion GAAS Problem: material

Answer 39

`Introduction is the same Management responsibility is the same Audit responsibility first paragraph is the same. (this is were you write in accordance with GAAS via SAS or PCAOB) Then modified for qualified opinion to state: “Auditor believes that the audit evidence obtained is sufficient and appropriate to provided to provide a basis for the qualified audit opinion”. Basis for the Opinion Paragraph ( always before opinion paragraph: This paragraph should describe the reasons for the inability to obtain sufficient appropriate audit evidence. Qualified Opinion Paragraph: when the auditor express a qualified opinion due to unable to obtain sufficient appropri. evidence, paragraph should state that in auditors opinion stating” except for the possible effects of the matter(s) described in the basis for qualified opin paragraph, the f/s are presented fairly, in all materials respect, in accordance with financial reporting framework GAAP. EXAM TRCIK: MUST USE EXACT WORDING IN QUALIFIED OPINION. NO ADDITIONAL WORDS SUCH AS “ IN OUR OPINION OR “EXCEPT FOR THE ABOVE MENTION LIMITATION ON THE SCOPE OF THE AUDIT” IS NOT ACCEPTABLE.

Question 40

Disclaimer Opinion: non issuer: very material and pervasive

Answer 40

Intro paragraph: Modify the statement to say “auditor was engaged to audit f/s” Management Responsibility: same Auditor Responsibility: Modifiy description to “ Our resposnibility is to express an opinion on the f/s based on conducting the audit in accordance to auditing standards generally accepted in the US. Because of the matter(s) described in the basis of disclaimer of opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Basis for Disclaimer of opinion paragraph (before opinion paragraph) Heading is”Basis for Disclaimer of Opinion”. Paragraph should describe the reason for inability to obtain sufficient appropriate audit evidence. Disclaimer of Opinion Paragraph: When disclaim should state in opinion paragraph. “Because of the significance of the matter(s) describe in the basis for disclaimer of opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion; and appropriate audit evidence to provide a basis for an audit opinion; and Accordingly, the auditor does not express an opinion on the f/s

Question 41

Issuer Reports Qualified Material GAAS Problem

Answer 41

NO Intro section 1st section is the Opinion sections. Second sentence modified and should read : “ Except for” and reference Qualified Opinion Paragraph: when the auditor express a qualified opinion due to unable to obtain sufficient appropri. evidence, paragraph should state that in auditors opinion stating” except for the possible effects of the matter(s) described in the basis for qualified opin paragraph, the f/s are presented fairly, in all materials respect, in accordance with financial reporting framework GAAP. Next: additional paragraph (immediately following the opinion section): Describe the reason for the inability to obtain sufficient appropriate audit evidence.’ Basis of Opinion: Same as standard: This paragraph should describe the reasons for the inability to obtain sufficient appropriate audit evidence. Except the 2nd sentence should describe the departure from UNQUALIFIED CAM : Same as issuer report: critical audit matter(CAM) this is person judgemtn section that auditors do, It does not alter opinion. CAM ID in ID CAM; decription of principal conderations that led to auditors CAM, descrip of how CAMwas addressed; reference f/s account or disclosure and include items discussed on CAM. Audit Signature We have served as the Co. Auditor since (year) City State Date

Question 42

Disclaimer Issuer Very material and pervasive: GAAS problem

Answer 42

Audit Report 1. 1st section: Disclaimer of Opinion section. -Section title: Disclaimer of Opinion of the F/s. -use words “ were engaged to audit instead have audited. -Reference to the paragraph describing the reason for disclaimer -State audit was not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion -disclaimer opinion “ do not express an opinion” is given on the f/s as a whole. 2. Additional Paragraph (immediately after disclaimer opinion) . -Give all substantive reason for disclaimer -Disclose of any reservation regarding fair presentation of f/s in conform with framework or GAAP 3. Basis of Disclaimer: Modifiy to include -Section title “Basis of Disclaimer of Opinion - Eliminate sentence “ Our responsibility to express… and We conducted our audit in accordance with 4. CAM not applicable. EXAM TRICK: NO EVIDENCE OR NO WORK = NO AUDIT OPINION = DISCLAIMER. (NOT EVEN A BAD ADVERSE OPINION.)

Question 43

Is “except for” uses for qualified opinion and “disclaimer of opinion” used for Disclaimer

Answer 43

Yes

Question 44

In the Audit Opinion, after you write the : except for the possible effects of the matter(s) described in the basis for qualified opin paragraph, the f/s are presented fairly, Do you write :”IN ALL materials respect, in accordance with financial reporting framework GAAP”.

Answer 44

YES

Question 45

what does preclude mean

Answer 45

prevent someone from doing something

Question 46

MCQ M6 : A scope limitation sufficient to preclude(prevent someone from doing something) an umodified is the same as

Answer 46

Refuse of management to acknowledge f/s responsibiity or an impact of f/s = scope limitation. introductorary paragraph includes f/s responsibility of management.

Question 47

What is true about modifications to the independent auditor’s unmodified opinion report for a non issuer

Answer 47

auditor would modified opinion when there is a scope limitation (f/s) or a departure from GAAP.

Question 48

If an auditors was unable to obtain sufficient appropriate evidence or inadequate records the auditor would issue a

Answer 48

qualified or disclaimer

Question 49

if an auditor can not verify inventory due to management restriction and can’t not alternative method, he would issue a disclaimer

Answer 49

Yes. especially if inventory is 35% of all asset. This a major material.

Question 50

if auditor is unable to determine accounting est. would this be a disclaimer

Answer 50

No. would result in a material misstatement. = qualified or adverse.

Question 51

If an auditor can obtain audit evidence on all f/s except opening bal of inventory, what should be opinion of b/s and i/s

Answer 51

B/s unmodified because able to confirm ending bal. disclaimer on i/s because inventory opening bal impact COG which impact i/s and net income, SCF, Statement of shareholder equity.

Question 52

If auditor issue a qualified opinion due to lack of sufficient evidence, opinion paragraph pertains to the scope limitation or impact of f/s and lack of sufficient audit evidence

Answer 52

yes.

Question 53

in disclaimer of a non issuer due to not GAAS compliant would the audit responsibility and opinion paragraphs be omitted

Answer 53

NO. The audit responsibility paragraph is in the issuer report PCAOB.

Question 54

IS a adverse situation a departure from GAAP

Answer 54

yes When there is a departure from GAAP and departure is very material and pervasive

Question 55

What are the rules on a disclaimer

Answer 55

When there is a significant scope limitation (f/s) When the auditor is not independent When the f/s are not audited

Question 56

Rules on Adverse

Answer 56

When there is a departure from GAAP and departure is very material and pervasive

Question 57

Rules on unmodified

Answer 57

maybe be issued even when departure from GAAP and f/s trans. are immaterial

Question 58

Rules of qualified

Answer 58

Issued when the effect of the GAAP departure is material but not very material or pervasive.

Question 59

When would you amend or make changes to the intro paragraph

Answer 59

When the auditor has disclaimed the audit. he would use “auditors was engaged to audit f/s and not we audited f/s. All other opinion use we audited.

Question 60

Can there be an change in words in the opinion wording for except for

Answer 60

no.

Question 61

If a audit is not independent but is reporting f/s by fed law does he write in disclaimer that he is not independent and reason for lack of independent

Answer 61

yes to writing on not being independent and no on reason of why lack of independent.

Question 62

What is an emphasis-of- matter paragraph and additional detail on is

Answer 62

-it would be used to describe a material effect of f/s - when there is a going concern. -when there is a justified departure from GAAP use cash basis -heading of paragraph is Emphasis of matter - in subsequent events the lead to change in audit opinion -does not impact auditors clean unmodified opinion

Question 63

Can susequent events be in emphasis of matterial fact and other matters

Answer 63

yes

Question 64

Where is emphasis of material fact positioned

Answer 64

After opinion paragraph and before other matters paragraph.

Question 65

M7 Emphasis-of-matters and explanatory paragraphs are alerts to readers of audited f/s

Answer 65

What is an emphasis-of- matter paragraph and additional detail on is = GAASP -it would be used to describe a material effect of f/s - when there is a going concern. -when there is a justified departure from GAAP use cash basis or special purpose -justified change in accounting principles -heading of paragraph is Emphasis of matter - in subsequent events the lead to change in audit opinion -does not impact auditors clean unmodified opinion

Question 66

Where is emphasis of material (EOM) fact positioned

Answer 66

After opinion paragraph and before other matters paragraph.

Question 67

Also EOM is a professional judgement call when the following and impact on f/s

Answer 67

• uncertainty related to litigation or regulatiry action - major catastrophy -significant related party trans. - unusually important subsequent

Question 68

What are more detail judgement for EOM non issuer

Answer 68

Contigency: -Probable can est loss; Accrue and disclose can not est loss; disclose -Reasonable possible; disclose; can not est disclose -Remote ; ignore all

Question 69

Other-Matters (OM) paragraph non issuer

Answer 69

these are alerts other than disclosed in presented auditor responsibilty, audit reprot, or f/s that are relevent to users understanding of audit f.s, . Report requirement are; -OM immrdiately after 1st opinion, 2nd EOM -heading s/b Other Matter - describe OM and the location of relevatn discloser about f/s Use of OM paragraph is require for the following: -when an alert is included that audit report is restricted -Subsequent facts discovered that may lead to change in audit opinion -f/s of prior pd. lead to change in opinion both EOM and OM -Current f/s were compared and reviewed with prior period. but prior period was not. -prior audit report date had material iinconsistency in OM that mgment refuse to make revisions - Supplemental infor in audit report and not in a separate report. -Refer to supplemental info that a designated accounting standard setter requires accompany an entity f/s -restrict the use of auditors report when special purpose framework are needed in accordance with contract or regulatory basis of accounting - report on compliance OM judgement call be auditor -describe why auditor can not withdraw from audit -law, regulation, or general accepted accounting practice require or permit further explanation. -audit f/s prepared in accordance with special purpose framework

Question 70

Explanatory paragraph (EP) issuer

Answer 70

included in audit report of PCAOB. does not affect the auditors (clean) opinion. Report Requirements: should include the appropriate title and describe the matter emphasized and relevant location of discloser on f/s. Use of EP require when there is a ; - going concern -material change between periods in accounting principles or methods of the applications -Change in reporting entity -Change in an investee year-end result in transaction or events, or creation or complete or partial disolve of subsidiary or business unit of segment -change in investee year end tht is material effect on f/s -other information that is material that can impct f/s -select info required by SEC Reg s-k that was yr opinion omitted - supplemental info that was omitted , departs from framework, auditor is unable to remove substantial doubt about supplement infor conform to requirement of framework -prior yr audit report is not present* -prior ye opinion is updated* - mgment is require to report on i/c financial reporting but not required to be audited* *no title need when are the EP. Judgement calls of EP; simular to EOM and OM; -describe why auditor can not withdraw from audit -law, regulation, or general accepted accounting practice require or permit further explanation. -audit f/s prepared in accordance with special purpose framework

Question 71

Other Audit consideration EP

Answer 71

-Lack of Consistency;does not compare yr to yr -Acceptabilty of change in accounting principle based on new adopted in accordance to framework; method is acceptable; disclosure to change are acceptable and adequate; justified and preferable -Circumstance that affect consistancy 1. a change in accounting estimate is inseparable from change in accounting principle ( note; if it was change change in est that was not inseparable; prospective and not a lack of consistancy) 2. Correction of an error in accounting principle 3. change in reporting entity that results in f/s that effect different reporting entity 4. Correction of a material misstatement in previous issued f/s. 5. significant investment accounted for using the equity method that was inconsistent from previous yr. make a change in accounting principle that is material/ Effect of Accept change if immaterial; no revision if material, EP needed and describe the change in accounting prin. and provide reference to entity disclosure change.

Question 72

Alerts that restrict the use of the auditors written communicatio

Answer 72

Required by GAAS when auditor is restricted in auditor written communication the following are alerts on written communications - measurement and disclosure criteria that are suitable for only a limited number of users who have an adequte understanding of the criteria -measurement or disclosure criteria are available only to a specified parties - matters are not primary objective of the audit engagement ; commonly referred to as a by-product Contents of alerts. unless specifically required by GAAS, alerts of audit written comm should include the following; -written comm solely for use of the specified parties -indentify specified parties -statement that written comm. is not intended to be and should not be used by anyone other than specified parties. Sample Om or EP; This report is intended solely for the information and use of the ( list or ref specified parties) and is not intended to be used by anyone other than the specified parties. -describe why auditor can not withdraw from audit -law, regulation, or general accepted accounting practice require or permit further explanation. -audit f/s prepared in accordance with special purpose framework

Question 73

how to write an audit report with EP or OM or EMP

Answer 73

1. intro paragraph 2, mangement responsibilty 3 Audit responsibilty 4 what we do 5 how we perform audit 6 opinion 7 EOM 8 EP or OM

Question 74

M7 MCQs: When the audit agrees the the material change in accounting principle the auditor will be

Answer 74

referring to the change in the EOM and not issuing a qualified opinion or concur explicity ( this would be implied)

Question 75

An auditor would issue a unmodified and not write up a EOM or OM when a loss is material that is probable and disclosed

Answer 75

yes

Question 76

Under us GAAS standard, a Contigency loss that is accrued and or reported or disclosed does not have to EOM. if not disclosed unmodifed and EOM

Answer 76

True

Question 77

if there is a change in accounting principle that is not material is it disclosed in EOM or om

Answer 77

no

Question 78

if a entity f/s are reported and presented fairly and comform with framwork does it apply with previous year

Answer 78

no.

Question 79

Om is used by audit when prior to the audit date, the auditor identify a material inconsistency in f/s that management refuse to revise

Answer 79

yes.

Question 80

an accounting principle change that is not material in current yr audit but material in next year audit should be given an umodified

Answer 80

yes. since material next year and not this year.

Question 81

M8: Reporting with Different opinions and other auditors

Answer 81

1. When it is different reporting opinion; unmodified prior year with current year qualified non issuer; - appropriate address = same - management responsibility = same - Audit report same except for final statement. “We believe that audit evidence we have obtain is sufficient and appropriate to provide a basis for our opinion. -Basis of qualified (before opinion) describe reason for qualified -Qualified opinion; except for the effects of f/s. describe again via summary, f/s referred to abo’ve are presented fairly, in all material respect co. as of 20x1 and 20x0 Auditor signature auditor’s city and state date of the auditors report 2. unmodified current with disclaimer prior year of i/s, oE, Scf. non issuer; - appropriate address = same - management responsibility = same Auditors responsibility; include “ the explanation in the basis for disclaimer of opinion paragraph, we conducted our audit in accordance with auditing standards generally accepted in US -Basis of disclaimer opinion 20x1 ops and CF Give reason of why disclaiming -opinion give summary reason why GAAS problem Auditor signature auditor’s city and state date of the auditors report

Question 82

Unqualified prior year with current year qualified Issuer

Answer 82

1. Adress bod and shareholders 2. Opinion -Except for sentences only discuss current year qualified decision. Further sentences discuss comparison f/s 3. Addition paragraph give reason for current year qualilfied opinion. 4. Basis of opinion = describe reason and we conducted audit in PCAOB compliance 5 CAM Auditor signature auditor’ s city and state date of the auditors report

Question 83

Unqualified current year and disclaimer prior year on I/S, OE, SCF Issuer

Answer 83

1. Adress bod and shareholders 2. Opinion - ONLY GIVE PRESENT FAIRLY OF ON CURRENT YEAR and prior b/s. -Further sentence, were not able to obtain sufficient appropriate audit evidence on prior year 3-addition paragraph describe issue with prior year and how impact current year qualified opinion 4. Basis of opinion = describe reason and we conducted audit in PCAOB compliance 5 CAM Auditor signature auditor’ s city and state date of the auditors report

Question 84

Updating or Changing prior opinion

Answer 84

When thing has effected the prior opinion and audit is aware , then he can do another and write a paragraph with DORCS in it via OM or EP - Date of the previous report -Opinion of previous report -Reason for prior Opinion -Changes that have occured -(a) Statement that the opinion is different or when something was restated via DORCS

Question 85

Reporting with predecessor Auditors

Answer 85

prior auditor must ; -read current f/s -compare prior f/s with current f/s -obtain a letter of representation from the successor audit with matters and opinion -inquire and obtain letter of representation from management Date the report as appropriate -unrevised ; used original date of report and any reissue with previous report -revised; use cover letter date and date prior audit revised. if predecessor did a non issuer audit; sucessor and in OM or EOM if predecessor did issuer audit; sucessor and in EP if f/s not audited and you are the 1st auditoyear r, indicate and mark clients status prior period reviewed or compiled indicate or mark in OM non issuer or EP issuer with the following -services performed -date of prior report - description of any material modifications described in the report - a statement that the services was less in scope than and audit and does not provide basis for expressing and opinion.

Question 86

M8 MCQs: If an audit can not gather sufficient evidence on consistency of accounting principles and assets and liab. that was material, the auditor would

Answer 86

not be able to express a an opinion on ops. and SCF

Question 87

When would an auditor that issue a unmodified opinion not use EOM

Answer 87

When he has not material issues.

Question 88

When an audit firm did not audit full consolidated entity an another audit firm assist and audit mentioned other audit firm in opinion on their responsibilities this is considered

Answer 88

A Divide responsibility audit.

Question 89

if an predecessor auditor gave a qualified opinion and the report was not present in current report the successor auditor should

Answer 89

indicate substantive reason on predecessor opinion such as; - their statement - not their name, unless acquired or merged with successor -the tyoe of opinion given -nature of any EOM, OM, EP included in predecessor report - date of predecessor report.

Question 90

if an predecessor auditor gave a unmodified opinion and the report was not present in current report the successor auditor should

Answer 90

indicate predecessor unmodified report in OM

Question 91

If a former client request the predecessor reissue a report on prior year. The f/s were not restated and report not revised. What date should predecessor use

Answer 91

-the date of prior period of the report due to nothing was done. - dual date if a material subsequent event occurred -date reissued would extend predecessor responsibility to do restate and reissue

Question 92

When a group partner decides to make reference a component auditor examination under GAAP the report would ref. “we did not audit the f/s of X co. under which paragraph

Answer 92

Auditor’s responsibility. The paragraph tells; statements audited; who audited on company. and standard used GAAS or PCAOB

Question 93

if prior yr unaudited f/s are presented with audited f/s in comparative form, the unaudited should marked: 1. the report on the unaudited f/s should be reissued 2. the report of the audited f/s should included a separate paragraph describing the responsibility assumed for the unaudited f/s

Answer 93

it could be either or statement but not both.

Question 94

M8 Sims. 1: A CPA X audited the Parent company and another CPA Y audited its Subsidiary. What would be the appropriate opinions and report modifications for the following( this all based on group firm and component auditor)

Answer 94

When conducting a group audit on a consolidated co. 1. what work did auditors perform 2. who is taking responsibility 3. what is the opinion 4. if something is material add to audit responsibilty and opinion paragraph in this type of problem ask; is the a gaap or gaas problem. this is a gaas problem due to scope limitation. if material = qualified if material and pervasive; disclaimer if something is non material = unmodified or unqualified. if material and pervasive yet not scope limitation than adverse. or gaap problem 2. Assume CPA X decides to take responsibility for the work of CPA Y and the CPA Y issue a unmodified opinion on Subsidirary -Type of opinion: unmodified intro paragraph: no change only if disclaimer or adverse or gaas or gaap problem, respectively. auditor responsibility: no change this were say if we are responsible or not responisble opinion paragraph: no change if no change in audit responsibilty, no change in opinion paragraph Basis for opinion : this responsibility statement is not required in basis for opinion 3. Assume CPA X does not wish to assume responsibilty of CPA y and CPA y issues unmodified -Type of opinion: unmodified intro paragraph: no change auditor responsibility: modify effects CPA responsibilty when CPA does not assume responsibity for CPA y this dual responsibility opinion paragraph: modify effects CPA responsibilty when CPA does not assume responsibity for CPA y this dual responsibility Basis for opinion : this responsibility statement is not required in basis for opinion 4. Assume the CPA X decides to take respsonsibilty for CPA Y and CPA Y issues a qualified opinion. -Type of opinion: unmodified. the involvement of CPA Y qualified does not prevent parent from getting unmodified, if CPA audit was qualified than qualified opinion on audit. intro paragraph: no change auditor responsibility: sense it is unmodified no change on this paragraph when it is non material. opinion paragraph: no change based on audit responsibiity paragraph. Basis for opinion : this responsibility statement is not required in basis for opinion. if no change basis if no change in opinion 5. Assume CPA does not wish to assume responsibility for CPA y and the CPA y issue qualified opinion and there is material evidence; -Type of opinion: unmodified. the involvement of CPA Y qualified does not prevent parent from getting unmodified, if CPA audit was qualified than qualified opinion on audit. intro paragraph: no change auditor responsibility: modify opinion paragraph: modify. changed because did not take full responsibilty of audit Basis for opinion : this responsibility statement is not required in basis for opinion because no change in opinion of unmodified

Question 95

M8 Sim 2 Research question

Answer 95

When doing research, make to use PCAOB for issue and AIPCA for non issuer. after putting standard click view the go to advance search and write something from what is asked to research. Get the AS#(3101) then click it and find specif .# for question cited. The type 3101 20( do not use the .20

Question 96

M9 Reporting in a single statement

Answer 96

A single statement and specific : elements, account, or items of a f/s are done by the auditor with special consideration with US GAAP and GAAS; Example of single f/s with notes includes: -b/s, i/s, ni, sre, scf, soe, s of ops by product line. Example of elements of items of a f/s includes; a/r, allw for doubtful a/r, inventory, or the recorded value of intangible assests, sch of disbursement regarding lease property, sche of profit participation of employee bonuses acceptabilty of finanical reporting framework Auditor should obtain an understanding of: - purpose for which the single statement or specific element of f/s is prepared -the intended users -step taken by management of the applicable framework. Audit Procedures: When performing single f/s or specif element must use interrelated accounts to determine outcomes i.e, for sales audit use A/r. and can use a completed set of audited f/s for audit evidence. Audit of stockholder equity (soe); get interralationship between b/s and soe. audit of net income get interrelationship between rev and expen, b/s and i/s. Materiality: Audit of single f/s: should determine the materiality of the single f/s and not the whole f/s. Audit of specific element: just specif element i.e. a/r and not all accounts. auditor will refer to single statement and element and not audit f/s as a whole. Reporting on a set of f/s and a single f/s or specific elements: -issue separate audit reports and express separate opinions for each engagement. -indicate in the report on a specific elements and date the report on the companys set of f/s and the nature of the opinion expressed on those f/s under the appropriate heading Modified Opinion on the complete set of f/s: -if auditors modified opinion on audited f/s is relevant to the audit of a specific element f/s auditor should: -express and adverse opinion on the specific element when material misstatement GAAP problem and disclaimer GAAS problem due to scope limitation. Piecemeal Opinion: if the audit expressed a adverse of disclaimer on complete set of f/s and a unmodified or unqualified on the specific element, this would be a contradiction to full audit. The auditor should: -the opinion on the specific element in not published with and does not accompany the audited f/s -specific does not constitute a major portion o f the entitys f/s or specific is not or is not based on SOE or NI Single statement is a big portion of the f/s. therefore a umodified opion should not be express on a single f/s if the auditor express adverse or disclaimer of audited f/s. EOM, OM, and EP paragraphs: if auditor had EOM, OM or EP in audit f/s than should be included in single and specific element audits Reporting on an Incomplete presentation: When the reports on an incomplete presentation that is otherwise in accordance with GAAP, the auditor’s report should include an EOM (it in escential) that would follow the opinion paragraph or EP that would the opinion paragraph for non issuer and issuer, respecitvely. that states; -the purpose which prepared and refer the notes of f/s that describes basis of presentation -indicate the the presentation is not intended to be a complete presentation of the entitys asset, liab. rev or exp

Question 97

MCQs 9: An auditor can express an opinion on a/r even if auditor express a disclaimer of audited f/s when

Answer 97

when report on a/r is not material to financial statements and a/r opinion is SEPARATELY STATED from disclaimer opinion on audited f/s.

Question 98

When audit opinion was a disclaimer on full audit and and current asset element as fully statement can auditor report this.

Answer 98

NO. Current asset are considered major portion of b/s and material. These piecemeal opinions are prohibited due to they overshadow disclaimer

Question 99

Auditor is asked to report on b/s and not other f/s items may the auditor accept this audit

Answer 99

yes. under special consideration with GAAS or in conjunction with complete set of audited f/s

Question 100

If an auditor issued a qualified opinion on complete set of f/s due to material a/r. What would the opinion be on specific a/r

Answer 100

Adverse; very material. Due to qualified was on a/r was material. Then when audited a/r along the opinion is adverse.

Question 101

Which of the following would be considered a interrel ation to sales in a specific item: a/r cogs inventory a/p

Answer 101

A/R direct related to sales in a journal entry it is dr a/r or cash and cr sales

Question 102

if an auditor issued an adverse opinion on full set of completed f/s and unmodified on inventory is this in accordance to GAAS

Answer 102

Yes. As long as it does not accompany the full audit reports and is not material.

Question 103

What is accurate and in accurate on subsequent events

Answer 103

Accurate: - subsequent event review is part of audit standard -new obtain during subsequent events could impact review -evidence gathered by audit after b/s date should be evaluated not accurate complete audit subsequent procedure after the b/s date. is part of audit not after.

Question 104

M10 - Subsequent Events

Answer 104

There are two types of subsequent events: 1. Recognized these are $ amounts when you look at 12/31 audit and a event happen after but was part of 12/31 audit where you record and disclosed the event - settlement of litigation -loss on a/r due to customer file bankruptcy 2. Non recognize: where looking fwd after 12/31 audit disclose on footnotes for things deemed significant. -sale of stocks or bonds -business combination -settlement of litigation after b/s -loss of plant and equipment due to fire or disaster - change in asset or liab. fv or foreign exch rates -entering into significant committments or contigentcy

Question 105

Management Responsibilty for subsequent events

Answer 105

GR: management responsible up to date f/s issued Public company non issuer evaluate through date the f/s are issued. Private up to when are available to be issued to stockholders or SEC. -Reissue of FS: should not recognize events that occured between the date of original issued f/s unless an adjustment is required by GAAP or regulatory agency -Subsequent event disclosure: non issuer must disclose through which subsequent events occured and original f/s date issued. This date is not required for issuer due to conflicts with current SEC guidiance. - Revised F/s: considered revised f/s. non issuer must disclose through which subsequent events occured and original f/s date issued. This date is not required for issuer due to conflicts with current SEC guidiance.

Question 106

Auditor Responsibility for subsequent events

Answer 106

During the period f/s date and the audit report date auditors are responsible to report subsequent events. During this time auditor should obtain an understanding of how managment has established procedures on the following: called PRIME -Post b/s transactions -Representation letter - inquiry for legal counsel concerning litigation,claims and assessments, new committments, borrowing, guarantees, sales or acquistions, increase capital or debt issuance, development of contigency, unusual accounting adjustments, events that call into questions accounting policy, relevant measures of estimates or provision or recoverability of assets. -Minutes; review all BD, and Committee -Examine - should examine interim f/s and compare them to current audit f/s

Question 107

Audit responsibilty after the original date of audit report

Answer 107

Audit has no responsibilty to do inquires after the date of the audit report. however, it audit become aware of something considered whether it is necessary to adjust f/s or related disclosure. if audit report is included in an exempt offering and auditor is involved in the offering= he should extend subsequent date of distribution and circulation of the exempt offering document if Auditor report is included in a registration statement= extend subsqent date of report short after effective date of registration statement.

Question 108

Auditors Action

Answer 108

if information is material and affects reliance, auditor should advise client to immediately to dislose information and it impact to person rely of f/s by; -advise client to issuer revised f/s along with new audit -if effect of f/s can’t be determine on timely basis, should provide notification that the f/s and audit should not e relied on. and client should be advised to discuss iwth SEC, stock exchange, and other regulatory agencies. Auditor must be satisfied that appropriate steps were take .

Question 109

Report Dates

Answer 109

If adjustments or disclosures are made after the orginal reporting date to extend the auditor responsibity only for the subsquent events, the audit may use a dual date .The original date is used for the audited f/s Example of dual date; original report was 1/21/20x2, except as to note 2 where next subseqeuent date is 2/3/20xx For non issuer, dual dating may occur if adjustments and disclosures are made after the original 1/21/20x2 audit report. For issuer; dual dating occurs if disclosure are made after the original audit report 1/21/20x2. however if adjustment are made without disclosure to footnotes than use origianl 1/21/20x2 and not 2/3/20x2. Remember later date extends audit responsibility

Question 110

Client Refusal

Answer 110

If client refuses to proceed with subsequent event, auditor will notify BOD and take the following steps to prevent reliance on f/s -notify client that auditor is no longer associated with the f/s -notify, applicable agencies that have jurisdiction over client that auditor report is not reliable -notify person or user of f/s the audit is not reliable. - if report is not issued, auditor should issue a qualified, adverse or disclaimer opinion.

Question 111

MCQs 10; if audit report for 12/31/x2 was issued on 1/31/x3 and company sold it investment in a company for $15000 and materialty is $36,000 would this be a subsequent event not

Answer 111

No. not material. if there was not a materialty threshold then i would have noted in disclosure.

Question 112

Would an auditor use a procedure of investigating l-t debt as evidence in subsequent events

Answer 112

Yes

Question 113

An auditor review events that did not exist at y-e but arose after y-e because

Answer 113

y-e f/s could be misleading due to after y-e transaction could be part of audited f/s.

Question 114

if subsequent event happen after audit report and auditor became aware and found information reliable he should

Answer 114

determine whether there are person relying or likely to rely on f/s who attch importance of informaiton.

Question 115

If audit report for 12/31/y2 was completed on 3/6/y3 and subsequent event happen on 4/10/y3. Audit decided not to dual date and adj and disclose event and report on 4/24/y3. when is the revised date

Answer 115

on 4/24/ y3 auditor has taken responsibility for every up to that date due to non dual date.

Question 116

An audit is responsible for subsequent events up to the audit report date . unless

Answer 116

information is exist after report date and will affect report that was bought to auditor attention

Question 117

if the audit does a dual date for subsequent event after the original report but before issuance of f/s what is auditor responsibility for subsequent event occuring to the original report

Answer 117

Since f/s were not issued, it is limited to specific event. he takes no other responsibility when dual date occur

Question 118

If there is an a/r loss due to backruptcy would this be a subsequent event accrue and disclosure

Answer 118

yes.

Question 119

IF there is a supplement schedule that is outside of the basic f/s but included in the audited f/s and auditor should

Answer 119

read the information and considered if it is materially consistent with audited f/s.

Question 120

if an audit reads an annual report that has inconsistent information than what is in the audit, what is the least likely action

Answer 120

modify the opinion due to audited f/s are fairly stated.

Question 121

M11 Other Information and Supplementary Information

Answer 121

Other information includes: -management or governance report on ops. -financial summary or highlights -employment data -planned capital expenditures -financial ratios -names of officers and directors - selected quarterly data Other info. does not include press releases or cover letter of audited f/s and audit report, analyst briefing entity website.

Question 122

Auditor responsibilty on other infor

Answer 122

Auditor is not responsible for other inf. if other info is properly stated in audit report, however, he should read the infor because credibility of audit f/s maybe underminded

Question 123

material inconsistency

Answer 123

if other info contain inconsistency with audit that is material such as other info revenue at $20m and audit at $5m needs to bring to the attention of management or governance. if management refuse to make adjustment, audit should modify opinion or withdraw . Other infor requires revision if management refuse make revision, audit can take the following actions; -include in auditors report in OM or EP -withhold the use of the report -withdraw (due to fraud, false, missleading or deceptive info) and consult with third party or legal counsel

Question 124

Disclaimer: very material or pervasive of Opinion on Other information (optional)

Answer 124

If other information that management refuse to revised is very material and pervasive that will lead to disclaimer, audit is not required to reference the other info. in the audit report. however, may choose to inclde in OM or EP disclaiming an opinion on the other info.

Question 125

Reporting on Supplementary info

Answer 125

Supplement info: single statements, specific elements, and accounts Auditor maybe engage to report on supp info. which is outside of basic f/s that is presented in audit. audit has two objective of supp info 1. evaluate the presentation 2. Report infor is fairly stated.in relation to f/s as a whole. Condition of reporting of supp info In order to issue an opinion, auditor must determine the following 5 conditions are met: 1. Information was derived from the f/s 2. In the same period as the f/s 3. f/s were audited with a report 4. neither and adverse or disclaimer was issued on f/s 5. supp info will accompany the audited f/s or audited f/s will be available.

Question 126

Management Responsibility Supp info

Answer 126

audit must obtain an agreement (via management rep letter) that it acknowledge and understand its responsibilities to; -prepare supp info -provide auditor with management rep letter -audit report on supp infor -present supp info with audited f/s and accompany

Question 127

Audit Procedure for supp info

Answer 127

the following are audit procedures for auditors performing the audit of supp info: -inquire of management of supp info -determine whether the form and content of the inform complies with applicable criteria -Compare and reconcile -inquire regarding any significant assumptions -evaluate the appropriateness and completeness of info -obtain management rep letter. (very important) -audit has no responsibility to consider subsequent events of supp infor

Question 128

PCAOB (public) Standards for addition audit procedures of supp infor

Answer 128

• evaluate the appropriate method used on supp infor if method change with PCAOB then audit make such changes -reconcile supp info to the f/s -supp info is fairly stated -accumulated misstatement of supp infor and communicate to management -evaluate to determine if incorrect supp info in material misstatement in the eval of audited f/s

Question 129

Reporting for non issuer private on supp inf

Answer 129

Presentation of audit report; maybe presented in the Om in the audited f/s (where write in 2nd sentence “the accompany supp info is presented for the purpose of additional analysis and is not a required part of the f/s”. in the last sentence: “ In our opinion, the information is fairly stated in all matters respect in relation to the f/s as a whole” or in a separate report: auditor should ; -reference to the report on f/s -date of the report -and any report modifications Forming an opinion of supp info : -material misstatement: modify the opinion on the supp info as qualified or adverse and describe -if separate report being used, then withhold the report. Effects of modification to the audit report on f/s; -when a qualified opinion express on audit f/s, it will also apply to supp infor . -when audit f/s has adverse opinion or disclaimer, then auditor is prohibited from expressing an opinion on supp info.

Question 130

Reporting of Issuer on Supp Info

Answer 130

Presentation of Audit report. ; unless prescribe by regulatory to give a separate report on supp info, supp infor opinion goes in the EP in the audit report on the f/s or a separate report Report date is no earlier than date of the f/s or date of sufficient evidence Material Misstatement: GAAP problems; should be described in the auditor report on the supp info as an opinion of qualified or adverse. If there is an inability to Obtain sufficient appropriate audit evidence GAAS problem, audit should disclaim and describe reason for disclaimer and state auditor is unable to express an opinion on supp info. Effect of modification to the audit report on the f/s; when auditor express a qualified opinion on the f/s, the supp info is qualified. Auditor should describe the effects in the report on supp info When there is an adverse opinion or disclaim on f/s, the audit should express an adverse opinion or disclaimer on supp info.

Question 131

Required Supp info for SEC and GASB

Answer 131

These are limited procedures and the audit should perform these limited procedures for supp info as follows: -inquire or management of supp info -make sure supp info is consistent with management responses, the audited f/s and other knowledge -obtain a management rep letter if auditor is unable to perform the procedure, he should communicate with governance

Question 132

Reporting Supp info non issurer private

Answer 132

When reporting is done in OM, audit will report supp info in Om the following for omission and deficiency: - the required supp info is included and audit has applied appropriate procedures - the required supp info is omitted - see if some supp info in missing and some is presented in accordance with guidelines -auditor has id any material departures for prescribed guidelines -auditor is unable to complete procedures -there are unresolved doubts about conformance of required supp inf. Om should include a disclaimer of opinion on the required supp info. if mangement refuse make revision then audit should describe the departure. PCAOB supp reporting is the same as issuer. Audit is not required to audit supp info. however, a client may engaged an auditor to report o whether required supp info is fairly stated in all matters respected in relation to the f/s as a whole.

Question 133

MCQs 11: during an supp info audit,would an auditor use a procedure of evaluating results using materiality level base

Answer 133

No. auditor would evaluate supp info to f/s and if there is a materiality finding communicate with management

Question 134

When financial statements include supp info that is required by GAAP can the auditor express an negative assurance

Answer 134

no. would perform a review or express negative assurance on supp infor

Question 135

if managment of a government body declines to present supp info required by GASB what type of opinion should auditor express

Answer 135

unmodified or qualified with an OM paragraph.

Question 136

if financial information is printed by client that reads independent audit report and is not consistent with auditors responsibility, what would auditor do

Answer 136

rewrite the wording or attach a separate report to be consistent

Question 137

An auditor is engaged to report on selected financial data contained in audited f/s. the auditor report should select data that is

Answer 137

limited to data from the audited.

Question 138

if SEC reg s-k quarterly data have been omitted from audit report

Answer 138

audit will communicate that co. has not presented the selected quarterly data.

Question 139

is the auditor responsibilty to other matters and do thet have the option to add disclaimer infor in om.

Answer 139

auditors have the responsibility to read om and they can give opinion of disclaimer in om.

Question 140

What are considered special purpose framework and fraomework

Answer 140

Special purpose; cash basis, tax basis, contractual basis. Framework : GAAP, GASB, IFRS

Question 141

Sims 11. what type of information is net income on the annual report read by the auditor and required by SEC and GAAP

Answer 141

Basic F/S and apply audit procedures

Question 142

Sim 11 when i see research question on new information bought to auditors attention after auditor report would this be a subsequent event

Answer 142

yes. just go to aicpa non issure private or pcaob issuer public. key in subsequent event in advance search and find closet information to question asked. ALWAYS ADD THE A18 TO LAST ROW IF REQUIRED

Question 143

M12 Special Purpose and other Country frameworks

Answer 143

Special purpose framework are used by private non issuer co. that does not necessarily comply with GAAP. Types of special purposes First three are Other Comprehensive Basis of Accounting (OCBOA) 1. Cash basis: cash receipts and cash disbursement 2. Tax basis: use to file income tax returns for period covered by the f/s 3. Regualatory basis: use to comply with the financial reporting of the agency that entity is in compliance. Dual Opinion 4. Contractural; basis of accounting between entity and one or more third parties other than auditors 5 Other basis: accounting that uses a definite set of logical, reasonable criteria taht is applied to all material items appearing in f/s

Question 144

Additional requirements for the auditor

Answer 144

audits prepared with GAAS uses following standards to prepare the special purpose framework audit: - purpose for which f/s are prepard -who are the intended uses -steps taken by management the acknowledges and understanding its responsibilityies for special purpose and there must be a management letter on agreement.

Question 145

Audits report on special purpose framework for f/s

Answer 145

1st three are (OCBOA) opin Desc EOM Om of purpose Alert restrict spec pur f/s of spec pur 1. Cash basis: single no yes no 2. Tax basis: single no yes no 3. Regualatory single yes yes yes 3a. Regualary dual yes no no General use 1. spec purpose 2. GAAP 4. Contractural single yes yes yes 5 Other basis: single yes yes yes if f/s if restricted measurement or disclosure criteria is suitable only for specific users

Question 146

Difference from standard audit reports

Answer 146

With Special purpose, do not use GAAP terms such as B/s, statement of financial position, i/s or statement of activities, scf Use terms such as b/s cash basis statement of asset, liab and soe - cash basis statement of asset and liab arising from cash trans - cash basis statement of rev collect and exp paid- cash basis statement of rev and exp - income tax basis statement of income - income tax basis statement of ops- income tax basis

Question 147

management responsibilty

Answer 147

management responsible for special framwork f/s design , implementation and maintenance (MR DIMS)

Question 148

EOM non issuer

Answer 148

if required EOM should include the following in the paragraph; -indicate that f/s are prepared in accordance to special purpose -Refer to the notes to f/s that describe special purpose -state that special purpose is other GAAP

Question 149

OM =

Answer 149

Restrict use to entities, other parties to contract or agreement or regulatory agencies which enity is subject to get audit of f/s for … our report is for the intend use for the BOD and US dept of Agriculture. not intend anyone than these specific parties

Question 150

Regualtory basis f/s general use= dual opinion

Answer 150

the report on f/s should express an opinion about the whether the f/s are - fairly presented in all material respect in accordance with GAAP -prepared in accordance to special purpose

Question 151

Auditors report prescribed by law or regulation

Answer 151

if audit specific layout, form , or words of auditor report is not acceptable due to - lack of consistency -going concern -uncerntanty -other auditors -EOM auditor should reword the prescribed form of report or attach an appropriately worded separate report.

Question 152

Report on Special purpose f/s

Answer 152

At minimum the report should included: - title -an address -intro paragraph -description of management responsibility for fair prep and presentation of special purpose -reference to management respon. for special pur framework for prep of f/s -decription of purp for which f/s are prepared when required -description of auditors responsibility to express opinion and reference GAAS, and if applicable the law or regulation and descrip of an audit in accordance with those standards - if applicable opinion of special purpose (fain on basis other than GAAP) and f/s regulatory basis would give dual opinion on GAAP and special purpose -EOM: f/s in accordance to special purpose -OM: that restrict use to certain parties -auditor signature -auditor city and state -date of audit report

Question 153

Sample cash basis report non issuer private

Answer 153

-Appropriate address to ; BOD Intended use: and related statement of rev collected and exp. paid. for y-e and the related notes to the f/s management responsibilty statement: MR DIMS audit responsibility: same standard statement -Opinion: standar-We audited the accompany f/s of xx company, which comprise the statement of asset and liab from cash trans. as of 12.31.20x2, d on that (cash) basis: in our opinion ….above present fairly, in all material respect, asset and liab. (not GAAP) - Basis of accounting ( or EOM): explain basis done -auditor signature -auditor city and state -date of audit report

Question 154

Sample report: regulatory basis (dual opinion) basis of accounting

Answer 154

report would include f/s and audit report with: -intended for general use -f/s have been prepared by management with reporting -provision of regulatory agency -management does not have a choice special purp framework -variance between special purpose regulatory and GAAP are not reasonably determinable and are presumed to be material ; why a adverse opinion needed Report; -Appropriate address to ; Gov Agency -Opinion: standar-We audited the accompany f/s of xx company, which comprise cash and unencumbered cash for each fund as of 12.31.20x2, and related statement of cr and cd and cd budget v actual for y-e and related notes to the f/s -management responsibilty statement: MR DIMS …. free from material misstatement whether due error or fraud. -Audit responsibility: same standard statement -Adverse opinion; due to not in accordance to GAAP -Opinion of Regualtory basis of accounting (modified or unmodified),,, fairly stated …. Section y of regulation z of any state described in note x of f/s -auditor signature -auditor city and state -date of audit report

Question 155

Other Country Framework

Answer 155

when us co can perform audit that are not gaap framework but are other countries framework. AICPA has designated the International Accounting Standards board (IASB) as a body that est. gaap. Therefore, these rules are not applicable to engagement to report on f/s prepared in accordance with iFRS. -Engagement acceptance; should obtain an understanding of; -purpose of f/s -whether framework is fair presentation -intended users -steps take by management to have framework acceptable Audit performed under GAAS or special consideration with International auditing standards (isa) Reporting; distribution outside the us; for reporting outside use, there are two options -the report of the other country or the report set out in ISA a. report would be in the other country and report of that country auditing standard 2. US form report a. all elements required in US form report b. refer to notes to f/s f/s intended for use only outside US non issuer -Appropriate address to ; BOD Intended use: and related statement of rev collected and exp. paid. for y-e and the related notes to the f/s management responsibilty statement: MR DIMS audit responsibility: same standard statement -Opinion: standar-We audited the accompany f/s of xx company, which comprise the statement of asset and liab from cash trans. as of 12.31.20x2, d on that (cash) basis: in our opinion ….above present fairly, in all material respect, asset and liab. (not GAAP) - Basis of accounting ( or EOM): explain basis done -auditor signature -auditor city and state -date of audit report Reporting: Distribution in the US If the f/s for use in the US auditor report EOM -Appropriate Addressee -Management responsibilty: specify frameworkand MR DIMS -Audit Responsibility:Standard and in accordance to GAAS and name of country Opinion- In our opinion…..present fairly, in all material respect, the financial position of Company x….. -EOM : As discussed in Note X to f/s, company x prepares f/x in accordance to specified framework which differ from GAAP -auditor signature -auditor city and state -date of audit report

Question 156

Report on Application of Requirements of an applicable financial reporting framework

Answer 156

Reporting accountant is in public practice who prepare reports and provides oral evidence on: - application of reporting framework to specific transactions -type of reports on a specified f/s may not report on application of accounting principles to a hypothetical transaction ( not involving facts or circumstances of a specify entity)

Question 157

Procedure of Reporting Accountant

Answer 157

Reporting Accountant should: -obtain understanding forms and sustance of specific transaction or condition relevant to type of f/s -review relevent requirement of f/s -if applicable, consult with professional experts or regulatory agency or perform research.

Question 158

Reporting accountant and continuing accountant

Answer 158

reporting accountant should request permission from management to consult with continuing accountant to form all relevant facts to form a professional judgement. If reporting accountant choose not consult with continuing accountant must give rationale why.

Question 159

Reporting accountant report

Answer 159

should address to requesting parties; -brief description of the nature of the engagement -AICPA or PCAOB standards used -ID of the specify entity, description of specify transactions, -statement of relevant facts, assumptions, circumstances, and statement about the sources of information -a statement if appropriate description of the reasons for the reporting accountant conclusion. - if there is a change in the report, statement of management responsibilty of f/s statement of relevant facts, assumptions, circumstances, and statement about the sources of information - separate paragraph at the end of report of restricted use of report -if accountant is not independent, statement on lack of indenpendency.

Question 160

Compare GAAP report to Cash basis non GAAP report

Answer 160

Title: no modification; independent auditor report is the same Intro: modification change financials statement to non gaap Management responsibility: modification: determining the f/s as cash basis Audit responsibilty: no modification Opinion: modification fair on cash basis EOM: modification; to explain the change from accural to cash basis as part of the foot notes OM: not included. no restricted uses

Question 161

M12 MCQs: can a reporting accountant have proposed future tranactions on a applicable financial reporting framework as long as it involves fact and circumstances of specific entity

Answer 161

Yes.

Question 162

auditors special report when cash basis used should have a paragraph in EOM that refer to notes to f/s that describes basis of accounting

Answer 162

yes

Question 163

If a auditor finds basis of accounting financial statement are not suitably titled are should

Answer 163

Disclose any reservation in a basis for modification paragraph and qualify the opion because using statement titled that are not other than GAAP

Question 164

MCQ M1 TEST: When a single year audit is done by an audit. an auditor would give a unmodified opinion with no EOM

Answer 164

There would be no need to look at prior year unmodified audit. to give current year unmodified. or if there is an contingency liab of a probable material loss that is sufficently supported, recorded ( if estimatable) and disclosed.

Question 165

When an auditor expresses an adverse opinion. the paragraph should include

Answer 165

in a separate paragraph in the auditor opinion paragraph, the auditor should state the significance of the adverse opinion and describe the adverse opinion on the financial statements.

Question 166

Where are the substance reason for adverse opinion located

Answer 166

in the basis for opinion

Question 167

How does auditor make explicit and implicit comparative financial statement under GAAS for 1. obtaining evidence that is sufficient and appropriate and 2. consistent application of accounting principles

Answer 167

Explicit statements such as “ we believe that we audit we have obtained is sufficient and appropriate . Implicit statement (this statement is in the audit responsibility0; consistent application of accounting principle.

Question 168

What is a basic element statement in the audit report under GAAS

Answer 168

includes evaluating significant estimates made by management (M4)

Question 169

is a basic element statement that “the disclosure provide reasonable assurance that the f/s are free from material misstatement

Answer 169

no. the correct statement is the “standards require that we plan and perform the audit to obtain reasonable assurance’ (m4)

Question 170

What is an example of explicit statement

Answer 170

Auditors responsibility paragraph. (m4) includes statement on “performing procedures to obtain audit evidence about the amounts and disclosure in the f/s and obtain sufficient and appropriate evidence

Question 171

When an auditor say ‘in our opinion, because of the significance of the matter… the consolidated f/s referred to above do not present fairly the financial position. would be considered an adverse opinion and not a disclaimer

Answer 171

yes. adverse opinion are very material and pervasive but are not presented fairly on f/s. Disclaimer are very material and pervasive and auditor was unable to get infor or going concern. The audit DOES NOT EXPRESS AN OPINION ON THE F/S.

Question 172

What are “must, should, may might on the standard language terms

Answer 172

Must; indicate an unconditional requirement which must be followed Should; indicates a presumptively mandatory requirement which must be followed in all case in whic requirement is relevante, EXCEPT IN RARE CIRCUMSTANCES WHEN DEPARTURE IS PERMITTED May and might; indicate explanatory material that does not impose professional requirement of performance.

Question 173

the phrase GAAP is an accounting term that

Answer 173

encompasses the conventions, rules, and procedures necessary to define uS accepted accounting practices at a particular time. GAAP financial reporting framework that changes from time to time.

Question 174

Is GAAP governed by AICpA

Answer 174

no. AICpA provides standards; Statement on Auditing Standards (SAS) which relates to proper performance of f/s audit.

Question 175

In the case that a material related transaction has occurred and has been accounted for but not disclosed on the f/s and a change in accounting principle that has a material effect on the f/s. which on or both would change a unmodified opinion

Answer 175

a material misstatment not disclosed would have change a unmmodified opinion. A justified accounting principle change would not change unmodified AND ADD EOM. EXAM TRICK; WHEN I SEE OTHER QUESTION WITH JUSTIFIED AND UNJUSTISFIED AND THERE IS A QUESTION THAT IS GENERAL ON ACCOUNTING PRINCIPLE, ASSUME IT COULD BE JUSTIFIED .

Question 176

If supplement info is outside basic f/s audit but is required by FASB what is auditor responsibility

Answer 176

auditor is required to do limited procedures on supp info. and add om paragraph on audit report

Question 177

is auditor responsible for other information

Answer 177

no. auditor must read inform

Question 178

If prior year has adverse but client had audit to restate . current year has unmodified. What is opinion with updated info

Answer 178

unmodified with an Eom the follows opinion. Report flow; basis of opinion opinion EOM

Question 179

M10 SIM Subsequent event

Answer 179

Part of the subsequent check list includes : review mangement rep letter. Auditors do a PRIME of subsequent events review P= post b/s transactions R= Rep letter I= inquiry M- minutes E= examine interim f/s A material amt of inventory was not counted as of 12/31/ye 2 us this a subsequent review: not a subsequent event. happen during 12/31. scope limit and error at least. imported subsequent dates ye: 12/31/ y2 Audit performed during jan and feb ye must have been completed by 2/28/y3 f/s issued on 3/15/y3

Question 180

More A1 MCQs:When would an audit choose between a qualifed and adverse opinion

Answer 180

when f/s fail to disclose information that is required by GAAP. this could be qualified material or adverse very material and pervasive.

Question 181

when would an auditor not issue a qualifed opinion

Answer 181

When auditor is not independent with respect to audited entity

Question 182

when would an audit add a EOM while not impacting a unmodified opinioin

Answer 182

Remember use still could be an entity with going concerns which would require an EOM and still have a unmodified opinion.

Question 183

When event would occur after the issuance of audit would cause and auditor to futher inquiry about the previous issued f/s

Answer 183

a new disclosed party transaction that was not disclosed in prior year. It shoud be in the f/s.

Question 184

If a reporting accountant issued a written report on a application requirement of an applicable fin reporting framework to a specife transaction by the entity that is audited by another CPA firm. the reporting Auditor should accept the engagement but also

Answer 184

Consult with the lead auditor to obtain informatio on relevant transactions. If reporting does not consult, he should give reason why not.

Question 185

If an auditor is unable t complete a procedure during an audit, which opinion is least likely to be rendered

Answer 185

This question is giving me two options of the worst opinion adverse and disclaimer. With adverse information is there but is not sufficient. disclaimer is scope limitation due to unable to do audit procedure . Which true on this question. The least likely is adverse

Question 186

which of the following would an auditor not give unmodified opinion: financial info required by SEC is omitted material change between periods in accounting principles auditor unable to obtain audit f/s of consolidated investee auditor wishes to emphasize unusal subsequent event

Answer 186

Winner: auditor unable to obtain audit f/s of consolidated investee. this is scope limitation and disclaimer. Unmodified wth material change in accounting principle . With EOM SEC omission: with om emphasize unusual subsequent event. EOM

Question 187

M 5: Using the work of Others

Answer 187

Client’s Internal Auditors (IA) - are not independent -can not give judgements IA must maintain objectivity and integrity, they are not independent . The Auditors cannot share with the IA any of the responsibilty for audit decisions, judgement, or assessment. Auditor would considered who IA report to for example if IA report to CFO or controller then not much of objectivity.. If they report to audit committee then there is a higher level of objectivity.

Question 188

Effect of the IA work

Answer 188

Judgement and assessment are auditors responsibity not IA. Higher the risk level of material missistatement will yield to IA work can not eliminate testing.

Question 189

External auditors responsibilities

Answer 189

Obtain an understanding of IA functions by evaluating IA functions. Once evaluate and acceptable, the auditor will us IA to provide direct assistance or assisting with IA function in obtaining audit evidence ( this depends on who the IA report to). IA competency and objectivity will be assess : -prior experience on entity -prior evaluation -talk with management about IA Competency on education, prof. certification (CIA), performance eval, audit planning Objectivity: based on who IA reports to. Applicaton of systematic and discipline on risk assessment, work programs, documentation, and reporting. Auditor will always supervise IA and review work. Auditor is reponsible for audit of f/s

Question 190

Using a specialist on the audit for management and auditors

Answer 190

Specialist for auditors: can work in a field other than accounting on auditing. use to obtain infor on HR, IT, or programs. Specialist for management: can work in a field other than accounting or auditing but know acturary. Value of specialist is restricted to specific work. For CPA and management, specialist is treated like one of the staff. Auditor must have sufficient understanding of specialist field so auditor can evaluate specialist on “ determining the nature, scope, and objective of specialist work doing for auditor. evaluate specialist work Agreeement with special should include: nature , scope and objective respective roles and responsibilities nature of time and extent of communication beween auditors and specialist. Must evaluate specialist work. Effect on the auditors report: if special findings are not in comformity wit GAAP (GAAP problem) then give a qualified or adverse opinion. If decides to express a modified opinion or add explanatory language,. auditor may reference specialist in audit responsibilities. An unmodifed, no actions necessary. Use of management specialist: no independence and therefore no judgement as to the final determination. Audit work used by management specialists should be evaluated on competency capabilities objectivities must have an understanding of specilialist work evaluat the apporpriate of specialist work as audit evidence for relevant assertions.

Question 191

M5 Exercise when is IA uses -most likely would result in greater minimal reduction ( can use IA mor) -Minimal or no reduction in direct test (use IA less)

Answer 191

Remember audit are responsible for judgment and skeptism of the audit. Audit would: verify adequacy, test valuate, IA test existence. 1. IA test the existance of contingencies: Minimal or no reduction in direct test (use IA less). would not want I/a making judgement. 2. IA tests the existence of FA additions: most likely would result in greater minimal reduction ( can use IA mor). Can do this they would pull records to and give to auditors for verifications 3. IA test valuation of intangible assets: Minimal or no reduction in direct test (use IA less). done by auditors 4. IA test existance of prepaid: most likely would result in greater minimal reduction ( can use IA mor) 5.IA evaluate the adequacy of disclosure of subsequent events : Minimal or no reduction in direct test (use IA less). done by auditors 6. IA evaluate adequacy of doubful accounts: Minimal or no reduction in direct test (use IA less). done by auditors

Question 192

when assessting the IA objectiviity the auditor would considered

Answer 192

previous experience discussion with mangement organization levels he report to and their status external quality review professional internal auditing standards (the Institute on IA).

Question 193

the auditors use of a specialist should assess the work

Answer 193

Auditor must have SUFFICIENT understanding of specialist field so auditor can evaluate specialist on “ determining the nature, scope, and objective of specialist work doing for auditor.

Question 194

will a specialist have an accounting background

Answer 194

No

Question 195

If the specilist the auditor use have a relationship with the co. they audit shoud

Answer 195

Assess the risk that the specialist objectivity might be impaired

Question 196

An IA may affect (assist) the auditor with

Answer 196

procedure perfomed in -obtaining and understanding of i/s -assessing the risk of material misstatement -gathering direct evidence

Question 197

Can the use of a specialist who has contractual relationsip with management be engaged and used by auditors under acceptable circumstances

Answer 197

yes. because specialist has skill or know. Also if auditor thinks special objectivity maybe impaired, the auditor can perform additional procedures.

Question 198

An IA may affect (assist) the auditor NET when use for

Answer 198

existence of FA. Never use IA for test or existance contingencies or subsequent events, or valuations, test

Question 199

an auditor would most likely rely on IA work done in audit when

Answer 199

f/s amounts judged are little or no subjective evaluation.

Question 200

When can a auditor allow an IA with both competent and objectivity tasks

Answer 200

The are perform with the test of i/s and should generally be limited. due to lack of independence No assigning of major subsidiary, analytical procedures

Question 201

If the AI director has high status in the co and reports to audit committee. would a independent auditor rely on IA

Answer 201

yes.

Question 202

would analytical procedures performed by IA be a consideration in the independent auditors assessment of IA’s competence, objectivity and application of a system discipline approach

Answer 202

no. analytical procedures are to enhance understanding of business or eval f/s assertions not in IA’s competence, objectivity and application of a system discipline approach

Question 203

is the IA audit plan more detailed than auditor plan

Answer 203

yes because IA audit plan is part of system of i/c where as auditors plan is limited do to he will be test with procedures.

Question 204

Can a IA assess the adequacy of anything in an audit

Answer 204

No. done by independent auditors due to this a judgement call by the auditor.

Question 205

Can IA do: -performing substantive audit procedures -providing auditor with risk assessment for auditors to understand -assist auditor in understanding i/s

Answer 205

yes. inaddition, performing substantive testing is fine for IA. However must be reviewed and supervised by auditor.

Question 206

A2 M5 Sims; If an internal Audit Program reports to CEO is it objective

Answer 206

Yes

Question 207

Can independent auditors assigned test control of bank recons require two signature

Answer 207

yes. they are just verifying signatures on checks.