A1 "Audit Reports" Flashcards
1
Q
The auditor is responsible for performing an audit in accordance with
A
GAAS (generally accepted auditing standards)
2
Q
What are SAS’s
A
Statements on Auditing Standards = provide generally accepting auditing standards for nonissuers
- Issued by the AICPA’s Auditing Standards Board (ASB)
- Also used in audits of issuers, to the extent adopted by the PCAOB
3
Q
what are AS’s
A
Auditing Standards = provide generally accepting auditing standards for issuers
- issued by the PCAOB
- PCAOB uses SAS’s too
4
Q
What are GAGAS
A
Generally accepted government auditing standards = provide guidance for audits of gov org, programs, activities, and entities that receive gov funding.
5
Q
What are SSAE’s
A
Statements on Standards for Attestation Engagements = provide guidance for attestation engagements
- issued by AICPA
- applies to examinations, reviews, AUPs, assertions about subject matter
6
Q
what are SSARS
A
Statements on Standards for Accounting and Review Services (SSARS) = provide guidance for unaudited FS (or financial info) of nonissuers.
- issued by AICPA
7
Q
= The AICPA provides members with guidelines for behavior in the conduct of their professional affairs.
A
Code of Professional Conduct
8
Q
What provides assurance to the public that the profession intends to maintain high standards and to enforce compliance with these standards by its members?
A
Code of Professional Conduct
9
Q
= AICPA provides guidance to CPA firms about a quality control system.
A
Statements on Quality Control Standards
10
Q
What is a quality control system
A
= consists of policies and procedures design, implemented, and maintained to ensure that the firm complies with professional standards and appropriate legal/regulatory requirements.
11
Q
What is the first level of auditing guidance?
A
auditors are required to comply with SASs published by the ASB for audits of nonissuers and AS’s (Auditing Standards) from the PCAOB for audits of issuers.
12
Q
What is the second level of auditing guidance?
A
interpretive publications, which are recommendations for how SASs should be applied to certain situations.
- not considered auditing standards
- auditors should consider these when performing audits
13
Q
What is the third level of auditing guidance?
A
other auditing publications, which have no authoritative status but may be helpful for the auditor.
- accounting/audit articles, CPE materials, textbooks, etc.
14
Q
what does “should” mean in auditing standards
A
presumptively mandatory
- must be followed in all cases where its relevant except for rare circumstances
15
Q
what does “must” mean in auditing standards
A
indicates an unconditional requirement, which must be followed in all cases in which the requirement is relevant.
16
Q
what does “may”, “might”, and “could” mean in auditing standards
A
indicate explanatory material that does not impose a professional requirement for performance
17
Q
What are the chronological steps in the audit process?
A
engagement acceptance assess risk and plan response perform procedures and obtain evidence form conclusions reporting
18
Q
What is the overall purpose of an audit? What do auditors provide?
A
Credibility - the auditor’s report provides credibility to the entity’s FS’s.
Provide FS users with an opinion on whether the entity’s financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework (GAAP or IFRS).
19
Q
management’s responsibility for an audit
A
FS + IC + info for auditors
- prepare of the FS in accordance with GAAP;
- design, implement, and maintain IC
- provide the auditor with access to all necessary information
20
Q
Clients need to identify the appropriate FRF as well as..
A
include a description of the FRF they used in the FS
21
Q
What are the auditors main responsibility
A
- express opinion on FS (Attest function)
- professional skepticism
- professional judgment
- ethical requirements
- audit evidence (sufficient & appropriate)
- GAAS
- express opinion on FS (Attest function)
22
Q
= recognition that circumstances may exist that cause the FS to be materially misstated.
A
professional skepticism
23
Q
What are some specific examples of how an auditor can maintain professional skepticism?
A
Auditors should be alert for:
• Contradicting audit evidence
• Information that questions the reliability of audit evidence
• Conditions that indicate possible fraud
• Circumstances that suggest the need for audit procedures beyond GAAS
24
Q
- interpretation of ethical requirements
- informed decisions based on application of knowledge and experience.
A
professional judgement
25
Professional judgment is necessary when making decisions about:
- Materiality
- Audit risk
- NET of audit procedures
- Eval whether sufficient, appropriate evidence has been obtained
- Evaluating management's judgments in applying the applicable financial framework
- Drawing conclusions based on audit evidence
26
Weak internal control does not equal
Adverse opinion
27
The auditor should neither assume that management is dishonest nor assume unquestioned honesty. A belief that management is honest and has integrity does not relieve the auditor of the need to maintain..
professional skepticism
| or allow the auditor to be satisfied with less than persuasive evidence
28
auditors are unable to obtain absolute assurance that the entity's FS are free from material misstatement because of the following inherent limitations
- level of subjectivity within financial reporting,
- cost v benefit
- legal limitations in obtaining audit evidence
- need for timely financial reporting
```
Bonus reasons
+ fraud is usually concealed
+ audits are not investigations into wrongdoing
+ accounting estimates
+ mngt judgement
```
29
When auditing ____, the auditor must determine whether an audit is the most appropriate engagement or whether a review, compilation, or preparation would be more appropriate.
nonissuers
30
When auditing ____, the auditor must perform an integrated audit
issuers
31
integrated audit
FS opinion + IC opinion
32
reasonable assurance
high assurance but not absolute (100%)
33
overall objectives of a financial statement audit
free from MM + presented fairly
- obtain reasonable assurance that the FS are free from material misstatement due to error or fraud which
- express an opinion on whether the FS are presented fairly in accordance with the applicable FRF.
34
```
___ = intentional
___ = unintentional
```
farud
| error
35
_____ = very material
pervasive = very material
- the issue is everywhere (not confined to one account or item)
- the issue is confined to one account/item but it makes up a significant portion of the FS
- the issue related to disclosures fundamental to the users of the FS
36
The auditor refers to ____ for guidelines on how to perform the audit (inventory count should be observed by the auditor).
The auditor refers to ___ to evaluate whether the transactions are recorded and reported fairly in the FS (land should not be depreciated).
GAAS
| FRF (GAAP)
37
What kind of questions should the auditor ask themselves regarding financial reporting frameworks?
Do the financial statements adequately disclose the FRF and significant acct policies the company used?
Are the accounting policies selected and applied consistent with the applicable FRF?
Are accounting estimates made by management reasonable?
Is the information presented in the financial statements relevant, reliable, comparable, and understandable?
Do the FS and notes fairly represent the underlying transactions?
38
Are departures from GAAP permissable? (Can an auditor issue an unqualified opinion if theres a GAAP departure?)
Yes, a departure from GAAP is permissible if FS would otherwise be misleading
39
What is needed in order to form an opinion?
- sufficient appropriate audit evidence
| - whether uncorrected misstatements are material (individually or in the aggregate)
40
An ___ opinion states that the FS present fairly, in all material respects, the financial position of the entity in conformity with the applicable financial reporting framework.
unmodified (unqualified)
41
The auditor's report should be ___ when the auditor concludes that the FS as a whole are materially misstated (financial statement issue), or the auditor is unable to obtain sufficient appropriate audit evidence (audit issue).
modified (aka qualified opinion)
42
If FS are presented fairly, EXCEPT FOR.. (GAAS or GAAP issue), then auditor should issue what type of opinion?
qualified
43
what type of opinion should be issued when FS do not present fairly the financial position of the company in conformity with applicable FR framework. (BIG GAAP problem).
Adverse opinion
44
___ = auditor does not express an opinion on the FS.
Disclaimer
45
If the auditor expresses an adverse opinion or disclaimer of opinion on one of the FS (BS, IS, CF, etc), then the auditor cannot...
...also include an unmodified opinion on any of the other FS
46
opinions.png
A1 M3 paperclip (shows the scale)
47
List the main sections of a standard unmodified report (nonissuers)
```
Auditors opinion
Basis for opinion
Substantial doubt about going concern (as necessary)
Key Audit Matters (when engaged)
Management responsibility
Auditors responsibility
Other Information (as necessary)
Other Reporting Responsibilities (as necessary)
```
48
Unmodified report - Auditors Opinion section includes..
- The opinion (Unmodified, Qualified, Adverse, Disclaimer)
| - additional info (entity, FS titles, periods covered, FRF)
49
Unmodified report - Basis for Opinion section states..
- sufficient and appropriate evidence (was obtained)
- audit was conducted in accordance to GAAS
- auditor is independent
- auditors responsibility (states)
50
Unmodified report - Substantial doubt about going concern section..
Draws attention to the note in the FS that discloses the conditions or events identified and states that the auditor's opinion is not modified with respect to this matter.
51
Unmodified report - Key Audit Matters section
States the definition of a key audit matter and describes each key audit matter identified.
52
Unmodified report - Management responsibility section
states management is responsible for the FS and IC
53
Unmodified report - Auditors responsibility section states...
1. obtain reasonable assurance
2. definition of reasonable assurance
3. fraud is harder to detect than error
4. definition of material
5. description of what is involved in performing the audit
6. communication requirements (to those charged with gov)
54
Unmodified report - Other Information section
Identifies the other information included with the FS and clarifies the responsibilities of both management and the auditor with respect to such information.
This section should include a statement that the auditor's opinion does not cover the other information.
55
Unmodified report - Other Reporting Responsibilities section
This paragraph is included only if the auditor addresses other reporting responsibilities in addition to GAAS.
56
= indicates the date that sufficient appropriate audit evidence was obtained to support the auditor's opinion.
report date
57
GAAS is mentioned in the ___ responsibility paragraph, while
| GAAP is mentioned in the ___ responsibility paragraph.
Auditor's
| Management's
58
List the main sections of a standard unmodified report (issuers)
Opinion
Basis for Opinion
Critical Audit Matters
59
Unqualified report - Opinion section
- which FS were checked (audited)
| - opinion on said FS
60
Unqualified report - Basis for Opinion section
1st paragraph
1. mngt's responsibility -> FS
2. auditor's responsibility -> expressing an opinion
3. auditor is registered with PCAOB + independent
2nd paragraph
a. PCAOB audit
b. audit was planned and performed to obtain reasonable assurance that FS are free from MM
c. description of what was performed in the audit
d. audit provides reasonable basis for opinion
61
Unqualified report - Critical Audit Matters section
- CAMs that arrose
or
- No CAMs arrose
62
Critical Audit Matter
= matter that was communicated or required to be communicated to the audit committee and:
1. relates to accounts or disclosures that are material to the FS; and
2. involved especially challenging, subjective, or complex auditor judgment
63
(For unqualified reports (issuers))
PCAOB is mentioned in the ___ section, while
GAAP is mentioned in the ___ section.
Basis for Opinion
| Opinion
64
The auditor of an issuer must also file ___ with the PCAOB for each audit report issued
Form AP
65
= means that the information is reasonably obtainable from management accounts and records and that providing the information in the auditors report does not require the auditor to assume the position of preparer of the financial information.
(Ex. the auditor is not expected to prepare a basic FS such as an omitted cash flow statement, and include it in the auditor’s report when management omits such information.)
Practicable
66
The auditor uses ___ to determine whether to issue a qualified opinion or an adverse opinion when audit evidence indicates that there is a material misstatement of the financial statements.
professional judgment
67
What are examples of "except for" issues that result in a qualified/adverse opinion (GAAP issues)
- wrong acct policies (ex. unjustified change in consistency)
- wrong FS presentation
- wrong disclosure
- unreasonable acct estimate
(material but not pervasive --> qualified)
(material AND pervasive --> adverse)
68
A ___ opinion should be expressed when the auditor concludes that misstatements are material but not pervasive to the FS
qualified
69
An ___ opinion should be expressed when the auditor concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements
adverse
70
___ opinion = clean audit EXCEPT FOR...
qualified
71
___ opinion = not clean, FS are materially misstated. Management failed to follow GAAP, big time...
adverse
72
How is a standard nonissuer report modified if a qualified or adverse opinion is expressed?
both the 'Auditor's Opinion' and 'Basis for Opinion' sections are modified to state the modified opinion and to describe the matter giving rise to the modification.
73
How is a standard nonissuer report modified if a qualified or adverse opinion is expressed?
both the 'Auditor's Opinion' and 'Basis for Opinion' sections are modified to state the modified opinion and to describe the matter giving rise to the modification.
74
Which section should an auditor not include in the auditor's report when issuing an adverse opinion?
"Key Audit Matters" section
75
How is a standard issuer report modified if a qualified or adverse opinion is expressed?
the auditor's report will include an additional paragraph immediately following the opinion paragraph and the opinion paragraph will be modified.
76
True or False: The auditor is required to report critical audit matters in the auditor's report when the auditor expresses an adverse opinion.
False
77
Remember, a modified opinion can arise from either a FS issue (___ problem) or an Audit issue (___ problem).
GAAP, GAAS
78
The auditor uses ___ to determine whether to issue a qualified opinion or a disclaimer of opinion when the auditors are unable to obtain sufficient appropriate audit evidence.
professional judgment
79
What are examples of "except for" issues that result in a qualified opinion (GAAS issues)
- unable to obtain s&a evidence to support mngt assertions
- scope limitation (unable to complete the audit)
(material but not pervasive --> qualified)
80
= auditor is unable to complete the audit fully.
Examples include:
• Time constraints
• Inability to obtain s&a audit evidence such as:
- Inability to observe inventory
- Inability to confirm receivables
- Inability to obtain audited FS of a consolidated investee
- Restrictions on the use of auditing procedures
- Inadequacy of accounting records
• Management refuses to acknowledge responsibility for the fair presentation of the FS in conformity with GAAP
• Client’s attorney refuses to respond to inquiry
Scope Limitation
81
The inability to perform a specific procedure is not a limitation on the scope of the audit if the auditor is able to obtain sufficient appropriate audit evidence by performing ___.
alternative procedures.
| If you can get the evidence you need through other means, you can still issue an unmodified opinion
82
If alternative procedures cannot be performed, the auditor should express a
qualified or disclaimer of opinion
83
What should an auditor do if they are not independent but is required by law to report on the FS?
the auditor should disclaim an opinion and should specifically state that the auditor is not independent.
84
A ___ opinion should be expressed when the auditor concludes that the possible effects of any undetected misstatements could be material but not pervasive.
qualified
85
What are examples of "except for" issues that result in a disclaimer of opinion (GAAS issues)
- unable to obtain s&a evidence
- scope limitation
- significant uncertainty
- lack of independence
- auditor association with unaudited FS
(material AND pervasive --> disclaimer)
86
___ = No opinion due to GAAS problem
Disclaimer
87
A ___ should be expressed when the auditor is unable to obtain sufficient appropriate audit evidence on which to base an opinion and the auditor concludes that the possible effects of any undetected misstatements could be both material and pervasive.
disclaimer of opinion
88
What should the auditor do if the FS are false, fraudulent, deceptive, or misleading, and management refuses to correct them (and modification of the CPA’s report is not sufficient to correct them)?
The CPA should consider withdrawing from the engagement.
89
How is a standard nonissuer report modified if a qualified or disclaimer of opinion is expressed?
both the 'Auditor's Opinion' and 'Basis for Opinion' sections are modified to state the modified opinion or that no opinion is expressed and to describe the matter giving rise to modification or the reason for the inability to obtain sufficient appropriate audit evidence.
90
Which section should an auditor not include in the auditor's report when disclaiming an opinion?
"Key Audit Matters" section
91
Note: When the auditor expresses a qualified opinion due to a scope limitation, the opinion paragraph states that the qualification relates to the possible effect of the matter on the FS and not the scope limitation itself.
Wording such as “In our opinion, except for the above mentioned limitation on the scope of the audit…” is NOT acceptable.
92
How is a standard issuer report modified if a qualified or disclaimer of opinion is expressed?
a paragraph immediately following the opinion paragraph is added and the opinion paragraph is modified.
(In addition, a qualified opinion and a disclaimer of opinion will include modified language in the Basis for Opinion section)
93
True or False: The auditor is required to report critical audit matters in the auditor's report when the auditor expresses a disclaimer of opinion.
False
94
Emphasis-of-matter paragraphs ---> ____ companies
Other-matter paragraphs ---> ____ companies
Explanatory paragraph ---> ____ companies
non-issuer
non-issuer
issuer
(Notice how the hyphenated paragraphs are both non-issuer items)
95
What are Emphasis-of-matter paragraphs, Other-matter paragraphs, and Explanatory paragraphs used for? whats their purpose
Additional language used to highlight particular circumstances without modifying the opinion
96
Its important to note that if a report uses an emphasis-of-matter paragraph, other-matter paragraph, or explanatory paragraph, the report is still ___
unmodified
97
= FS matter so important that it is fundamental to the users' understanding of the FS.
Note: The matter is appropriately presesnted in the FS, you just don't want people to miss it. Its the "Looky-looky" paragraph.
emphasis-of-matter paragraph
98
Emphasis-of-matter is REQUIRED when:
- going concern
- change in acct principle (material)
- special purpose framework was used
- change in audit opinion due to subsequent discovery
99
Emphasis-of-matter might be used when:
- pending lawsuit*
- major catastrophe impacting the financials
- related party transaction (significant)
- subsequent events*
* any uncertainties that are "unusually important"
100
Where is the emphasis-of-matter paragraph located?
after the opinion, but before the other-matters paragraph.
101
= matters other than those presented/disclosed in the FS but are still relevant to the users' understanding of the audit, auditor's responsibilities, or the report.
other-matter paragraph
102
= describes the matter being emphasized and the location of relevant disclosures about the matter in the FS.
explanatory paragraph
103
Explanatory paragraph is REQUIRED when:
- going concern
- change in acct principle (material)
- change in reporting entity*
* unless change is a result of purchase of a sub or other business unit
- change in investee YE (material impact)
- correction of a previous MM
- inconsistent info (material)
- SEC didn't receive or is still reviewing quarterly data
- supplementary info is omitted
- PY audit report is not presented
- PY opinion is updated
- Mngt is required to report on the ICFR but it doesn't need to be audited
104
emphasis-of-matter + other-matter paragraph = explanatory paragraph
There's circumstances that require an auditor to add an explanatory paragraph to an issuer report are very similar to the circumstances that require an auditor to add in emphasis-of-matter or other-matter paragraph to a non-issuer report.
(see M7 Summary.png in outline for visual)
105
If there is no mention of consistency issues in the auditor's report, it ___ that the entity's financial statements are ___ between reporting periods.
implies; comparable
106
Remember from FAR, a change in ___ is not a consistency issue.
estimate
107
The auditor should determine whether a change in accounting principle has affected the comparability of the entity's current FS.
If the auditor is satisfied that certain ___ are met, the auditor should include an emphasis-of-matter paragraph in the auditor's report. Otherwise consider modifying the opinion.
criteria
When evaluating acceptability of an accounting change, the auditor should consider the following criteria:
1. Is it in accordance with the applicable FRF?
2. Is the method change accounted for correctly? (retrospectively/prospectively)
3. Did they make proper disclosures for it?
4. Entity justified why the accounting principle is preferable.
108
Where is the explanatory paragraph generally located?
after the opinion paragraph
109
= expressing an opinion on last year and this years FS.
comparative financial statements
110
What should an auditor do if during the current audit, the auditor becomes aware of evidence that affects the prior year's financial statements and opinion that was expressed?
the auditor should update the prior opinion in the current year's audit report.
Ex. So if last years opinion was qualified but they fixed it this year, you can update that in the CY report and express an unqualified opinion for both years (PY and CY).
Then disclose reasons for update in emphasis-of -matter/other-matter paragraph (nonissuer) or explanatory paragraph (issuer). Paragraph needs to include DORCS
111
What does DORCS stand for?
```
Date of the auditors previous report
Opinion type previously issued
Reason for prior opinion
Changes that have occurred
Statement that the opinion is different
```
112
When the prior year's FS were not audited but the current year's financial statements are being audited, the auditor is in essence facing a ___.
scope limitation
The beginning balances may not be ascertainable and therefore a disclaimer of opinion may be required.
113
What should an auditor do if the successor auditor does not present the predecessor's audit report?
the successor auditor should express an opinion of the current period financial statements only.
An other-matters (explanatory) paragraph should be included indicating that the FS from the prior period were audited by a predecessor auditor and the type of opinion expressed by the predecessor auditor, as well as the report date.
114
What should an auditor do if the current period FS are audited and presented in comparative form with prior FS that were compiled or reviewed?
the auditor should include an other-matter (explanatory) paragraph in the current audit report indicating the distinction.
A statement in the other-matter (explanatory) paragraph should also be included to indicate that these services are less in scope than an audit, and as such, do not provide a basis for expressing an opinion on the financial statements. It should further indicate that the auditor assumes no responsibility for them.
115
For audits of group financial statements, the auditor should use his or her understanding of each component auditor to determine whether to make ___ to the individual component auditor in the auditor's report.
reference
116
A Group gains an understanding of each component auditor by knowing:
[independence, competence, reputation]
- whether the component auditor is independent and ethical
- their professional competence
- the extent the group will be involved in their work
- if they operate in a reg environment that oversees auditors
117
What should the auditor do if the component auditor is not independent (or the group engagement team has serious concerns about them)?
the group engagement team should not use the work of the component auditor or make reference to the component auditor in the report
118
What should the auditor do if the group engagement partner decides to assume responsibility for the work of a component auditor?
then no reference to the component auditor should be made in the auditor's report.
119
When group auditors relies on the work of a component auditor, they have two options:
1. ___ --> group takes full responsibility for their work
2. ___ --> group divides responsibility for their work
1. no reference in report
| 2. reference in report
120
= events or transactions that occur after the balance sheet date, but before the financial statements are issued.
Subsequent events
121
What are the two ways to account for a subsequent event?
adjustment to the FS or a footnote disclosure of the event.
122
= a condition that existed on or before the balance sheet date that usually requires an adjustment to the financial statements.
Ex. Settlement of litigation that existed as of the BS date (12/31).
Ex. Loss on an uncollectible receivable and the customer's bad condition existed before BS date (12/31).
recognized subsequent event
123
nonrecognized subsequent events
= involve a significant business event (e.g., sale of bonds) which occurred after the BS date. Usually do not require an adjustment to the FS, but instead are disclosed in the footnotes.
Examples:
- Fire at a warehouse,
- Issued stock or bonds
- Settlement of litigation (that didn't exist before BS date)
- PPE loss from natural disaster, etc.
124
___ must evaluate subsequent events through the date the FS are issued.
While ___ must evaluate subsequent events through the date that the FS are available to be issued.
Public companies (issuers)
Private companies (nonissuers)
125
If management is reissuing FS, how should they handle subsequent events that occurred btw the OG date FS were issued and the date they are reissued?
management should not recognize events that occurred btw the OG date they were issued and the date they are reissued. (Pretend like you have no knowledge of future events)
126
The auditor is responsible for gathering evidence related to subsequent events up to...
the date of the auditor's report.
127
Auditors should perform the PRIME tasks after FY end. What are those tasks?
PRIME
- Post BS transactions - review for cutoff
- Rep Letter – obtain
- Inquiry – clients legal team
- Minutes – review minutes after YE
- Examine – interim FS
128
What should an auditor do if the they become aware of information related to subsequent events AFTER the original date of the auditor's report but BEFORE the report release date?
the auditor should consider whether it is necessary to adjust the FS or the related disclosures, and may dual date the auditor's report to extend responsibility only for the particular subsequent event.
129
dual-dating
= similar to cherry-picking what the auditor is taking responsibility for (one specific subsequent event).
If the auditor doesn't dual date and instead 'later dates' (changes the OG date to a later date) they are taking responsibility for ALL subsequent events through that later date!
130
True or False: Auditors have NO responsibility to inquire or perform procedures to discover subsequent events after the original date of the audit report
True
However, if the auditor becomes aware of a subsequent event before the release date, they should consider adjusting the FS or disclosures : /
131
What does 'other information' include?
Includes:
- report by management
- financial summaries / highlights
- employment data
- planned capital expenditures
- financial ratios
- names of officers and directors
- quarterly data
(NOT include press releases, cover letters, analyst briefings, or entity's website)
132
What is the auditors responsibility when it comes to 'other information'?
GR: Auditors are not responsible for accuracy of other information; just have to read it for major inconsistencies.
133
What should the auditor do if they discover a material inconsistency btw the FS and the 'other information'?
the auditor should determine whether the audited FS or the other information needs to be revised.
A.) If the FS requires the revision, but management refuses, auditor should modify the opinion or withdraw.
B.) If the O.I requires the revision, but management refuses, the auditor should communicate the issue with BOD and:
- point out the material inconsistency in an other-matter or explanatory paragraph.
- withhold the use of the report
- withdraw and consult with legal counsel***
***only withdraw if its false, fraudulent, deceptive, or misleading
134
When it comes to ____ auditors are not responsible for issuing an opinion, however they are responsible for applying limited procedures.
supplementary information
135
GR: The auditor is not required to reference the other information in the auditor's report on the FS.
However, if the auditor does choose to reference the other information, he or she may do so but should ..
disclaim an opinion on the other information in an other-matter (explanatory) paragraph.
136
= info presented outside the basic FS that may be presented in a document containing the audited FS or separate from the FS.
supplemental information
137
True or False: An auditor may be engaged to report on supplemental information in relation to the financial statements taken as whole.
True
When reporting on supplemental information, there are additional audit procedures that must be performed (which generally use the same materiality level)
The auditor's report on supplemental information may be presented in an other-matter (explanatory) paragraph in the audit report, or in a separate report.
138
An entity may be required by a given standard setter to prepare specific information that is supplemental to the primary financial statements.
Does the auditor's opinion on the FS cover the required supplemental information?
No. The auditor's opinion on the financial statements does not cover the required supplemental information.
nonissuers: However, the audit report for nonissuers should include a separate section with the heading "Required Supplementary Information" to explain the circumstances and to disclaim an opinion on the supplemental information.
issuers: PCAOB standards generally do not require the auditor to add an explanatory paragraph to the audit report for issuers.
139
aka OCBOA "other comprehensive basis of accounting"
= represents a financial reporting framework other than GAAP, which may include one of the following bases of accounting:
- cash basis,
- tax basis,
- regulatory basis,
- contractual basis,
or any other basis of accounting that uses a definite set of logical and reasonable criteria that is applied to all material items appearing in the financial statements.
special purpose framework
140
Private (nonissuers) companies does not necessarily have to use ___. They can use a different framework.
Public (issuers) companies have to use general purpose frameworks (___ or ___).
GAAP
GAAP or IFRS
141
When auditing FS prepared using a special purpose framework, the auditor should obtain an understanding of:
- purpose for which the FS are prepared
- intended users
- steps taken by mngt to determine the framework chosen is acceptable
- obtain agreement from mngt acknowledging its responsibility
- any significant interpretations of the contract mngt made
142
Why cant companies that use special purpose frameworks use traditional FS titles (BS, SOCF, statement of income, etc)?
Because those are FS titles that are associated with GAAP (and SPF are not GAAP).
Instead they must use other titles such as 'Balance sheet - cash basis' or 'Statement of income - regulatory basis'
143
Do audit reports for companies that use a special purpose framework require an emphasis of matter paragraph alerting readers that the FS were prepared with a SPF?
Yes almost always
144
When auditing FS prepared using a financial reporting framework generally accepted in another country, the auditor should:
Obtain an understanding of:
- whether the financial reporting framework is a FAIR framework
- purpose for which the FS are prepared
- intended users
- steps taken by mngt to determine the framework chosen is acceptable
145
= accountant in public practice, other than the continuing accountant, who prepares a written report (or provides advice) on:
a. application of rules for a FR framework to a specific transaction.
b. the type of report that may be rendered on a specific entity's FS.
reporting accountant
146
A report may be prepared that addresses the appropriate application of the requirements (rules) of an applicable financial reporting framework to a specific transaction.
What should the reporting accountant include in such report?
- ID the entity, specific transactions, facts, circumstances, and assumptions, and source of info
- nature of the engagement
- state the engagement was performed in accordance with AICPA or PCAOB
- reasons for the reporting accountants conclusion
- state the preparers (mngt) of the FS are responsible for proper acct treatment
- any difference in the facts, circumstances, and assumptions could change the report
- restrict use of the report to specific parties*
- state whether reporting accountant is independent or not.
*mngt, BOD, prior auditors, current auditors, others
