A1 - Audit Reports Flashcards by Blessing Njoku

A1-M1: Professional Standards

List the Professional Standards for Audit Engagements

Statement on Auditing Standards (or GAAS) - Non Issuers
Public Company Accounting Oversight Board Auditing Standards (PCAOB AS) - Issuers
Generally Accepted Government Auditing Standards (GAGAS) - Govt. Entities

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A1, M1: Professional Standards

List the Professional Standards for Other Engagements

Statement of Standards for Attestation Engagements (SSAE) - Applied to an examination, review or agreed-upon procedural report
Statement of Standards for Accounting and Review Services (SSARS) - for unaudited financial statements

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A1, M1 - Professional Standards

List the guidelines for Professional Standards

Code of Professional Conduct - Applies to members of the AICPA
Statements on Quality Control Standards - Guidance to CPA firms about Quality Control

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A1, M1 - Professional Standards

Rank the order of which resources should be considered during an audit engagement

Guidelines set by PCAOB & SAS
Interperative Publications (Auditing interpretations of GAAS, Auditing guidance in AICPA guides)
Other Audit Publications (Auditing Articles in the journal of Accountancy, textbooks, etc)

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A1,M1 - Professional Standards

True or False: “Should” = presumptively mandatory

True

Must = Unconditional Requirement

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A1,M2 - Audit Engagements

List out the auditing process

Engagement Acceptance
Assess Risk and Plan Response
Perform Procedures and Obtain Evidence
Form Conclusions

General Principals are the overarching umbrella for process

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A1,M2 - Audit Engagements

What is the purpose of an audit?

“To provide financial statement users w/an opinion on whether financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework”

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A1,M2 - Audit Engagements

List out the Management Responsibilities on an Engagement

The preparation and fair presentation of financial statements
The design, implementation, and maintenance of internal controls
providing the auditor w/access to information and personnel to complete the audit

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A1,M2 - Audit Engagements

List out the Auditor’s Responsibilities on an Engagement

Maintaining Professional Skepticism
Compling w/relevant ethical requirements
Exercising Professional Judgement throughout planning and performance of audit
Obtaining sufficient and appropriate audit evidence to reduce audit risk
Compling w/GAAS

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A1,M2 - Audit Engagements

What are the ways auditors can provide reasonable assurance

Plan the work and properly supervise any assistance
Determine and apply appropriate materiality levels
Identify and assess risks of material misstatements
Obtaining sufficient appropriate audit evidence

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A1,M2 - Audit Engagements

What are the objectives of an audit of Internal Control over Financial Reporting?

Express an opinion on the companies internal control over financial reporting
plan and perform and audit to obtain sufficient appropriate evidence about whether or not material weakness exists

Required for Most Issuers; not required for non-issuers

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A1,M3 - Forming an Audit Opinion

For Unqualified/Unmodified Opinions, which term relates to who?

Unqualified - Issuers
Unmodified - Non Issuers

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A1,M3 - Forming an Audit Opinion

What counts as “pervasive”

Not confined to a specific element of the financials
If confined, represents a substantial portion of the financials
Disclosures are fundamental to user’s understanding of financials

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A1,M4 - Unmodified/Unqualified Opinion

What are the sections in an unmodified audit report?

Title
Addressee
Auditor’s Opinion
Basis for Opinion
Substantial Doubt about the entity’s ability to continue as a going concern
Key Audit Matters (when engaged)
Responsibilities of Management
Auditor’s Responsibilities
Other Information (when relevant)
Other Reporting Responsibilities
Signature
Auditor’s Address
Date*

*Date represents the last day of auditor’s responsibility for financial statements

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A1,M4 - Unmodified/Unqualified Opinion

What are the sections in an unqualified report?

Title
Address
Opinion
Basis for Opinion
Critical Audit Matters
Signature, Tenure, Location
Report Date

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A1,M4 - Unmodified/Unqualified Opinion

True or False: the Critical Audit Matters section is optional if there are no CAMs

False.
If there are no CAMs, you must state that there are no CAMs in that section.

A1,M4 - Unmodified/Unqualified Opinion

What are the components of each CAM?

Principal considerations to determine CAM
How was the CAM addressed in the audit?
Reference to relevant financial statements or disclosures

A1,M4 - Unmodified/Unqualified Opinion

If a company is required to follow 2 sets of standards…

Add extra standard to “basis of opinion” paragraph in report

A1,M4 - Unmodified/Unqualified Opinion

What form do auditors need to fill out if auditing an issuer?

Form AP

FIled by the 35th day after audit report is filed

A1,M5 - Modified Opinions due to financial statements

Describe the nature of financial material misstatements

Appropriateness of Accounting policies
Application of Accounting policies
Appropriateness of financial statement presentation

A1,M5 - Modified Opinions due to financial statements

Which sections are omitted in an audit report with an adverse/disclaimer of opinion?

Key Audit Matters (non-issuer) & Critical Audit Matters (issuer)

A1,M6 - Modified Opinions due to Audit Issues

In what instances should an auditor issue a qualified/disclaimer of opinion?

auditor is unable to obtain sufficient, appropriate audit evidence
when auditor is not independent
financials are unaudited

A1,M6 - Modified Opinions due to Audit Issues

What should an auditor do if they are unable to perform a specific auditing procedure

Ask/figure out a work-around

Being unable to perform a specific auditing procedure is not enough ground to issue a opinion/disclaimer of opinion

A1,M7 - Emphasis of Matter, Other Matter, & Explanatory Paragraph

When is an Emphasis of Matter Paragraph Used?

When referring to a matter appropriately presented or disclosed in the financials

Does not affect the audtor’s opinion

# A1,M7 - Emphasis of Matter, Other Matter, & Explanatory Paragraph When is a EOM *required* for a report?

- to justify change in acct. principal with material affects - subsequent facts that led to a change in audit opinion - Special Purpose Framework is used

# A1,M8 - Reporting w/Different Opinions and Other Auditors What are the procedures auditors go through when predecessor auditor wants to reissue a previous report?

- Obtain a letter of representaiton from management @ or near date of reissuance - obtain a letter of representation from the successor auditor - Date report

# A1,M8 - Reporting w/Different Opinions and Other Auditors True or False: When reissuing a revised report, a dual date is not required

False - dual date is required if predecessor revises report previous report If unrevised, the original report date is used

# A1,M8 - Reporting w/Different Opinions and Other Auditors True or False: When assuming responsibility, there should be no reference to the component auditor in the report

True Only reference component auditor when responsibility is *not* assumed

# A1,M8 - Reporting w/Different Opinions and Other Auditors True or False: (issuers) Lead Auditor may divide responsibility with referred to auditor

True

# A1,M9 - Subsequent Events What is a subsequent event?

An event that occurs after the balance sheet date but before the financial statements are issued

# A1,M9 - Subsequent Events What subsequent events are considered "recognized"

- Settlements on litigations that arose before B/S date - Loss on uncollectable receivable - effects of bankruptcy

# A1,M9 - Subsequent Events What are some non recognized subsequent events (minimum 3)

- Sale of bonds/stock - Business Combo - litigation (post b/s date) - natural disasters - change in fair value - significant commitments/contingent liabilities

# A1,M9 - Subsequent Events When do auditors have an active responsibility for subsequent events?

During the subsequent period (time frame between b/s date and report date)

# A1,M9 - Subsequent Events What auditing procedures should auditors perform during the subsequent period?

- Post balance sheet transactions review - Obtaining representation letter from management - Inquiry of legal counsel - Review of meeting minutes - Examination of interim financials

# A1,M9 - Subsequent Events True or False: Auditor has no active responsibility for subsequent events after the report date

True ***However***, if an auditor is made aware of any subsequent events before the release date, they should consider its impact to the financial statements.

# A1,M10 - Other Information and Supplementary Info What's included in "other information"?

- Reports by management - Financial summaries or highlights - Employment Data - planned capital expenditures - financial ratios - names of officers/directors - selected quarterly data

# A1,M10 - Other Information and Supplementary Info True or false: the auditor is generally not responsible for other information

True ***However***, they should read for any material inconsistencies, as this may undermine the credibility of the financials

# A1,M10 - Other Information and Supplementary Info If supplementary info is materially misstated and management refuses to change report, what are the options for the auditor?

1. Modify opinion on supplementary info 2. withhold supplementary info report (if separate from auditor's report)

# A1,M11 - Special Purpose Frameworks List the types of Special Purpose Frameworks

- Cash basis - Tax basis - Regulatory basis - Contractual basis - Other basis ## Footnote main difference from standard reporting: Non-GAAP Titles