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Audit 1: Audit Reports Flashcards

1
Q

Reasonable Assurance is..

A

High but not absolute level of assurance
NOT ABSOLUTE B/C:
-mgmt judgment
-fraud may be concealed

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2
Q

In order to obtain reasonable assurance an Auditor must…

A

1-Plan and supervise assistants

2-Determine and apply appropriate levels of materiality

3-Identify and Assess risk of material misstatement, whether fraud or error

4-Obtain sufficient appropriate evidence

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3
Q

Nature of Financial Reporting

A

Is subject to judgement

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4
Q

Public Company Accounting Oversight Board does what?

A

Part of SOX
Required in preperation and issuance of audit reports for issuers
Public Accounting firms must register with them in order to audit public companies

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5
Q

Statements on Standards for Attestation Engagements are

A

SSAEs

issued by AICPA

they are the standards set for Attestations

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6
Q

Generally Accepted Auditing Standards are issued by who

A

AICPA

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7
Q

Statements on Standards for Accounting Review Services are issued by…

A

SSARS

AICPA

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8
Q

*The GAAS Hierarchy of Auditing Guidance

A

1-AICPA Statements on Auditing Standards (SAS)

and
PCAOB Auditing Standards

2-Interpretative Publications (listed on another card)

3- Other Auditing Publications

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9
Q

Interpretative Publications include…

A

Auditing Interps of GAAS

Exhibits to GAAS

Audit Guidance in AICPA Audit and Acct Guides

AICPA Audit Statements of Position (SOP)

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10
Q

Other Audit Publications Include

A

Journal of Accountancy

Other Professional Guides

AICPA CPA Letter

textbooks etc

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11
Q

*Overall Objectives of Audit

A

1-Obtain Reasonable Assurance

2-Report on financial statements

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12
Q

Conditions that Indicate Potential Fraud

A

Pressure
Opportunity
Rationalization

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13
Q

When does an auditor not need to be independent

A

1-When GAAS provides otherwise
or
2-Required by law or regulation to perform audit

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14
Q

Professional Judgement is needed to determine

A 
Materiality
Audit Risk
Nature, Extent and Timing of Audit Procedures
When Enough Sufficient Evidence Obtained
Evaluating Mgmt in applying frameworks
Drawing a Conclusion
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15
Q

Does GAAS override laws or regulations that govern financial statements?

A

No

Can conduct audit with both GAAS and other standards

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16
Q

Unmodified Audit Opinion is

A

The cleanest opinion given

FS are presented fairly in all material respect in accordance with GAAP (or applicable fin rep. framework)

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17
Q

*Layout of Unmodified Opinion

A

Title
Addressee

Intro Paragraph
Mgmt Responsibility Para.
Auditor's Responsibility Para.
Auditor's Opinion
Other Reporting Responsibilities

Signature of Auditor
Address of Auditor
Date

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18
Q

*Intro Paragraphs need

A

Identify Entity

State Fin Stmts have been Audited

Identify Title of Each Fin Stmt

State Dates or Period covered by each Fin Stmt

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19
Q

*Manager Paragraph needs

A

Mgmt is responsible for prep and fair presentation of fin stmts

and

responsible for Design Implemmentation maintnance of Internal Controls

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20
Q

*1st Part of Auditors Paragraph aka?

Needs what?

A

Scope Paragraph

Responsibility to Express Opinion

Conducted with audit standards generally accepted in America

And that requires auditor to obtain reasonable assurance that fin stmts are free from material misstatement

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21
Q

*2nd Auditors Paragraph needs

A

Audit involves performing procedures to obtain audit evidence

Procedures depend on auditors judgement

Considers how the entity’s Internal Controls affect the prep of fin stmts

Evaluates acct polices and estimates Mgmt uses

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22
Q

Auditor’s Unmodified Opinion States

A

Fin Stmts Present Fairly

with dates and times for Fin Stmts

in accordance with “reporting framework” (ie GAAP)

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23
Q

Date of Auditor’s Report should be

A

No Earlier than the date on which Sufficient Appropriate Audit Evidence Obtained

Date shows Final Responsibility of Auditor

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24
Q

Audit of Issuers Requires what to be named

A

That GAAS and additionally PCAOB standards were used

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25
GAAS in what paragraph? GAAP in what paragraph?
GAAS= Auditors Responsibility Scope Paragraph "Auditor responsibility is to conduct the audit according to GAAS" GAAP=Opinion Paragraph "Auditor should express his opinion based on if entity has compiled w/GAAP or NOT
26
Applicable frameworks could include
GAAP or IFRS
27
ISAs are
International Standards of Auditing
28
Requirements refered to in ISA not in GAAS audit reports
"true and fair view" of fin stmts Significant accounting polices Ethical requierments
29
Requirements referred to in GAAS not in ISAs Reports A1-17
Audit documentation has been reviewed No separate mgmt stmt
30
What should Group Auditor do if serious concerns about component auditor work?
Should not use work
31
GAAS for non-issuers are issued by
AICPA's Auditing Standards Board ASB
32
What needs to happen in order to make reference to component auditors work?
1- Performed by GAAS Standards or PCAOB when needed 2-their report is not restricted use
33
If component audit says anything less than unmodified what to do?
Need to determine the effect on all of the audit
34
When group assumes responsibility do you mention the component? Why or Why not?
No, Because mentioning component when you take responsibility makes it seem like you are not taking that much responsibility
35
What should be done for component that is likely to be significant? Insignificant?
Significant needs to be audited Insignificant- Analytical Procedures need to be performed
36
Types of Opinions
Unmodified GAAP 1-Qualified Except for 2-Adverse GAAS 1-Qualified Except for 2-Disclaimer Withdraw
37
When to issue Adverse opinion
When Very Material GAAP Issue
38
When to issue Disclaimer Opinion
When Very Material GAAS issues Insufficient Evidence Going Concern Problem Lack of Independence
39
Emphasis of Matter Paragraphs are used when...
When matter appropriately disclosed but matter is fundamental to understand fin stmts Does not affect auditor's opinion
40
Emphasis of Matter paragraph goes where..
Right after Opinion paragraph Need title
41
When must Emphasis of Matter paras be used...
Going Concern Show justified change in accounting principle Change of audit opinion When Prepared with Special Purpose Framework
42
Emphasis may be used when...
Uncertainty about litigation Major catastrophe Related party transactions Unusal important subsequent events
43
Other Matter Paragraph used when...
Refer to matters not presented or disclosed
44
Where does Other Matter Paragraph go..
After Opinion and Emphasis paras
45
When to use Other Matter
Restricted use of audit report Change in Opinion Predecessor Auditor stmts used but report not issued When issued with unaudited prior period stmts
46
Procedures auditor uses for Going Concern
``` Analytical Debt Compliance Board Minutes Inquire of Legal Counsel Third Party Confirmation of $ Support Subsequent Events ```
47
Conditions and Events that could show substantial doubt of Going Concern
Financial Difficulties Internal matters Negative Trends External Matters
48
Mitigating factors when there is substantial doubt of Going Concern
Plans to Borrow $ or redo debt Sell Assets Delay Expenses Increase through equity
49
When Going Concern Doubt what kind of paragraph and what does it need to say
Emphasis of Matter Needs "substantial doubt" to continue as "going concern"
50
ISA requires what for Going Concern issue
Mgmt's plan for going forward
51
Paragraph that restricts use of report is what sort of paragraph?
Other Matters Paragraph
52
Difference between Qualified and Adverse Opinion is...
Adverse is PERVASIVE Qualified are material
53
What and where do changes need to be made for modified opinion?
Change Audit Responsibility Para to say modified Add Basis for Modification Para before Opinion Change language in Opinion
54
What words need to be in Qualified Opinion Para Adverse Opinion Para
Qualified= "Except for" presented "fairly" Adverse= "because of" "not presented fairly"
55
Difference in Qualified and Disclaimer Opinion
Qualified Unable to obtain sufficient audit evidence on which to base opinion an COULD be material misstatements but not PERVASIVE Disclaimer= COULD be PERVASIVE material misstatements
56
Scope Limitations Occur because
Circumstances- wernt there at beg of year for inventory Mgmt limits you
57
ISA versus GAAP difference on insufficient audit evidence?
ISA requires you to withdraw GAAP wants you to consider it
58
What to do when you issue Modified report on GAAS limitation?
Need to modify intro to say "ENGAGED" to audit financial stmts Audit Responsibility Para changes to having enough info for qualified opinion Or Disclaimer "Because of" "Not able to obtain sufficient appropriate evidence" (more)
59
What do you need to add for Modified GAAS Opinion after Auditor's Responsibility Paragraph?
Basis for Modification Para
60
What words do a Qualified Opinion need? Disclaimer?
Qualified ="Except For" "Presented Fairly" Disclaimer ="because of" "does not express an opinion"
61
What needs to be done if Prior Period Opinion Changed?
Other Matter Paragraph ``` Date of previous report Opinion previously issued Reason for Prior Opinion Changes Say "Opinion..is different" ``` DORCS
62
If Prior Period stmts released what does Prior Auditor need to do?
Read current fin stmts Compare old and new stmts Get Representation letter from new auditor Get Rep letter from mgmt Date it
63
How to Date re-release of Prior Audit
If Unrevised use original date If Revised Dual Date
64
If Prior Period Audit not reissued what does Current Auditor need to do?
Report on current fin stmts only and use Other Matter paragraph 1-Prior audit done by different guy 2-Type of opinion and why 3-Nature of Emphasis and Other Matter Paras 4-Date
65
When Subsequent Events occur what needs to happen
Event on or Before Date= Adjust Financials Event after Balance Sheet Date= maybe footnote
66
What items should auditor review during subsequent period?
``` Post B/S transactions, see about proper cutoff Rep letter from Mgmt about sub events Inquire about Mgmt if any changes Minutes of Board Meeting to be read Examine Interim Fin Stmts ```
67
If auditor determines that subsequent event requires a change to Fin Stmts, and Mgmt doesnt do it. What opinion should be given?
Qualified or Adverse
68
How to date report with subsequent date?
Use dual dating Main Report Date and Except for Date of Subsequent Event
69
What to do if after audit report issued material items discovered?
Advise client to release revised Fin Stmts or Disclosures or If results cannot be determined DO NOT RELY on Report Talk to SEC etc
70
If client refuses to make changes to newly discovered material misstatements What does auditor do?
Disassociate from your report Alert Agencies, SEC etc Alert Third Parties
71
What to do if you discovered omitted procedures after audit?
Determine whether other procedures were adequate If more procedures needed than complete them If discover material misstatement use Subsequent procedures to make changes
72
What should auditor do if Mgmt refuses to correct a material misstatement of fact?
Tell those in charge of Goverance
73
How can an auditor report on supplementary information?
Either Other Matter Paragraph or Separate Report
74
When entity's ability to continue to be a going concern is inadequately disclosed what kind of opinion is it?
Inadequate Disclosure is a GAAP issue So Qualified or Adverse Opinion is Issued
75
Issue what kind of opinion for a change in accounting principle?
Trick Question Need Emphasis of Matter Paragraph
76
If Auditor lacks independence what kind of opinion to issue?
Disclaim, cannot audit fin stmts that you are not independent of
77
When you have significant transactions with related parties what kind of Opinion to issue?
Can do Unmodified but need an Emphasis of Matter Paragraph
78
An unjustified Accounting Change would get what Opinion?
Qualified or Adverse
79
If company's Going Concern issue for prior year has gone away what needs to happen?
The Emphasis of Matter paragraph needs to go away
80
Who is Audit Report Addressed to...
Whoever Engaged the Audit
81
When CPA is associated with fin stmts but has not reviewed them, what sort of opinion is needed?
Disclaimer
82
When auditor cant get sufficient evidence of beginning inventory what opinion to issue? B/S and Income Stmt
B/S=Unmodified (ending date is B/S Date) Income Stmt= Disclaim (cant get COGS)
83
An Omission of Cash Flows would get what sort of Opinion?
Qualified
84
If Substantial Doubt of Going Concern what would be issued?
An Emphasis of Matter Paragraph
85
When there is a change in accounting principle that materially affects comparability of fin stmts What to do?
Issue with Emphasis of Matter Paragraph
86
What are the two options to Issue for Going Concern problem? A1-27
Unmodified with Emphasis of Matter or Disclaimer
87
Failure to disclose is what sort of problem? What sort of Opinions
GAAP Qualified or Adverse
88
Going Concern Period for GAAS ISA
GAAS=cannot exceed 1 year ISA=at least 1 year
89
Basis of Modification Paragraphs Go where
Before Opinion Paragraph
90
When to change a previously issued opinion on comparative Fin Stmts?
When they are restated to follow GAAP
91
When should successor auditor mention by name the prior auditor?
Only when the prior auditor merged or acquired by successor
92
What to do with prior year restatement that has brought it back into compliance with GAAP?
Issue Unmodified report
93
What should Auditor do FIRST if he finds out something would have affected report occurred before Year-End?
Deterimine if anyone would find that information important then Have Mgmt reissue Fin Stmts
94
What best describes GAAS?
Measures of the quality of the auditors performance
95
What should auditor do FIRST if he finds out that some items were not audited that should have?
Assess the importance of the procedure | This is different than information didnt know
96
When there is a significant change in accounting policy what to put in report?
Refer to lack of consistency in Emphasis of Matter Paragraph
97
If accounting change has no material effect this year but will in later years what to put in opinion?
Disclose in fin stmts but dont refer to in report
98
How does Intro paragraph change for disclaimer opinion?
Goes from Phrase "We have audited" to "We were engaged to audit"
99
How does Auditor's Responsibility paragraph change for disclaimer opinion?
Omits sentence that takes responsibility
100
How does Auditor's Responsibility paragraph change for a qualified opinion?
A phrase is used immediately to point to the opinion paragraph to let user know of qualified opinion
101
Does an introductory paragraph need to be modified for unmodified opinion with another CPA that you are going to share responsibility with?
No
102
If a legal uncertainty is properly disclosed what sort of opinion and what needs to change on report.
Unmodified and nothing needs to change

Auditing (9 decks)

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