Audit Reports Flashcards
1
Q
What should be included for the Auditor’s address?
A
The City and State where located
2
Q
What is Management Responsible for in regards to the Financial Statements?
A
Preparation and Fair Presentation of Financial Statements in accordance with the Applicable Financial Reporting Framework
3
Q
What is Management Responsible for in regards to Internal Control?
A
Internal Control Design, Implementation, Maintenance
4
Q
What are the headings in the Audit Report for an Unmodified Opinion?
A
(TIM-AA) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion
5
Q
What are the headings in the Audit Report for an Modified Opinion?
A
(TIMA-BA) Title; Introduction; Management Responsibility; Auditor Responsibility; Basis for (Modified) Opinion; Audit Opinion
6
Q
In an Unmodified Opinion with Emphasis-of-Matter / Other-Matter sections, what is the order of the headings?
A
(TIM-AA EMO) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion; Emphasis-of-Matter; Other-Matter
7
Q
What are the requirements for referencing a Component Auditor in the Audit Report?
A
Component Financial Statements must be prepared using same Financial Reporting Framework as the Group Financial Statements; Component Auditor must have performed audit in accordance with GAAS or PCAOB Standards.
8
Q
What must the Group Engagement Partner do if they assume responsibility for the Component Auditor’s work?
A
Perform additional audit procedures; Be involved in Component Auditors work; Perform Risk Assessment procedures; Assess Risk of Material Misstatement
9
Q
What standards govern SSARS engagements?
A
Compilations are governed by SSARS (Statements on Standards for Accounting and Review Services)
10
Q
Which clients can have compilation engagements?
A
Non-SEC (non-public) registrants only.
11
Q
What is a Compilation?
A
Accountant puts together financial statements with information PROVIDED BY MANAGEMENT. But not CLIENT PREPARED financial statements. No opinion is expressed and no assurances are given. Independence is not required.
Historial results not used
12
Q
What disclosures are required for Compilation engagements?
A
Disclosures not necessary must state that they are not included
13
Q
What standards govern Review engagements?
A
SSARS (Statements on Standards for Accounting and Review Services)
14
Q
What type of assurance is given in a Review engagement?
A
Reviews give limited assurance.
15
Q
What procedures are required for Review engagements?
A
Analytical procedures are required for reviews. Compare results to documented predictions.
16
Q
What is a Review engagement?
A
Financial statements are presented with no opinion expressed- and limited assurances are given. Independence is required for a review engagement. But not CLIENT PREPARED financial statements
Historical results not used
17
Q
What is a Forecast?
A
A prospective financial statement that uses normal circumstances. General and limited use allowed.
18
Q
What is a Projection?
A
A prospective financial statement using hypothetical situations. Only limited use by the client is allowed.
19
Q
What are the requirements for Agreed Upon Procedures?
A
Independence is required; Only limited use by the client is allowed.
20
Q
What disclosures are required for remote likelihood of losses? Pg. 5-27
A
No disclosure required. Only unmodified opinion
21
Q
What disclosure is required for a probable loss contingency? Pg. 5-27
A
Accrue if estimable. Emphasis-of-Matter paragraph if not estimable.
22
Q
What disclosure is made if a loss contingency is reasonably possible? Pg. 5-27
A
Auditor assesses need for Emphasis-of-Matter paragraph based on loss likelihood.
23
Q
How is a gain contingency reported? Pg. 5-27
A
Gain contingencies are not reported.
24
Q
How does an immaterial GAAP issue affect the audit opinion?
A
It doesn’t. Opinion is Unmodified.
25
How does a very material GAAP issue affect the Audit Report?
Modified-Adverse Opinion is issued. Emphasis-of-Matter paragraph is added after Opinion paragraph.
26
How do GAS standards compare to GAAS?
GAS is more strict than GAAS.
27
What is required under the Single Audit Act?
An audit performed under governmental auditing standards (GAS). A report on internal control is required. GAAS and GAS don't require the I/C report.
28
What is appropriate procedure with agreed-upon procedures?
* Compare procedures to written requirements
* Discuss procedures to be applied to specific users
* Review relevant contracts or communication from specified users to report on mgmt assertions
29
What is included in a PCAOB audit for the intro paragraph?
Intro and mgmt responsibility
30
What is included in a PCAOB audit in the scope paragraph?
Auditor's responsibility
Contains scope limit if any
31
Options for audit report for unmodified, modified, and emphasis of a matter
Disagreement: non financial (not GAAP), inconsistency, inadequate disclosures
Scope limit: can't get sufficient, appropriate audit evidence; auditor is unable to reach a conclusion
Uncertainty: contingency liability, going concern doubt, audit current year & review prior year
32
Name the 6 types of opinions
Explanatory paragraphs: Unmodified, unmodified with emphasis of a matter and other matter
Basis for paragraphs: modified except for, adverse, and disclaimer
33
Significance last day of field work?
When you get sufficient, appropriate audit evidence
34
Who governs GAAP?
FASB (financial accounting standards board)
35
What is SysTrust?
Developed by AICPA to provide evidence on the reliability of electronic systems
Desired principles of a computer system
36
Prospective Statements Pg. 9-5
Forecast VS Projection
What to "think about"
What mgmt expects to occur; general or limited use
Hypothetical assumptions; limited use
These financial statements speculate as to what might occur in the future
37
Where are reviews not allowed?
Prospective statements
38
What is included in the intro paragraph of the successor auditor's report?
* The financial statement of prior period were examined by other auditor's
* The date of the other's auditing report
* The type of opinion expressed
* Reasons if not unmodified
39
What is considered a departure from GAAP which results in a qualified / adverse opinion that is regarding material misstatements?
Material misstatement not corrected
40
GAAP VS GAAS
Within the framework which the fairness of financial statement presentation is measured
Relate to conduct of audit
41
What is significance of compilations and reviews?
Non-public
Limited use paragraph: not intended for those who are not informed about such matters
42
Difference between PCAOB VS GAAP
Public company is audited with these standards
Financial statements follow this
43
Supplemental Information requirements
Information was voluntarily included by the client which is required by FASB or GASB
NOT AUDITED but reported as emphasis of matter if INCONSISTANT; only report deficiencies or omission of such information
44
What will be a general use SysTrust?
SOC 3: Service Organization Control Reports
45
Subtantial Going Concern Doubt VS Extreme Going Concern Doubt
Emphasis of a matter or Disclaimer
Disclaimer
46
What is a group audit?
Mention group auditors?
Involves proper reporting when more than one firm of CPAs are involved on an audit
Yes, mention component auditor so they would also assume responsiblity
47
Name 3 predecessor's responsibilities with respect to comparative financial statements?
Read the financial statements of the current period
Compare the prior period financial statements with the subsequent financial statement to compare
Obtain letter of representations from the successor auditor
48
When there is a substantial going concern doubt, what must you consider?
What if not the case?
Consider the adequatcy of disclosure first
*If not adequately disclosed, then it is an adverse opinion since it is a departure from GAAP
49
For trust services principle, what criteria would an auditor consider?
Criteria of policies, communications, procedures, and monitoring
50
What is a scope limit?
Not able to get sufficient, appropriate audit evidence
51
Financial statements on a cash basis should not use what type of titles?
GAAP based such as balance sheet, income statement, statement of operationgs, and statement of cash flows
52
Purpose of letters for underwriters
Underwriters, who prepare a prospectus, will ask the auditor for a letter that provides various levels of assurance on the info they provide to the SEC; they give negative assurance on capsule information (not audited)
Negative assurance with the comformity with GAAP
53
What kind of opinion when there is no statement of cash flows
Qualified basis for paragraph
54
What are the five Trust Service principles??
```
Security
Availability
Processing Integrity
Online Privacy
Confidentiality
```
55
If there is a compilation which has a departure from GAAP and also inadequate, what should the auditor do?
Withdraw from engagement
56
When do you modify a compilation or review? Pg. 8-2
```
Non GAAP
Inadequate disclosures
OCBOA
Emphasis of a matter
Comparative reports
```
57
In a compilation, must you be independent?
No, but must mention it
58
What must an auditor first do when performing a review?
Understand and have knowledge of the client's principles and practices and the method of applying them
59
Name the 3 party relationship for a review
Mgmt (responsible party)
Intended users
Accountant
60
If CPA requested to change the engagement to a review from an audit, the auditor should and should not
Should consider: Reason for change; additional cost to complete audit
Should not: Refer to the change; describe the auditing procedures applied
61
Optional Emphasis of a Matter
* Significant related party transactions
* Material uncertainties
* Important subsequent events
* Lack of consistency in the application of acctg prin
62
Mandatory Emphasis of a Matter
* Auditor's opinion different from opinion previously expressed
* Substantial going concern doubt
* Justified change in accounting principles
* Auditor "CONCURS"
* OCBOA
* F/S intended for general use
63
Why are group auditors mention the work of a component auditor?
The primary auditor is taking responsibility for the work of the other CPA; therefore the group auditor must be satisfied as to the independence and professional reputation of the other CPA
64
Governmental Audit: GAAS Audit Pg. 9-13
* Opinion on the Financial Statements
* NO compliance report issued
* NO Internal Control Report (unless significant deficiencies are ID)
65
Governmental Audit: GAS (w/ GAGAS) Audit Pg. 9-13
* Opinion on Financial Statements
* Report on Internal Control
* Report on Compliance with Laws and Regulations (mention GAS & GAGAS)
* Positive assurance on things we tested
* Negative assurance on things we didn't test
66
Governmental Audit: SSA Audit Pg. 9-13
* Opinion on Financial Statements
* Report on Internal Control
* Report on Compliance with Laws and Regulations (mention GAS & GAGAS)
* Positive assurance on things we tested
* Negative assurance on things we didn't test
* Report on scope of audit testing (major & non-major programs)
* Report on expenditure of federal awards
67
What kind of written communication is mandatory for a review?
Only mgmt rep letter
Engagement letter is optional
68
What is segment information VS supplementary information Pg. 9-2
*If adequately disclosed and conforms with GAAP
Segment greater than or equal to 10% then required to be disclosed; it encompasses a company's operations; if ommitted then qualified or adverse because departure from GAAP
Since affects BASIC FINANCIAL STATEMENTS then give opinion
***Supplementary Information has no opinion because doesnt affect basic financial statements, but give explanatory paragraph if not consistent
*Do not make reference in audit report
69
What are pro forma financial statements
"As if" hypothetical statements that are derived from historical financial statements
"What might have been"
70
Purpose of 10Q review
Like a review, but PCAOB not SSARS because public company
Dont wait to check if its GAAP till the end but checks quarterly
"I think its GAAP"
71
Assertion embodied in MD&A
Occurrence
Consistency with financial statements
Completeness
Presentation and disclosure
72
What does a disagreement in consistency mean?
Change in accouting principle / method
Does NOT include change in estimate
73
If comparative F/S include prior statements that were audited in prior years, mention a predecessor's report unmodified?
Yes, indicate that they expressed an unmodified opinion
74
What are condensed financial statements are fairly stated according to?
In relatation to the complete financial statements
NOT GAAP
75
What happens when group auditor decides not to refer to the work of the component audit?
It means that the group auditor is taking responsibility for the work of that component auditor
76
What opinion relates to the phrase that the financial statements are not fairly presented
What opinion indicates that the financial statements are fairly presented except for?
Adverse opinion
Qualified opinion
77
PCAOB audit disagreements are considered GAAP or GAAS?
What about scope limit for PCAOB?
GAAP, therefore only modify opinion, and "basis for" / "except for" paragraph
Modify opinion, and "basis for" / "except for" paragraph, and scope paragraph
78
What are subsequent events?
Transactions that occur after the end of the period. The auditor determines if they require adjustment of the financial statements being issued
79
What is important to the auditor in assessing the ability to continue as going concern?
Generate cash flow
80
What does consistency refer to?
Refers to the consistent application of generally accepted accounting principles in the current period in relation to the preceding period
It does not refer to the use of the same difference principles within same entity
81
If auditor cant make an opinion about opening inventory, what can/cannot have an opinion on?
Balance sheet because can from an opinion about ending inventory
NOT income statement because beginning inventory part of cost of sales
82
How does an auditor handle consistency, and what options of opinions do they have?
For adverse or disclaimer: if not properly accounted for or discclosed
Emphasize the matter: If it is properly disclosed
83
What is an example of a scope limitation that precludes an unmodified opinion and alternative procedures cant fix it?
Mgmt refuses to have fair presentation of financial statments to conform with GAAP
84
What does it mean if group auditor mentions component auditor?
They are not willing to accept responsibility for the work performed by the component auditor
85
Auditor's responsibility paragraph VS Opinion paragraph regarding expression of opinion
Mentions that auditor has the responsibility to express an opinion
Where the opinion is expressed
86
Define intro, auditor's responsibility, and opinion paragraphs
Identifies the financial statements that were audite and indicates that they were audited
The auditor is required to comply with GAAS and indicates what that entails
Give the auditor's reasonable assurance relative to the financial statements
87
Audit Report VS Engagement Letter
Think intro, management responsibilities, auditor responsibility, opinion {also include adverse, disclaimer, qualified, and emphasis of matter}
Scope and nature of engagement
88
When mgmt refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP, it results in what type of deficiency?
Scope limit
89
Name another attestation engagement that isnt a part of ERAS?
A compilation of prospective financial statements
90
If auditor accepts an audit of financial statements in conformity with a comprehensive basis of accounting other than GAAP, how do you report?
Include in footnote of financial statement
91
When do you provide a special purpose report?
When prescribed by a regulatory agency
92
Which is required in a review; an engagement letter or a mgmt representation letter? Pg. 8-2
Both, but an engagement letter is optional
93
Describe a comfort letter
The accountant provides negative assurance on condensed financial statements with GAAP
94
Emphasis of matter: How do you report
UNMODIFIED. Only add paragraph after the opinion paragraph; don't modify ANY paragraphs
95
Omitting cash flows: How do you report?
Qualified opinion, while modifying intro paragraph and opinion paragraph
96
What is the report structure of a compilation?
* Intro: Date, financial statements, we DONT express an opinion
* Mgmt responsibility: Prep and fair presentation of the financial statements according to GAAP; responsibility of DIM of IC
* Aud responsibility: SSARS by the AICPA
*Add emphasis of matter / or "basis for" paragraphs
97
What is the report structure of a review
* Intro: Date, financial statements, mention INQUIRY and ANALYTICAL PROCEDURES, we DONT express an opinion; less scope than audit
* Mgmt responsibility: Prep and fair presentation of the financial statements according to GAAP; responsibility of DIM of IC
* Aud responsibility: SSARS by the AICPA
* Limited Assurance Paragraph: we are not aware of material misstatement mention GAAP
*Add emphasis of matter / or "basis for" paragraphs
98
Where to mention disclaimer in audit VS review
Auditor's responsibility paragraph
| Intro paragraph
99
Group Financial Audit report structure
Intro: mention CONSOLIDATED financial statements; date
Mgmt Responsibility: Prep and fair presentation of the financial statements according to GAAP; responsibility of DIM of IC
Aud Responsibility: GAAS; mention audited by other AUDITORS
Opinion: mention AUDITORS
100
Name 3 types of engagements that an accountant may undertake in connection with prospective financial statements
Which engagementis not allowed
What else should be mentioned
Examination, Compilation, and agreed-upon procedures
Review
Results may NOT be achieved; and NO responsibility to update
101
SIM: Name the Professional Standard
a) For an examination of a client's financial forcast
b) For the performance of an interim review of the quarterly financial statements of a nonpublic audit client
c) For reporting on client pro forma financial information
a) Attestation engagement
b) Auditing Standards
c) Attestation engagement
102
What are the reporting options for a going concern doubt?
First consider if adequately disclosed
Unmodified with emphasis of a matter
Disclaimer if "extreme"
Qualified or Adverse if not adequately disclosed
*Never a qualified opinion
103
Who is the party responsible for assumptions identified in the preparation of prospective financial statements?
The client's mgmt
104
Report Structure of PCAOB audit
Intro: Date, name financial statements, responsibility of mgmt and responsibility of auditor
Scope: PCAOB standards, what is an audit?
Opinion: Mention GAAP
After: Mention also opinion on IC because its public
105
Report Structure of Non-Public
Intro: Date, name financial statements
Mgmt res: DIM of IC, fair presentation of financial statements
Auditor's res: GAAS, no opinion IC, describe audit
Opinion: GAAP
106
Where is "basis for" and "except for" mentioned?
Modified opinion
"Basis for" is mentioned before the opinion
"Except for" is mentioned in the opinion paragraph
107
Related party transactions: how to report
a) When there is an exchange of real estate for similar property in a non-monetary related party transaction
b) When the related party transaction occured on terms equivalent to those that would have prevailed in an arm's length transaction
a) Emphasis of a matter
| b) Modify unmodified opinion
108
Where should inherent limitation be mentioned?
Only in internal control reports
109
what is a piecemeal opinion?
The auditor issues an adverse opinion or disclaimer of opinion on the financial statements taken as a whole, but provides assurance as to some aspect of the financial statements
*Not allowed
110
What is a limited reporting engagement?
The auditor reports on one basic financial statement and not on the others; NOTconsidered a SCOPE LIMIT; the engagment may be accepted as long as there is sufficient competent evidential matter available concerning the financial statement being examined
Is accepted as long as there is sufficient competent evid
111
PCAOB audit terms VS AICPA / ASB audit terms
| 3 terms
Unqualified VS Unmodified
Explanatory VS Emphasis of a Matter / Other matter
Intro, scope, opinion VS Intro, Mgmt, Aud, Opinion
