Audit Reports

Question 1

What should be included for the Auditor’s address?

Answer 1

The City and State where located

Question 2

What is Management Responsible for in regards to the Financial Statements?

Answer 2

Preparation and Fair Presentation of Financial Statements in accordance with the Applicable Financial Reporting Framework that are free from material misstatement whether due to fraud or error.

Question 3

What is Management Responsible for in regard to Internal Control?

Answer 3

Internal Control Design, Implementation, Maintenance

Question 4

What are the headings in the Audit Report for an Unmodified Opinion?

Answer 4

(TIM-AA) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion

Question 5

What are the headings in the Audit Report for an Modified Opinion?

Answer 5

(TIMA-BA) Title; Introduction; Management Responsibility; Auditor Responsibility; Basis for (Modified) Opinion; Audit Opinion

Question 6

In an Unmodified Opinion with Emphasis-of-Matter / Other-Matter sections, what is the order of the headings?

Answer 6

(TIM-AA EMO) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion; Emphasis-of-Matter; Other-Matter

Question 7

What are the requirements for referencing a Component Auditor in the Audit Report?

Answer 7

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.

Question 8

What must the Group Engagement Partner do if they assume responsibility for the Component Auditor’s work?

Answer 8

Perform additional audit procedures; Be involved in Component Auditors work; Perform Risk Assessment procedures; Assess Risk of Material Misstatement

Question 9

What type of engagement is governed by SSARS?

Answer 9

Compilations are governed by SSARS (Statements on Standards for Accounting and Review Services). Compilation of personal financial statements - SAARS NOT required unless client is trying to obtain credit.

Question 10

Which clients can have compilation engagements?

Answer 10

Non-SEC (non-public) registrants only.

Question 11

What is a Compilation?

Answer 11

Accountant puts together financial statements with information PROVIDED BY MANAGEMENT. No opinion is expressed and no assurances are given. Independence is not required.

Question 12

What disclosures are required for Compilation engagements?

Answer 12

Disclosures not necessary must state that they are not included. Auditor must indicate they are not independent in relation to the compilation and as such, express no opinion whatsoever on the financial statements.

Question 13

What standards govern Review engagements?

Answer 13

SSARS (Statements on Standards for Accounting and Review Services)

Question 14

What type of assurance is given in a Review engagement?

Answer 14

Reviews give limited assurance.

Question 15

What procedures are required for Review engagements?

Answer 15

Analytical procedures are required for reviews. Compare results to documented predictions.

Question 16

What is a Review engagement?

Answer 16

Financial statements are presented with no opinion expressed- and limited assurances are given. Independence is required for a review engagement.

Question 17

What is a Forecast?

Answer 17

A prospective financial statement that uses normal circumstances. General and limited use allowed.

Question 18

What is a Projection?

Answer 18

A prospective financial statement using hypothetical situations. Only limited use by the client is allowed.

Question 19

What are the requirements for Agreed Upon Procedures?

Answer 19

Independence is required; Only limited use by the client is allowed.

Question 20

What disclosures are required for remote likelihood of losses?

Answer 20

No disclosure required.

Question 21

What disclosure is required for a probable loss contingency?

Answer 21

Accrue if estimable. Emphasis-of-Matter paragraph if not estimable.

Question 22

What disclosure is made if a loss contingency is reasonably possible?

Answer 22

Auditor assesses need for Emphasis-of-Matter paragraph based on loss likelihood.

Question 23

How is a gain contingency reported?

Answer 23

Gain contingencies are not reported.

Question 24

How does an immaterial GAAP issue affect the audit opinion?

Answer 24

It doesn’t. Opinion is Unmodified.

Question 25

How does a very material GAAP issue affect the Audit Report?

Answer 25

Modified-Adverse Opinion is issued. Emphasis-of-Matter paragraph is added after Opinion paragraph.

Question 26

What is required under the Single Audit Act?

Answer 26

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.

Question 27

Describe the requirements of the 5 members of the PCAOB.

Answer 27

2 must be (or have been) a CPA (CPA can only chair board if he/she has not been a CPA in the past 5 years); 3 must not be (or not have been) a CPA. No benefits from a public accounting company allowed other than structured retirement benefits.

Question 28

What Section of the AICPA standards are SSAE standards included?

Answer 28

Section AT.

Question 29

Describe the 10 GAAS Standards.

Answer 29

1. Professional Skepticism 2. Training and technical competency 3. Independence in mind, fact and appearance 4. Due professional care - proper planning & performance 5. Professional judgement: NET - Nature, Extent and Timing of Audit procedures 6. Planning and supervision during fieldwork 7. Internal control, entity and environment evaluated & evidence obtained 8. GAAP compliant, consistency, adequate disclosure, able to express an opinion? 10. Compliance with GAAS standards

Question 30

MR DIM REPPORTS CRAME (Becker components of TIM-AA)

Answer 30

M-anagements, R-esponsibility, D-esign, I-mplementation, M-aintenance (of internal control relevant to financial reporting), R-esponsibility of Auditor, E-xpress an opinion, P-lan the audit, P-erform procedures, O-btain appropriate audit evidence, assess R-isk of material misstatement, T-est internal controls (express no opinion) relevant to the financial S-tatements, C-ircumstances, R-easonableness, A-ccounting estimates made by, M-anagement, E-valuate overall presentation of F/S.

Question 31

Becker methods for evaluating going concern (ADMITS) acronym.

Answer 31

A - analytical procedures; D - debt compliance, M- minutes (board, shareholders), I - inquiry (ask around), T - third party financial agreements (confirm), S - subsequent events review.

Question 32

Steps when client refuses to make adjustments for material subsequent events.

Answer 32

First consult management, then DAR them: D - disassociate w/ financials, A - alert agencies that financials should not be relied upon, R - relying parties (inform them)

Question 33

When are the client's financial statements not required to be fully GAAP compliant?

Answer 33

When prepared in accordance with a special purpose framework (Cash, Tax or Regulatory Basis). OCBOA's - other comprehensive bases of accounting.

Question 34

Structure of auditors report on clients OCBOA financial statements.

Answer 34

1- TIM, then purpose of presenting F/S in accordance w/ the OCBOA, then AA 2- Do not use GAAP terms (Balance Sheet, Income Statement, etc. NO NO) 3- Emphasis of matter ppg explaining OCBOA, how its done and reiterate that it is not in accordance with GAAP. 4- Other matter ppg restricting the use of the report unless the OCBOA is prepared on a regulatory basis.

Question 35

How is materiality of the audit of a single financial statement line item determined when performed in conjunction (or not) with the F/S as a whole?

Answer 35

Materiality is based on single F/S line item, not full financials.

Question 36

Under what circumstances can a piecemeal opinion be issued appropriately?

Answer 36

1- opinion on specific element is not published w/ full F/S auditor's report 2- specific element does not material to F/S on the whole -or- is not based on stockholders equity or net income.

Question 37

When is negative assurance appropriate?

Answer 37

When reporting on contractual agreement compliance or regulatory compliance. *Note that assurance on regulatory compliance or contractual agreements is only appropriate when whole F/S are audited.

Question 38

Characteristics of an auditors report on summary financial statements.

Answer 38

Auditor must audit whole F/S, management is responsible for fair presentation, disclose where F/S can be found (if not included w/ summary), opinion is either unmodified or adverse - no qualified.

Question 39

Becker Review report requirements - U LIAR CPA

Answer 39

U - Understanding w/ client should be established L - learn &/or obtain sufficient business knowledge I - Inquiry addressed to appropriate personnel (inside the company - generally not required to corroborate) A - analytical procedures should be performed R - review other info as necessary C - Obtain CLIENT REP LETTER P - professional judgment should be used A - accountant (CPA) communicates results *Note: Same procedures for reviewing interim financials for issuers.

Question 40

What must the auditor consider when management requests to change the scope of the engagement (audit to compilation/review)

Answer 40

1- reason for change (justified? - not to cover error/fraud? scope limitation?) 2- effort required to complete the engagement 3- estimated cost to complete the engagment

Question 41

What is a comfort letter?

Answer 41

Letter to underwriter expressing RESTRICTED, negative assurance on F/S related to process of reasonable investigation.

Question 42

11 Attestation standards - TIPPY PASSER

Answer 42

T - training and proficiency I - Independence P - performance/due professional care in planning and performance P - professional, adequate knowledge of subject matter Y - YOUR belief that subject matter is capable of evaluation (objective, measurable, complete, accurate) P - planning and supervision A - appropriate, sufficient evidence to support a conclusion S - ID SUBJECT matter of the assertion being performed S - disclose SIGNIFICANT reservations E - express conclusions about the subject matter R - restrict use of report (if applicable)

Question 43

Conditions present in order to perform agreed upon procedures: I AM SURE

Answer 43

I - Independence of practitioner A - Agreement of the parties M - Measurability and consistency S - sufficiency of procedures U - Use of report is restricted to specified parties R - responsibility for the subject matter E - Eng on PFI must include assumptions