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Wiley CPA AUD 2014 > Audit Reports > Flashcards

Flashcards in Audit Reports Deck (91)
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1

State the typical introductory sentence/paragraph of the auditor's unmodified audit report on one year's financial statements under the AICPA's clarified auditing standards.

We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity and cash flows for the year then ended, and the related notes to the financial statements.

2

What 2 topics of responsibility are addressed in the "Management's Responsibility" section of the auditor's report?

1. Management's responsibility for the fair presentation of the financial statements; and 2. Management's responsibility for the design, implementation, and maintenance of internal control related to financial reporting.

3

What is the meaning of an unmodified audit report?

The financial statements are fairly stated according to GAAP (or other applicable accounting framework), and the auditor expresses no reservations.

4

State the opinion paragraph of the unmodified audit report on one year's financial statements under the AICPA's clarified auditing standards.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Company at December 31, 20X2 and 20X1, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

5

List the items comprising (that is, the structure) of an unmodified audit report under the AICPA's clarified auditing standards.

1. Title 2. Addressee 3. Introductory paragraph 4. Management responsibility section 5. Auditor's responsibility section 6. Opinion paragraph 7. Signature (with the City and State of the office responsible for the engagement) 8. Date.

6

What basic responsibility does the Reporting Principle under the AICPA's clarified auditing standards impose on an auditor?

Based on an evaluation of the audit evidence obtained, the auditor expresses, in the form of a written report, an opinion in accordance with the auditor's findings, or states that an opinion cannot be expressed.

7

If the auditor's report includes a section after the opinion paragraph labeled "Report on Other Legal and Regulatory Requirements," how should the introductory paragraph be labeled?

"Report on the Financial Statements" -- ordinarily, the introductory paragraph does not have a label, but, in this case, it would.

8

The AICPA replaced the former 10 criteria known as "GAAS" with 7 non-authoritative principles to be used as a framework for audit standard setting. What specific topics did the 4 "Reporting Standards" under the now-superseded GAAS address?

1. GAAP -- the report should identify whether the financial statements comply with GAAP. 2. Consistency -- the report should identify when accounting principles were not consistent. 3. Disclosure -- the report should identify when disclosure is inadequate. 4. Opinion -- the auditor should express an opinion on the financial statements as a whole.

9

List the alternatives to the unmodified audit report.

1. Qualified, 2. Adverse, 3. Disclaimer of opinion.

10

If the prior period's financial statements have been audited by a predecessor auditor whose report is not issued, the auditor should add an other-matter paragraph. What specific matters should that other-matter paragraph address?

1. That the prior period financial statements were audited by a predecessor auditor; 2. The type of opinion expressed (and the reason for any modification); 3. The nature of any emphasis-of-matter or other-matter paragraph; and 4. The date of the predecessor's report.

11

Describe the two primary responsibilities of the group engagement partner.

The group engagement partner is responsible for (1) the supervision and performance of the group audit engagement in compliance with professional standards and applicable regulatory requirements; and (2) determining whether the auditor's report is appropriate in the circumstances.

12

When the group engagement partner decides to assume responsibility for the component auditor's work, what is the effect on the auditor's report?

There should be no reference to the component auditor in the auditor's report under those circumstances.

13

Identify the 3 requirements that determine whether a reference to component auditors is permitted.

1. The component's financial statements must use the same framework as the group. 2. The component auditor has complied with GAAS (or PCAOB standards, as applicable). 3. The component auditor has issued an audit report on the component's financial statements (and that report is not restricted as to use).

14

What do AICPA professional standards identify as the auditor's objectives when auditing group financial statements?

The auditor's objectives are to determine whether to act as the auditor of the group financial statements and, if so, (1) whether to reference the component auditor(s); (2) to communicate clearly with the component auditor(s); and to obtain sufficient appropriate audit evidence about the financial statements of the component(s) and the consolidation process.

15

What is meant by the term significant component?

A component identified by the group engagement team that (1) is of individual financial significance to the group; or (2) due to its specific nature, is likely to include significant risks of material misstatement of the group financial statements.

16

What is meant by the term component in connection with group financial statements?

An entity for which group or component management prepares financial information that is required by the applicable financial reporting framework to be included in the group financial statements.

17

What is meant by the term component auditor?

An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be (1) part of the group engagement partner's firm, (2) a network-affiliated firm, or (3) another unrelated firm.

18

When the group engagement partner decides to reference the component auditor's work, what is the effect on the auditor's report?

Introductory paragraph and management responsibility section -- no effect. Auditor's responsibility section -- First sentence modified to identify the component audited by other auditors and the magnitude of the financial statements involved. Opinion paragraph -- Modified to say, "In our opinion, based on our audit and the report of the other auditors..."

19

What is meant by the term group financial statements?

Financial statements that include the financial information of more than one component. This term also refers to combined financial statements aggregating the financial information prepared by components that are under common control.

20

Describe the responsibilities of the group engagement partner and the group engagement team to obtain an understanding of the component auditor(s).

They should obtain an understanding of (1) the component auditor's independence and professional competence; (2) the extent to which the group engagement team will be involved in the work of the component auditor; and (3) whether the group engagement team will be able to obtain information about the consolidation process from the component auditor(s).

21

When the auditor of the group financial statements assumes responsibility for the component auditor's work on a significant component, what is the group engagement team's responsibility to be involved in the work of the component auditor?

The auditor should (1) discuss with the component auditor the significance of the component to the group and the susceptibility of the component to material misstatement; and (2) review the component auditor's documentation of identified significant risks of material misstatement to the group financial statements.

22

What is meant by the term other-matter paragraph in an auditor's report?

A paragraph that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor's judgment, is relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report.

23

Identify the 3 issues for which an emphasis-of-matter paragraph is required.

1. When there is substantial doubt about the entity's ability to continue as a going concern. 2. When there is an inconsistency in accounting principles used. 3. When the financial statements are prepared in accordance with special purpose frameworks (such as cash basis, tax basis, regulatory basis, or contractual basis).

24

What is meant by the term emphasis-of-matter paragraph in an auditor's report?

A paragraph that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements.

25

Where should an emphasis-of-matter or other-matter paragraph be presented in the auditor's report?

1. The emphasis-of-matter paragraph should be presented after the opinion paragraph. 2. The other-matter paragraph should be presented after the opinion paragraph (and after any emphasis-of-matter paragraph(s)).

26

What is meant by the term pervasive in connection with audit reporting issues?

1. Effects that are not confined to specific elements, accounts or items of the financial statements; 2. Effects that, if so confined, represent or could represent a substantial proportion of the financial statements; or 3. Regarding disclosures, are fundamental to users' understanding of the financial statements.

27

What is meant by a qualified opinion for a scope limitation?

The auditor is expressing one or more reservations (specifically about a scope limitation where the auditor was unable to perform a desired audit procedure) while still concluding that the financial statements, taken as a whole, are fairly stated and that, except for the specific matter referenced, the auditor has obtained sufficient, appropriate audit evidence as a reasonable basis for the auditor's conclusions.

28

What type of report should the auditor express when a scope limitation is viewed as material, but not pervasive?

Qualified opinion.

29

What type of report should the auditor express when a scope limitation is viewed as material, and pervasive?

Disclaimer of opinion.

30

What effect does a qualified opinion for a scope limitation have on the auditor's report?

No effect on the introductory paragraph or management's responsibility section; Modify the scope paragraph to reference the scope limitation; Add Basis for Qualified Opinion paragraph before the opinion paragraph to describe the scope limitation; before the opinion paragraph to describe the scope limitation; Modify the opinion paragraph to reference the scope limitation.