Auditing 1

Question 1

What does the AICPA provide?

Answer 1

Statements of Auditing Standards that relate to the proper performance of an audit, not to US GAAP.

Question 2

What is the most authoritative level of literature for audits of non-issuers?

Answer 2

GENERAL guidance from interpretation of Statements of Auditing Standards

Question 3

What established the PCAOB?

Answer 3

Sarbanes Oxley- 2002

Question 4

Presumptively mandatory requirement?

Answer 4

The requirement must be followed OR you must provide a good reason for not following the requirement. Not has serious as unconditional. *Remember that conditional and Explanatory were made up.

Question 5

What is professional skepticisim?

Answer 5

The attitude that the auditor must have when planning and performing an audit due to the risk of material misstatements, BUT DOES NOT MEAN that you have to question Mgmts integrity and honesty.

Question 6

What kind of opinion should you express when there is a departure from US GAAP under UNUSUAL circumstances that make the F/S misleading.

Answer 6

Unmodified because they would otherwise be misleading.

Question 7

When is Dual Dating used?

Answer 7

Dual Dating is used for subsequent events after the balance sheet for certain specific events and is NOT used for comparative financial statements/predecessor auditors.

Question 8

When should the successor auditor express an opinion on the CURRENT PERIOD ONLY?

Answer 8

If the prior period financial statements are restated and the predecessor agrees to issue a new auditor’s report of the prior period then the successor auditor should express an opinion on the CURRENT PERIOD ONLY.

Question 9

When does auditor responsibility stop?

Answer 9

On the date of the Auditor’s Report

Question 10

When do you use dual dating?

Answer 10

When a specific subsequent event is described in the NOTES to the financial statements.

Question 11

What is the original audit report date? (trick)

Answer 11

The date that the auditor obtained all sufficient appropriate evidence to RENDER AN OPINION by.

Question 12

What are the steps taken if the auditor discovers omitted procedures after the submission of audit report? (Our Fault)

Answer 12

1. Assess the importance of the procedures and their ability to support the present opinion.
2. Determine whether there are procedures in place to COMPENSATE for the old ones by applying alternative procedures to FIRST TEST (not the same as 4)
3. Determine/and communicate to anyone who is relying on the audit opinion.
4. Apply substantive procedures and request that mgmt disclose these new, previously omitted, procedures.

Question 13

What does dual dating do?

Answer 13

Extends the responsibility of the auditor that is limited to ONLY THE PARTICULAR EVENT.

Question 14

What does an auditor do with OTHER information?

Answer 14

READ for material inconsistencies and make sure that it is not materially different from what is reported on the financial statements.

Question 15

What does an auditor do with REQUIRED SUPPLEMENTARY information?

Answer 15

Apply LIMITED procedures and add an OTHER MATTERS PARAGRAPH.

Question 16

When are Emphasis of Matter Paragraphs required?

Answer 16

1. Substantial doubt about an entity’s ability for going concern.
2. JUSTIFIED change in accounting principle (Unjustified is GAAP issue)
3. Special Purpose Framework (besides US GAAP) that is being distributed in the United States. * DOES NOT INCLUDE REGULATORY FRAMEWORK, which is discussed in restricted section of Other Matters para.
4. Changing Prior Opinion (“DORCS” Mnemonic)

Question 17

When are Other Matters Paragraphs required?

Answer 17

1. RESTRICT use of the auditor’s report (Contractual and Regulatory basis of Accounting)
2. Required Supplementary Information
3. Predecessor Audit where the report was NOT REISSUED.
4. Comparative Financial statements with those not previously audited (could be compiled/reviewed)
5. When there is a material inconsistency in other information and management refuses to make the changes.
6. Report on Compliance (Negative Assurance)

Question 18

You must obtain written management representations when?

Answer 18

1. Regarding REQUIRED Supplementary Information.
2. If you are the predecessor auditor and you are making sure that you no longer have to issue an audit report. (Along with representation from the successor auditor)

Question 19

What are the procedures for going concern (ADMITS)

Answer 19

A- Analytical Procedures
D- Debt Compliance- Review terms of debt/loan agreements.
M- Minutes from BoD meeting
I- Inquire client’s legal counsel
T- Third parties to confirm details of arrangements
S- Subsequent events review.

Question 20

What are conditions and events for going concern (FINE)

Answer 20

F- Financial Difficulties- Loans, Dividend Arrears, Trade Credit, New Financing Sources, Disposals of Assets
I- Internal Matters- Work Stoppages, Dependence on particular project, significant revision of operations
N- Negative Trends- negative cash flows, adverse financial ratios, working capital deficiencies.
E- External Matters- legal proceedings, loss of franchise or patent, loss of principal customer.

Question 21

What are the four typical GAAP issues?

Answer 21

• *Could be anything if it creates a MATERIAL MISSTATEMENT
  1. UNJUSTIFIED GAAP Consistency Change (Change in Accounting Principal
  2. Inadequate Disclosures including subsequent events or omitting the statement of cash flows.
  3. Unjustified Departure or violation of GAAP
  4. Unreasonable Accounting Estimate.

Question 22

What are the four typical GAAS issues?

Answer 22

1. Uncertainty
2. Scope Limitation
3. Independence of CPA (Disclaimer of Opinion because still required by law to be the auditor)
4. Insufficient Evidence (material or pervasive/significant)

Question 23

What are examples of Scope Limitations?

Answer 23

A/R Confirmations Denied
Opening Inventory cannot be confirmed (***End B/S can still receive an Unmodified Opinion***)
Audit Restrictions
Consolidated Subsidiary Info is denied
Inadequate Records
Client Lawyers Denied
NO MGMT REP LETTER IS SIGNED

Question 24

What does it mean when a group auditor REFERENCES the component auditor?

Answer 24

It means that there is a DIVISION OF RESPONSIBILITY and does not assume the responsibility for the work to be performed.

Question 25

What does it mean when a group auditor DOES NOT REFERENCE the component auditor?

Answer 25

It means that it is taking on responsibility for the work done by the component auditor whether they choose to include their audit procedures in their work or not. They would then next have to determine the type of work to be performed

Question 26

What should you disclose in your E o M paragraph when you are updating an opinion?
“only DORCS change their opinions”

Answer 26

D- Date of auditor’s previous report
O- Opinion type that was previously issued
R- Reason for the prior opinion
C- Changes that have occured
S- Statement that the “opinion… is different”

Question 27

What should the predecessor auditor do when they’re no longer being used?

Answer 27

Read and compare statements

Inquire and obtain letter of representation from successor and management.

Question 28

CPA Responsibility for Subsequent Events? “PRIME”

Answer 28

P- Post balance sheet transactions: Review cutoff
R- Rep letter should be obtained from Management
I- Inquire of management and those charged with governance.
M- Minutes of BoD meetings
E- Examine latest interim statements.

Question 29

What is a Type 1 Event?

Answer 29

“Recognized” Event occurring on or before the B/S date (Ex: Trade Receivable). It requires a financial statement adjustment

Question 30

What is a Type 2 Event?

Answer 30

“Non-recognized” event occurring after the B/S date and may require a footnote disclosure but rarely a Financial Statement adjustment.

Question 31

What is unique about UNCERTAINTY (limited knowledge and ability to describe potential future outcomes for certain events)?

Answer 31

If the Uncertainty results in a MATERIAL MISSTATEMENT:
GAAP issue- Qualified or Adverse
If the Uncertainty results in INSUFFICIENT EVIDENCE:
GAAS issue- Qualified or Disclaimer