Auditing 1: Deck 3 Flashcards Preview

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Flashcards in Auditing 1: Deck 3 Deck (21):

When is an emphasis-of-matter paragraph required? (4 reasons)

1. Going concern (substantial doubt)
2. Justified change in accounting principle (Consistency)
3. Change in audit opinion
4. Special purpose framework


Other-Matter paragraph

Includes information that is neither presented or disclosed in the financial statements that are relevant to a user's understanding


ADMITS (Procedures related to going concern)

Analytical procedures,
Debt Compliance,
Third parties,
Subsequent events


Lack of Consistency

Deals with the comparability of financial statements from year to year (acceptable/justified changes)


GAAS problems

- Uncertainty
- Scope limitations
- Independence (unaudited)


Subsequent events

Event that occurs after the balance sheet date but before the financial statements are issued, that require adjustment to or disclosure in the financial statements


What should an auditor do before reissuing the prior year's audit report?

1. Read the current period financials
2. Compare the prior period information
3. Obtain letters of recommendation from management of the former client and from the successor auditor.


Dual Dating

Used when there is a subsequent event occurring after the original date of the auditor's report, and the auditor wishes to extend responsibility only for the one event;
Not used for comparative financial statements


What should the predecessor (previous) auditor do?

1. Read the statements for the current period
2. Compare the statements audited with current period statements
3. Obtain letter of representation from the successor auditor
4. Inquire of and obtain a letter of representation from management.


When should you change the prior year's opinion?

When the prior year's financial statements are restated to conform with GAAP


If the predecessor auditor's report not presented, what the should the successor auditor do?

1. financial statements of the prior period were audited by a predecessor auditor
2. Type of opinion expressed
3. Nature of any emphasis-of-matter paragraph
4. Date of the predecessor auditor's report


What happens to an auditor's updated report when prior-period financial statements are restated in the current period to conform with GAAP?

Updated report should express an unmodified opinion


When does the auditor's active responsibility stop?

On the date of the auditor's report


When should a auditor date an audit report?

The date on which sufficient audit evidence (including procedures related to subsequent events) was obtained


What procedure should an auditor perform in obtaining evidence about subsequent events?

Compare the latest available interim financial information with the financial statements being reported on.


Recognized (Type I) events

Conditions existing on or before the balance sheet date; requires a financial statement adjustment


Unrecognized (Type II) events

Conditions existing after the balance sheet date; may require footnote disclosure


DORCS (updating prior opinions)

D: date of previous report
O: opinion type previously issued
R: reason for prior opinion
C: changes that have occurred
S: Statement that "opinion is different"


What procedures should an auditor perform during the subsequent period?

P: post balance sheet transactions
R: representation later should be obtained
I: inquiry of management
M: minutes of stockholders meetings
E: examine latest available interim financial statements


What phrase does a qualified opinion include?

"In our opinion, except for the problem discussed in the preceding paragraph..., the financial statements referred to above present fairly..."


What phrase does an adverse opinion include?

"does not present fairly"