Ch 5

Question 1

What is the only letter that is required to be communicated to management in a compilation?

Answer 1

Engagement letter only

Question 2

What are the 5 main points in an opinion section of an audit report?

Answer 2

1. presents fairly
2. in all material respects
3. Financial position
4. results of operations and cash flows
5. conformity with GAAP

Question 3

If there is a change in accounting estimate or principle require what to be added to the opinion?

Answer 3

EOM paragraph

Question 4

When should a reference to the component auditor be made in a group financial statements?

Answer 4

1. Components financial statements are prepared using same financial reporting framework used by the group
2. Component auditor has issued an audit report on the components financial statements that is not restricted as to use

Question 5

In an attestation engagement - what happens when there are misstatements are material and pervasive?

Answer 5

Withdraw from the engagement

Question 6

Under an audit of GAGAS, what reports are required for the audit? (3)

Answer 6

1. F/S
2. On internal control
3. Report on compliance with laws an regulations

Question 7

What are the filing requirement of Form AP?

Answer 7

Must be reported within 35 days after the audit report is first filed in a document with the SEC unless the audit report is included in a registration statement

Question 8

According to the AICPA, what are the 2 audits an employee benefit plan could have?

Answer 8

Full Scope and Limited Scope ( ERISA Section 103(a)(3)(c) audit)

Question 9

What is the purpose of the attestation engagements?

Answer 9

To provide users of information with an opinion (examination), conclusion (review) or findings (AUP) regarding reliability of subject matter or an assertion about the subject matter as measured against suitable and available criteria

Question 10

If the auditor does not observe the physical inventory cannot be satisfied with the ending balance - what are the opinions available?

Answer 10

Disclaimer or qualified

Question 11

When the auditor issues a disclaimer of opinion, what paragraph would be unchanged from the regular report?

Answer 11

Management responsibility

Question 12

If an auditor issued a qualified opinion, what paragraphs would be changed?

Answer 12

changes would be made to the auditors responsibility and opinion paragraph

Question 13

If the group auditor makes reference to the component auditor, what is included in the opinion paragraph?

Answer 13

“in our opinion, based on our audit and the report of the other auditors”

Question 14

What 2 things does the CPA have inquire about but not required to corroborate under SSARS?

Answer 14

1. Whether there are significant transactions at period-end

2. the status of any uncorrected misstatements

Question 15

What is the objective of a preparation?

Answer 15

to prepare F/S in accordance with the applicable financial reporting framework (non-attest service that involves no assurance and no report)

Question 16

If the CPA had substantial doubt about the clients ability to continue as a going concern in the PY but was not concerned in the CY, what is the opinion issued?

Answer 16

Unmodified w/o emphasis of matter

Question 17

What letter is required in a preparation?

Answer 17

engagement letter ONLY

Question 18

What is a comfort letter?

Answer 18

Not required under the PCAOB stds but require by underwriter who is attempting to set up due diligence defense in case of a lawsuit from a purchaser of securities base on material omission or material misstatement of financial information.

not required to be furnished to underwriter NOR filed with SEC

Question 19

In a review where a special purposed purpose framework is included, when should the review report be modified?

Answer 19

When the financial statements omit a description of the special purpose framework

Question 20

What is the new addition to Critical audit matters?

Answer 20

that ALL critical matters are to be reported to the audit committee (required or not required)

Question 21

What report includes negative assurance in the phrase of “nothing came to our attention”?

Answer 21

review report where CPA is independent

Question 22

What is the relationship between contingent losses being disclosed and recognized on the financial statements?

Answer 22

if loss is probable –> disclosed

if loss is estimate –> recognized on FS

Question 23

What documentation is included in a preparation report?

Answer 23

1. Work performed
2. Engagement report
3. Copy of the Financial statements

(NO COPY OF REPORT)

Question 24

When does an auditor issue an adverse opinion to a prospective financial statements?

Answer 24

when the prospective financial information fails to disclose any significant assumptions

Question 25

What type of assurance is provided by a comfort letter?

Answer 25

Negative assurance on whether material modifications should be made to unaudited consolidated FS