Chapter 1 - Audit Reports Flashcards
(43 cards)
What word describes the type of evidence auditors should obtain?
SUFFICIENT AND APPROPRIATE
Most authoritative guidance for the auditor of a non-issuer?
General guidance provided by a Statement on Auditing Standards
The auditor of a non-issuer must conduct audit in accordance with what standards?
ASB standards (auditing standards board)
Professional skepticism examples and applications
Requesting additional evidence to corroborate management’s representations. (Inquiry about the past is not enough)
When circumstances indicate that financial statement PRESENTATION in accordance with US GAAP would be misleading which OPINION should the auditor write?
UNMODIFIED OPINION because the FS are not materially misstated.
The PCAOB was established by what act?
SOX of 2002
when presenting an entities financial statements fairly in accordance with an applicable framework, the auditor should
Include an adequate description of the framework in the FS
what words must be included in an emphasis of matter paragraph for a going concern doubt opinion?
“Substantial doubt” and “Going Concern”
What are mitigating factors the auditor should consider fro going concern?
Postponement of expenditures
Plan to DISPOSE assets
Plan to BORROW money and restructure debt
Plan to INCREASE owner’s equity
In order to form an opinion THE AUDITOR should evaluate, based on the applicable financial reporting frameworks, whether the following 8 steps are present:
1) FSs ADEQUATELY DISCLOSE significant accounting policies
2) Accounting policies are CONSISTENT with Fin. Rep Framework
3) ACCOUNTING ESTIMATES are REASONABLE
4) FS info is RELEVANT, RELIABLE, COMPARABLE, and UNDERSTANDABLE
5) Disclosures allow users to UNDERSTAND EFFECT OF MATERIAL TRANSACTIONS/EVENTS
6) TERMINOLOGY is APPROPRIATE
7) FS are FAIRLY PRESENTED
8) FS REPRESENTS THE UNDERLYING TRANSACTIONS.
UnModified Audit (CLEAN) opinion (MR DIM REPPORTS CRAME)
(MR) Management’s Responsibility
(DIM) Design Implementation Maintenance
(REPPORTS) Responsibility Express Plan Perform Obtain Risks Test (Consider Internal Controls) Statements
(CRAME) Control Reasonableness Accounting Management Evaluating
Who should auditors address the opinion to?
The party who engaged them to do the audit
If the financial statements, including accompanying notes, fail to disclose information that is required by GAAP (they did something illegal), what opinion should the auditor express?
Qualified or adverse depending on pervasiveness of the effect on the FS
When should the auditor issue a disclaimer an opinion of FS?
When they are associated with FS of a public entity and they HAVE NOT performed an AUDIT or REVIEW of those FINANCIALS; OR
“BECAUSE NOT ABLE TO OBTAIN SUFFICIENT AND APPROPRIATE AUDIT EVIDENCE”
When do you use an emphasis of matter paragraph?
WHen the Matter is APPROPRIATELY DISCLOSED OR PRESENTED IN FS
Does an emphasis of matter paragraph change an opinion?
NO
What are other Matter Paragraphs?
Matter’s described OTHER THAN those presented AND DISCLOSED
Going concern period under Int’l Standards of Auditing vs US Auditing Standards?
ISA - AT LEAST 1 year (not limited to one year)
UAS - Limited to 1 year
from date of financial statements being audited
What are the different opinions an auditor can issue?
Adverse Qualified DIsclaimer of opinion Unmodified with emphasis of matter Unmodified
What is the difference between the unmodified opinions with and without emphasis of matter paragraphs
Emphasis of matter paragraphs do not change the opinion of an unmodified opinion
What is the structure of an audit report? (Depending on each opinion) i.e what paragraphs are included added and omitted based on the opinion?
Title
Addressee
Intro Paragraph - Service (Audited)
Intro Paragraph - Financial Statements (BS, IS, Equity, $Flow)
Intro Paragraph - Periods (Single or comparative)
Management Responsibility Paragraph (FSs and IC)
Auditor’s Responsibility Paragraph (MR DIM REPPORTS CRAME)
Opinion Paragraph
Emphasis of Matter Paragraph (DORCS)
Auditor’s signature (CPA Firm)
Auditor’s Address (City and State0
Report Date (Date ALL sufficient and appropriate evidence obtained)
When does a Group auditor make reference to the Component Auditor in an opinion over Group Financial Statements?
1) Component AUditor performed audit in accordance with GAAS or PCAOB (if applicable)
2) Component Auditor’s report is NOT RESTRICTED USE!
NOTE: Group auditor should not make reference to Component Auditor if Group Auditor wants to take responsibility of work performed by Component Auditor.
Describe Type 1 vs Type 2 subsequent events
Type 1 - Recognized subsequent events REQUIRE an ADJUSTMENT (Conditions DID exist prior to and on Balance sheet date)
Type 2 - NONrecognized subsequent events DON’T require an DISCLOSURE (conditions did not exist at year end)
Unmodified opinion wording
Unmodified Opinion - “Presented FAIRLY in ALL MATERIAL RESPECTS”, the FINANCIAL POSITION (BS), the RESULTS FROM OPERATIONS (IS), and CASH FLOWS (CF)”, in conformity with applicable (GAAP or other applicable financial reporting framework)
