Chapter 12 - Reports on Audited F/S Flashcards
1
Q
for nonpublic entities, what does the auditor report on?
A
fairness of financial statements and related disclosures
2
Q
for public entities, what does the auditor report on?
A
fairness of F/s and related disclosures
effectiveness of internal controls over financial reporting
3
Q
for public entities, what does management report on?
A
effectiveness of internal control over financial reporting
4
Q
for public companies, what does both the auditors and management report on?
A
effectiveness of internal control over financial reporting
5
Q
a control is…
A
any process to prevent or detect something
6
Q
not every public entity needs a…
A
public control audit
7
Q
what kind of public entity would not have a public control audit?
A
a very small company
8
Q
what are the required reports for issuers?
A
financial statements, internal control over financial reporting (ICFR)
9
Q
what are the two reporting options?
A
combined F/S and ICFR or separate
10
Q
if separate reports, each report will…
A
reference the opinion and the date of the other report
11
Q
the standard (unqualified) report means a “__” report
A
clean
12
Q
three sections of auditors’ reports on F/S
A
opinion on F/S, basis for opinion, critical audit matters
13
Q
what is in the “opinion of the F/S section”?
A
F/S and years examined, auditors’ opinion on the F/S, reference to report and opinion on ICFR (ONLY IF SEPARATE OPINIONS)
14
Q
what is in the “basic for opinion” section?
A
management is responsible for F/S, auditors responsible for expressing an opinion on F/S, firm is registered with PCAOB and required to be independent, audit conducted in accordance to PCAOB stands, audit provides basis for opinion
15
Q
what is in the “critical audit matters” section?
A
identifies any matters communicated or required to be communicated to audit committees, identifies audit procedures performed to address CAMS
16
Q
any CAMs that are required to be communicated to the audit committee are…
A
material accounts or disclosures, involve challenging, subjective, or complex judgements
17
Q
CAMs have higher levels of…
A
risk
18
Q
CAMs have significant audit team and management…
A
judgement
19
Q
CAMs are significant…
A
transactions and events
20
Q
if engaged to communicate key audit matters, add CAM section following…
A
basis for opinion section
21
Q
CAM section says why _______ and how __________
A
matter was considered a key audit matter, and how the matter was address in the audit
22
Q
common CAMs include…
A
intangible assets, revenue, restructuring, etc.
23
Q
what asset can never be a CAM?
A
cash
24
Q
why can’t cash be a CAM?
A
because it is so low risk
25
what is the title to the standard report?
Reporting of Independent Registered Public Accounting Firm
26
who is the standard report addressed to?
the client (shareholders and board)
27
the standard report includes the date when...
auditors have obtained sufficient and appropriate evidence
28
the date of the auditors' report is the day that...
auditors have obtained sufficient evidence
29
date of the auditors report is typically the same as...
the filling date with the SEC
30
who hires auditors?
the board
31
the standard report is signed by...
the accounting firm and the identification of office of firm
32
in the standard report, you indicate the...
tenure of accounting firm
33
who does not sign the standard report?
partner
34
four types of opinions
unqualified (standard), qualified, adverse, disclaimer of opinion
35
if it is a unqualified opinion...
F/S is in accordance with GAAP
36
standard report may be modified to disclose...
additional matters
37
if it is a qualified opinion...
"except for" some matter, F/S are in accordance with GAAP
38
if it is an adverse opinion...
F/S are not in accordance with GAAP
39
three reasons for departing from standard report
departures from GAAP, scope limitations, audit of group financial statements
40
examples of departures from GAAP
cash basis instead of accruals, expensing assets immedately (not capitalizing machinery), recording revenue before its "earned"
41
in a departure from GAAP, we give a standard report if...
it is not material
42
in a departure from GAAP, we give a qualified opinion if...
it is material but not pervasive
43
in a departure from GAAP, we give an adverse opinion if...
it is material and pervasive
44
for a departure from GAAP, it is material if...
amount would change an investment decision
45
in a departure from GAAP, there can be a missed statement as long as...
it is not material
46
pervasive means...
it reaches further
47
in a departure from GAAP, how would we modify the report if it is a qualified opinion?
add paragraph explaining departure and detailing $$ acts involved; indicate that "in our opinion, except for the effects of [XXX] as discussed in the following paragraph,..."
48
in a departure from GAAP, what is the statement needed for a qualified opinion?
in our opinion, except for the effects of [XXX] as discussed in the following paragraph, ....
49
in a departure from GAAP, how would we modify the report if it is an adverse opinion?
in the "opinion on the financial statements" section...
- indicate "in our opinion, because of the matters discussed in the following paragraph, the financial statements do not present fairly..."
- omit reference to "all material respects"
- add paragraph explaining departure and detailing $$ amts involved
OMIT CAM SECTION
50
in a departure from GAAP, for an adverse opinion, we omit...
CAM section
51
in a departure from GAAP, what is the statement needed for an adverse opinion?
in our opinion, because of the matters discussed in the following paragraph, the F/S do not present fairly...
52
in a departure from GAAP, what is omitted in the "opinion on the F/S section" for an adverse opinion?
reference to "all material respects"
53
scope limitation refers to the...
actual audit work
54
in a scope limitation, we give a standard report if...
if the limitation is not material or it is material AND there is alternative procedures available
55
in a scope limitation, we give a qualified report if...
the limitation is material, there are no alternative procedures, and the limitation is not pervasive
56
in a scope limitation, we give a disclaimer of opinion if...
it is material, there are no alternative procedures, and it is pervasive
57
for scope limitation, we decide if it is pervasive based on if it is _____ or ______
circumstance imposed or client imposed
58
for scope limitation, materiality applies to ____ as well
inventory
59
examples of limitations
unable to send confirmations, unable to perform inventory investigation
60
a circumstance imposted scope limitation is a situation in which...
matters beyond auditors' and client's control limit procedures performed by auditors
61
circumstance imposed scope limitation example
inability to observe year-end inventory because of late appointment
62
client imposed scope limitations are generally...
PERVASIVE
63
a client imposed scope limitation is a situation in which...
client specifically limits auditors' procedures
64
client imposed limitation example
when client doesn't allow auditor to come
65
client imposed limitation should be viewed as...
a significant restriction and a disclaimer is normal issued
66
what is normally issued for a client imposed limitation?
a disclaimer
67
for a scope limitation, how would we modify the report if it is a qualified opinion?
in opinion section...
- indicate "in our opinion, except for the effects of the XXX, as described below.."
- add a paragraph explaining scope limitation and detailing $$$ involved
in basis section...
- reference scope limitation when indicating audit conducted in accordance with PCAOB standards
68
for a scope limitation, what would we indicate "OPINION ON F/S SECTION" if it is a qualified opinion?
indicate "in our opinion, except for the effects of the XXX as described below..."
69
for a scope limitation, in the "BASIS OF OPINION" if it is a qualified opinion, we should reference ____ when indicating audit being conducted with PCAOB standards
reference scope limitations
70
pervasive scope limitation is usually...
client imposed
71
for a scope limitation disclaimer of opinion, we change the title of "opinion on f/s section" to..
"disclaimer of opinion on..."
72
for a scope limitation disclaimer of opinion, we modify the first sentence of opinion section to...
"we were engaged to audit"
73
for a scope limitation disclaimer of opinion, we modify opinion to...
"we do not express an opinion"
74
for a scope limitation disclaimer of opinion, how do we modify the report?
In "opinion on f/s" section...
- change title
- modify first sentence
- modify opinion
- add paragraph
in "basis for opinion" section...
- change title
- delete sentence indicating auditor's responsibility
- delete audit conducted under pcaob paragraph
OMIT CAM SECTION
75
for a scope limitation disclaimer of opinion, we omit what section?
CAM
76
for a scope limitation disclaimer of opinion, we change the title of the "basis of opinion" section to...
"basis for DISCLAIMER of opinion"
77
for a scope limitation disclaimer of opinion, we delete which parts of the "basis of opinion" section>
sentence indicating auditors responsibility, paragraph indicating audit conducted under PCAOB standards
78
group financial statements are...
f/s comprised of more than one division/subsidiary/segment/component
79
principle auditors conduct...
adult of material portion of the entity
80
other auditors may be...
engaged by principle auditors to audit divisions, subsidiaries, or components
81
other auditors are not specifically named if...
they performed less than 5%
82
what form shows firms involved in an audit?
form AP on PCAOB website
83
firm AP has been required since..
2017
84
more people in an audit can cause...
a higher risk for error
85
for a group f/s audit, we issue a standard report if...
auditor takes responsibility for component auditors' work
86
for a group f/s audit, we obtain and present component auditors' report if...
principle does not take responsibility and refers to component auditors by name
87
for a group f/s audit, if the principle does not take responsibility and refers to component auditors by name, we...
obtain and present component auditors' report
88
for a group f/s audit, we indicate division of responsibility in unqualified opinion if...
not take responsibility for component work and does not refer to them by name
89
principle auditors need to verify...
other auditors reputation and independence
90
principle auditors need to ____ and __ with other auditors
communicate and coordinate
91
what are the 4 options available to principle auditors for the report
1. take responsibility for work (standard report)
2. name other auditors
3. refer to other auditors in "opinion on the f/s section)
4. refer to other auditors in "basis of opinion" section
92
principle can only present the report of other auditors if...
they give permission
93
if principle is referring to other auditors in "opinion on the f/s" section, they have to...
note that opinion is based in part by other auditors, identify components examined by other auditors, still express unqualified opinion (if appropriate)
94
if principle is referring to other auditors in "basis for opinion section", they have to...
note that the report of other auditors provides a basis for the opinion
95
assumption between adverse and disclaimer
adverse is worse
96
what is the general approach for other matters?
issue unqualified opinion but add explaining paragraph to report to discuss the matter
97
other matter situations include...
consistency, going-concern, other info, required supplementary info, emphasis of a matter
98
consistency relates to..
change in accounting principles, adjustments to correct misstatements in previously issued f/s
99
how does changes in accounting principles cause inconsistency?
years will have different basis
100
types of changes in accounting principles:
accounting principles GAAP to GAAP, form of reporting entity, accounting principles (non-GAAP to GAAP), accounting principle inseparable from changes in estimates
101
how to show the effect of consistency on a report
add explanitory paragraph following the "opinion on the f/s section"
102
for consistency, you may issue a qualified opinion (GAAP departure) if ..
change in not justified or accounted for in accordance with GAAP
103
for GC uncertainties, auditors are responsible to evaluate...
whether substantial doubt exists about ability of entity to continue in existence for one year beyond date of f/s
104
options for GC uncertainties
add emphasis of matter paragraph following opinion paragraph (still unmodified), if serious uncertainty, may issue disclaimer of opinion
105
for GC uncertainties, you may issue a _____ if serious uncertainty
disclaimer of opinion
106
for other info accompanying f/s, auditors required to..
ensure info consistent with f/s
107
for other info accompanying f/s, reporting is responsible if...
inconsistencies are noted
108
supplementary information is reported...
only if engaged to do so
109
supplementary info will indicate if...
info is fairly stated in relation to f/s
110
for required sup. information, auditors are required to...
perform limited procedures and expand report on f/s to address exceptions noted
111
for required sup. information, add an...
explanatory paragraph to identify information, describe procedures performed, and identify any issues
112
emphasis of a matter is...
anything that helps auditors understand
113
emphasis of the matter call..
user attention to important matter (ex GC)
114
for continuing auditors, reports should address _____ in _____ form
all years presented, comparative
115
continuing auditors should update opinion by...
considering if previously issued opinions still appropriate
116
if previously issued opinions are not appropriate...
revise option IN CURRENT REPORT (explanatory paragraph)
117
with permission, auditors may present ____ from predecessor on prior years...
reissued report; f/s along with successor's report on current F/S
118
auditor would add an explanatory paragraph if predecessors' report...
not repented,
119
in explanatory paragraph for predecessor, successor auditors' report must...
reference predecessors' report and opinion on prior years' f/s
120
condensed f/s are derived from..
full set of f/s
121
auditor can only examine and report condensed if...
audited full financial statements
122
condensed report refers to the...
auditors report on full f/s
123
condensed report indicates...
whether info in condensed f/s is consistent in relation to the full statements
124
EBITA is not...
GAAP
125
association with unedited f/s means...
helping a company put together f/s for an audit but not doing the audit
126
in association with unedited f/s, auditors permit...
use of name in communication including f/s
127
for association with unedited f/s, what is issued?
disclaimer of opinion
128
in disclaimer of opinion for association with unedited f/s, you must...
not mention auditing procedures performed, must identify any known departures from GAAP in the report, cover all unedited prior yrs f/s
129
external auditor must be...
independent
130
if auditors begin engagement but independence is subsequently compromised...
report a single paraphrase that indicates auditors are not independent but does not indicate why independence is lacking
131
three scenarios to may issue disclaimer...
lack of independence, associated with unaudited f/s, material and pervasive gc uncertainty
132
for gc assessment, you issue an unqualified opinion when...
there is no substantial doubt or there is substantial doubt but there is mitigation factors
133
for gc assessment, when there is substantial doubt but no mitigating factors, you issue a...
unqualified opinion with gc explanatory paragraph
134
example of mitigating factor
CEO is fired
