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Flashcards in Reporting Deck (76):

What are the four assertions for MD&A assertions?

1) Occurence, 2) Consistency of FS, 3) Completeness, 4) Presentation and Disclosure


What are the five systemTrust service principles?

They are Security, Availability, Processing Integrity, Online Privacy, and Confidentiality.



For trust service principles, what are the 4 criteria?

four criteria are policies, communications, procedures, and monitoring.


Which body makes the the standards for financial assistance to receipients?

The General Accounting Office.


Suitable criteria should have an appropriate combination of the following characteristics:

objective, measurable, complete, and relevant.


suitable criteria should be available in one or more of the following ways:

(1) publicly, (2) included with the subject matter or in the assertion, (3) included in the CPA’s report, (4) well understood by most users (e.g., the distance between A and B is twenty feet) or (5) available only to specified parties.


What are the diferences between a nonissuer comapny and an issuer company reporting?

-The title "Report of Indepdent REGISTERED public accounting firm."
-referral to the standards of the PCAOB rathre than generally accepted auditing standards.
-Less detailed discussions of management and auditor responsibilities.
-A paragraph referring to the auditor's report on IC. (This reference is obviously only required when the reports on the FS and IC are separte.


When do you use an unmodified opinion with emphasis-of-matter paragraphs?

1) background
2)substantial dbout about ability to continue as a going concern
3)Inconsistency in Application of accounting principles
4) Uncertainties
5) Other circumstances at the discretion of the auditor


Where should emphasis of matter be included?

-It should be AFTER the opinion paragraph
-Use the heading "Emphasis-of-matter."
-Include in the paragraph a clear reference to the matter emphasized and where the matter is in the FS.
-Indicate that the auditor's opinion is not modified with respect tothe matter emphasized.


Events that will make you think there is substantial doubt about ability to cotinue as a going concern?

A substantial doubt that a company can't operate more than a year. Consider:
-Negative trends
-Other indication of possible financial difficulties
-Internal matters. (e.g., work stppages, uneconomic long-term commitments.
-external matters (e.g., legal proceedings, legislation, loss of prin. customer.


Procedures that may identify conditions for substantial dobut about ability to continue as a going concern?

-analytical procedures
-review of subsequent events
overview of complaicne with debt agreements
-reading of minutes of stockholders, BOD and other important board committees.
-Inquiy of legal counsel.
-Conciermation with related and thid parties of details.


what are management plans to mitigate as a going concern?

-Plans to dispose of assets
-plans to borrow money or restructure debt
plans to reduce or delay expenditures
-plans to increase ownership equity.


If management plans to mitigate the problem of going concern?

Consider the adequacy of FS disclosures and add emphais of matter paragraph to unqualified audit report (or disclaimer).


Inconsistency in application of GAAP, when the auditors believe that the new principle meet the tests:

1) newly adopted principle is generally accepted
2) method of accounting for the effect of the change is in conformity with GAAP,
3) Disclosures related to the change are adequate,
4) Management has justified that the new accounting princple is preferable.

If if doesn't pass this test, issue either a qualified or an adverse opinion.


Client's correction of a material missatemnt in previously issued FS?

also results in addition of an emphasis-of-matter paragraph to the audit report.


When multiple ncertainties cause the auditor to conldue that it is not possible to form an opinon on the FS as a whole, due to the intenraciton and cumulative possible efefects

a disclaimer may be approrpirate.


Other circusmtances at he disrection of the auditor:

auditors may incldue an emphasis of matter paragraph for:
1) A major catastrophe that affects the entity's financial position.
2) signficant transactions with related parties
3) Unusualy important subsequent events.


What results in a qualified opinion?

1) materially misstated FS
2) inability to obtain sufficient appropriate audit evidence.


What results in an adverse opinon?

when FS sare materially missated and the ffects of the missatements are both mateiral and and pervasive.


Disclaimer of opinon?

when inability to obtain sufficient appropriate audit evidence has occured and the possible effects are both mateiral nad pervasive. a DISCLAIMER STATES THAT HTE AUDITOR DOES NOT EXPRESS AN OPNION ON THE fs.


the modified opinon is placed where?

it is placed immediately before hte opinon paragraph. it has the word "Basis for ____ opinon". then the opinion paragraph becomes "______ opinon."


Other circumstnaces resulting in disclaimer of opinon

1) substantial doubt about going concern
2) uncertnatines. whene there are multiple uncerntainties.


Group auditing. When no reference to the component auditors:

group auditor assume full responsibility for the entire audit. elect to make no reference, they will issue the standard auditors' report with no additonal wording.


Group auditing. make reference ot he component auditors:

divides the responsibilty for hte engagement among the participating CPA firms. shared resonsiblity opinon, even though it is signed only bh the group aditors. usually issued when other autiros were engaged by the client with no guidance from the group auditors.

Give appropriate $ audited by other auditor.


Unmodified opinions with other-matter paragrpahs

They differ from emphasis of matter paragraphs in that they refer to a matter not in the audited FS. Include other matter when:
1) prior period financial statemnets not audited. (that is they are reviewed, complied, or there isn oCPA assoc.)
2) Opinon on prior period statements different from opinion previously issued.
3) prior period financail statements audited by a predecessor auditor.


The predcessor auditr should perform:

1) limited procedures such as reading hte current FS, comparing them to the prior period FS and obtaining representation letters from bot hthe client's management and the sucessor auditor.


If the predecessor auditor's report is not reissued, an other matter paragraph is added to the sucessor auditor's report

-That the FS of hte prior period were audited by a predecessor auditor
-the type of opinion expressed by the predecessor and, if the opinon was modified, the reasons therefor.
-the nature of an emphasis of matter paragraph or other matter paragraph include int he predecessor auditro's report.
-the date of that report.


Other matter - alert as to the report inteded use

Restricting the use of an auditor's report.
An auditor may be requried to or may choose to alert readers of FS that the report is intended for only certain users:
1) the report is inteded solely for the info and use of the specified parties
2) identify the specifeid parties
3) indicate that the report is not intended to be used by anoyone other than sepcified parties.

The other matter shoud be placed after emphasis of matter. that should also be placed after opinon section.


In a comfort letter:

CPAs will provide positive assurance that hey are independent and that their audit followeed SEC standards. They will provide negative assurance or a summary of findings on various types of accounting related matters such as the following: unaudited condensed and summarized interim info, pro forma fin. info, change subsequent to the BS date, and on various stables.


What is an assertion?

IT is a declaration about whether hte subject matter is presented in accordance with certain criteria.


The criteria used in an attestation engagement should:

be suitable and available to the users. Suitable criteria should have an appropriate combination of the following characteristics: objective, measurable, complete, and relevant.

criteria are standards or benchmarks that are used to evaluate the subject matter of the engagement.


What is a subject matter?

takes many forms, including
-historical or prospective performance or condition (e.g., historical prospective financial info)
-physical characteristics
-historical events
-sytems or processes


Agreed-upon procedures engagements

reports incldue a list of procedures performed and the related findings.
Because specified parties have agreed upon the nature of the procedures, the reports for such engagement are intended only for those parties. Consequently, reports on restricted use only. contrasted to general use reports. This is the only report that require you to make notice to its restriction.


Service organization control (SOC) reports

ex. data centers, flexible spending account servicers, and medical claim processers. 3 types of examination services that result in the following three types of CPA reports.
1) Restricted use reports on controls at a service organization relevant to a user entity's internal control over financial reporting.
2) Restricted use reports on controls at a service organization related to security, availability, processing integrity, confdientiality, and/or privacy.
3) general use Systrust reports related to security, availabilty, procesing intgerity.


Compliance auditing:

to provide assurance that requiremnets of various federal programs:
1) compliance with contractual agreements based on having performed a FS audit.

ojective is to provide negative assurance.
2) complaince attestation engagements,
3) compliance auditing of federal financial assitance programs.


FS may issue a report on complaince:

1) when the covenants relate t othe FS
2) those covenants have been subjected to audit procedures
3) the auditor's audit repot on the FS has other than an adverse opinon or a disclaimr of opinon.


Compliance auditing, Government auditing standards

-Standards for FS under Government Auditing Standards
- A governmental audit requirement that requires an auditor to express an opinion on compliance.

Provides waht ti refers to as "generally accepted govenrment adutiing stndards. (GAGAS)


Audits conduted in accordance with GAAS

1) performed for governmental entities for which no law requires either a GAS or single audit.
2) audit scope - responbility to deisng all audits to provide reasonable assurance
3) standard audit report is normally issued.


Audits conducted in acordance with generally accepted gonverment auditing standards (GAGAS)

1) Applicability 0 these audits are required for certain org. that receive federal financial assitance. whether a governmental org is required to depends on the programs and whether it is required to have a single audit.

audit scope - in addition to GAAS requirements, depdneidng upon the nature of hte netity being audited, additonal auditor responsibilites may exist.
reporting - require reporting on the FS, internal control, and complaince with laws and reg., other govenrment audits may not require a report on IC.


Audits conducted in accordance with the single audit act.

Passed by Congrass, is implemented by the Office of Management and Budget. Relates to Compliance Supplement. These audits require supplement the GAS audit procedures. auditr's report may be presented in a form of either comibned or separate reports


Single audit act report should include

1) opinon (or disclaimer) on whether FS conform to GAAP.
2) opinion on schedule of expenditures of federal wards. the schedule summarized program expenditures for all programs. opinion on whether the info presented fairly, in all mateiral respects, in relaiton to the FS taken as a whole.
3)Report on IC related to the FS and major programs. Under the single audit requirements, auditors are responbile for understanding IC over major porgrams.


For agreed upon procedures, there is something special about their assertions:

A written assertion is not always required for an agreed-upon procedures engagement.


AICIP Professional Standards define assurance services as:

AICIP Professional Standards define assurance services as independent professional services that improve the quality of information or its context for decision makers.


Segment disclosures

Inaccurate (or omitted) segment disclosures constitute a departure from GAAP and lead to a qualified opinion or an adverse opinion. When a client changes operating segments from one year to the next for acceptable reasons, no consistency modification or other report modification is necessary.

An auditor considers segment disclosures (as other disclosures) in relation to the financial statements taken as a whole. Accordingly, the auditor is not required to apply procedures as extensive as would be necessary to express an opinion on the segment information itself.


The objective of a review of interim financial information is to provide the CPA with a basis for

Reporting whether material modifications should be made to such information to make it conform with generally accepted accounting principles


Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of:

efficiency, economy, effectiveness, and compliance.


Tests of controls show that the entity’s internal control structure is so poor that it cannot be relied upon.

internal control weaknesses will cause the auditor to perform additional substantive procedures to obtain the required evidential matter. If the substantive procedures cannot provide the required evidential matter, a disclaimer of opinion is required.


If management chooses to place supplementary information required by the FASB in footnotes attached to the financial statements, this information:

the professional standards require that the information be clearly marked "unaudited."


The AICPA Assurance Services Executive Committee's (ASEC) mission is to

identify, develop, and communicate new assurance service opportunities for CPAs.


When performing an audit of a city that is subject to the requirements of the Uniform Single Audit Act of 1984, an auditor should adhere to

General Accounting Office Standards for Audit of Governmental Organizations, Programs, Activities, and Functions.


SEC reporting on interim statements:

Certain SEC reporting companies are required to include unaudited quarterly information in their annual reports or other documents filed with the SEC that contain audited financial statements. Auditors are engaged to perform review procedures either at the conclusion of each quarter, or at the end of the year when the information is included with the annual information. When dealing with the annual financial statements, omission, misstatement, or auditor inability to review the quarterly information all lead to inclusion of an emphasis-of-matter paragraph in the annual audit report. Be aware that the information is to be reviewed, not audited. Therefore, its misstatement will not lead to a qualified or an adverse opinion.


What is a compnay level control?

• Controls within the control environment, including tone at the top, assignment of authority and responsibility, consistent policies and procedures, and company-wide programs such as codes of conduct and fraud prevention
• Management’s risk assessment process
• Centralized processing and controls
• Controls to monitor results of operations
• Controls to monitor other controls, such as internal audit, the audit committee and self-assessment programs
• The period-end financial reporting process is always considered significant and includes: the consolidation procedures, use of spreadsheets, journal entries, significant nonroutine, nonsystematic transactions, and selection and application of accounting policies
• Drafting of the financial statements and disclosures
• Board of director approved policies that address business control and risk management
NOTE: Testing company-level controls alone is not sufficient for the purpose of expressing an opinion on internal control.


CPA should not agree to perform procedures so overly subjective and possibly open to varying interpretations; examples are

Reading work performed by others solely to describe their findings
Evaluating competency or objectivity of another party
Obtaining understanding about a particular subject
Interpreting documents outside scope of CPA’s expertise


when an audit is performed, negative assurance is:

not to be provided, regardless of whether the financial statements are for a fiscal or interim period.


In an audit in accordance with Government Auditing Standards an auditor provides what level of assurance?

Reasonable assurance of detecting misstatements that are material to the financial statements.


Suitable criteria & Written assertion:

while an attestation engagement will always have subject matter, it sometimes will not have a written assertion. For example, consider a situation in which the CPA’s client is not responsible for the subject matter; in such a circumstance it may not be possible to obtain a written assertion from the individual who is the responsible party.


When auditing a public entity’s financial statements that include segment information, the auditor should

Audit the segment information, and, if the information is adequate and in conformity with GAAP, do not make reference to the segment information in the auditor’s report.


suitable criteria should be available in one or more of the following ways:

(1) publicly, (2) included with the subject matter or in the assertion, (3) included in the CPA’s report, (4) well understood by most users (e.g., the distance between A and B is twenty feet) or (5) available only to specified parties.


When third-party use of prospective financial statements is expected, an accountant may not accept an engagement to

Financial forecasts and projections. The attestation standards present three forms of accountant association with forecasts or projections—compilation, examination, and application of agreed-upon procedures.


financial projections are .

prospective financial statements that include one or more hypothetical assumptions


When performing more than one level of service, for example a compilation and a review for a nonissuer entity, the accountant generally shoudl issue the report that is appropriate for

1) the highest level of service rendered.


When a CPA audit a company that is not his or her client, you should address it to the

client that hired you.


For a nonpublic company, which seciton of the audit report includes a statment that the auditor believes that the audit evidence obtained is sufficient?



when subsequent event requiring adjustments for FS without disclosure to event, come sto he auditor's atteniotn?

the professional standards state that the date sufficent appropriate audit evdience has been collected should be usd in such circumstances.


"taken as a whole," the PCAOB meant it to be:

a complete set of FS and each individual FS.


f the presentation departs from the presentation guidelines because it fails to disclose assumptions that appear to be significant,

the practitioner should express an adverse opinion.


When an independent U.S. auditor is engaged to report on financial statements prepared for use in another country, the auditor should perform audit procedures that are necessary to comply with the general and fieldwork standards of:

both U.S. GAAS and the auditing standards of the other country when specifically requested to do so.


The objective of a review of interim financial information of an issuer is to provide an accountant with a basis for reporting whether:

The objective of a review of interim financial information of an issuer is to provide the CPA with a basis for reporting whether material modifications should be made to the interim information to comply with the applicable financial reporting framework.


Weak internal control will not in general result in an adverse opinion; if controls are so weak that an audit cannot effectively be completed,

a disclaimer of opinon or withdrawal may be appropriate.


An auditor who qualifies an opinion because of an insffucienciency in auditevidence should describe the limitations in a basis for modication paragraph. Auditor hsould also refer to the limitation in the

1) auditor's responsibility section AND opinon paragraph.


on condensed financial statement report,

you must issue a modified report.


If management declines to present supplementary infomraiotn required by the Governmental Accounting Standards Board (GASB), the aduitor should issue

Unmodified opinion with an addiotnal other-matter paragraph!


Letters for underwriter.

Remember! Letter the letters typically give negative assurance on unaudited interim finanical infomation.


AT 301 state when significant assumptions are not disclosed, an:

adverse opinion should be issued.


Which of the following statements represents a quality control requirement under Government Auditing Standards?

A CPA seeking to enter into a contract to perform an audit should provide the CPA's most recent external quality control review report to the party contracting for the audit.


In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect current operating results, the auditor would:

If an auditor is unable to apply all necessary audit procedures he or she considers necessary, regardless of the reason, a scope limitation has occurred. In the case where an auditor is unable to verify beginning balances because he was hired at some point during the year being audited, then those accounts which are measured over a period of time (such as revenues and expenses) cannot be verified. The auditor may not issue an opinion on the income statement and statement of cash flows for this period. However, the auditor would be able to express an opinion on the balance sheet since it is dated on the last day of the period.