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Flashcards in Sampling and communications Deck (21):

All material weakness are significant deficiencies, but NOT all significant deficiencies are material weakness.



Significant deficiencies and material weakness observed during a F.S audit of NONISSUER should be reported in WRITING, the report of such circumstance should

1. indicate that the purpose of the audit was to report on the F.S and NOT to provide an opinion on internal control.
2. include a definition of a material weakness and if applicable, significant deficiency.
3. include a restriction on use of the report.


Regarding communication of deficiencies in internal control of NONISSUER

1. The auditor may NOT report the absence of significant deficiencies. ( 没有重大缺陷不需要报告)
2. The auditor may issue a communication indicating that NO MATERIAL WEAKNESS were identified during the audit (没有重要缺点需要报告)


An SSAE examination (for nonissuer or private company) of internal control can be only be performed if management

1. accept responsibility for the effectiveness of internal control
2.evaluate the effectiveness of the entity's internal control using suitable and available criteria.
3. Support its assertion about the effectiveness of internal control with sufficient appropriate evidence
4. Provide a written assertion about the effectiveness of the entity's internal control in a report that accompanies the auditor's report.


Any report issued on significant deficiencies should indicate that the purpose of the audit was to report on the F.S and NOT to provide assurance (opinion) on internal control

A statement that errors or irregularities may occur and not be detected due to inherent limitation in internal control is included in the report when an auditor is engaged to express an opinion on internal control, NOT when the auditor is reporting as part of an audit.


PCAOB standards do NOT require auditor express an opinion on effectiveness of internal control on NONISSUER
, but PCAOB standards require the auditor to express an opinion, in conjunction with F.S audit of ISSUER.

GAAS standards do NOT require provide an opinion on effectiveness of internal control of nonissuer


An engagement to report on whether a previously reported internal control weakness continues to exist is

a voluntary engagement, NOT required by professional standards.


In an audit of an ISSUER

It is management's responsibility to assess and report on internal control, and the auditor is also required to assess and report on internal control.


In an audit of a NONISSUER, the auditor is required to communicate both significant deficiencies and material weakness to management and those charged with governance. (同审计 ISSUER)

In an audit of an ISSUER, the auditor is required to communicate both significant deficiencies and material weakness to management and the audit committee (同审计NONISSUER), but only material weakness result in an ADVERSE opinion on the effectiveness of internal control.


The communicate of deficiencies of ISSUER
1. control deficiency
2. significant deficiency
3. material weakness

a. all three need to communicate to management, and then inform the committee that communication has been made
b. 2 and 3 need to be communicated to committee
3. 3 need to be communicated to management and committee prior to the issuance of report on internal control


When auditing the internal control of an issuer

1. A scope limitation requires the auditor to DISCLAIM or WITHDRAW from the engagement, NO , never a qualified opinion.
2. A material weakness in internal control requires the auditor to issue an ADVERSE opinion.


Regarding the significant deficiencies noted in an audit of NONISSUER

1. The auditor is obligated to RE-COMMUNICATE significant deficiencies each year, EVEN IF management has acknowledge its understanding of such deficiencies.
2. the auditor should SEPARATELY IDENTIFY significant deficiencies and material weakness.


In an engagement to express a opinion on an entity's internal control, the scope, procedures is MORE EXTENSIVE than in an audit of an entity's internal control.

The purpose of tests of controls when in an engagement of express an opinion and when in audit is also different.


An auditor is hired to report on a NONISSUER's internal control over financial reporting.

1. when an material weakness exists, auditor should issue an ADVERSE opinion
2. Failure of management to provide a written representation letter acknowledging its responsibility for the effectiveness of internal control is a SCOPE LIMITATION which results in a DISCLAIM of opinion or WITHDRAWAL from the engagement. (never qualified opinion).


The role of the risk assessment in an integrated audit of a nonissuer incldue
1. selecting control to test
2.determining significant accounts and relevant assertions
3.determining evidence necessary to conclude on the effectiveness of a given control

do NOT include
1. concluding on the effectiveness of a given control

because the auditor's conclusion on the operating effectiveness of internal control occurs AFTER the risk assessment process.


The auditor should communicate those with governance with

1. the auditor's view about qualitative aspects of the entity's accounting practices, including
a. the initial selection of , change in and appropriateness of significant accounting policies
b. the process used by management in formulating significant accounting estimate
c. significant accounting judgments
d. the adequacy of F.S disclosures.
2. significant difficulties encountered in performing the audit
3. disagreement with management
4. uncorrected, nontrivial misstatements and their possible effect on the audit


If those charged with governance are NOT involved with managing the entity, the auditor should also communicate

1. significant issues or finding arising from the audit that were discussed with management
2. material ,corrected misstatement brought to management's attention as a result of audit
3. management representation requested by the auditor
4. management consultation with other accountants.


The auditor is NOT required to communicate those charged with governance the degree of reliance placed on management representation letter.

1. The adjustments arising from the audit, regardless of whether or not management record them
2. the process management use to develop significant accounting estimate, which includes discussion of the basis of the auditor's conclusion regarding the reasonableness of those estimates.
3. the auditor's level of responsibility that he assuming under GAAS.


Disagreement based upon PRELIMINARY info need NOT be communicated by the auditor to those charged with governance.

Disagreement regrading
1. management's judgment about accounting estimate
2.scope of the audit
3. the application of accounting principle
need to communicate with those charged with governance.


According to SEC, members of an issuer's audit committee may NOT accept any consulting, advisory, or other compensatory fee from the registrant for services other than as a member of the board

Member of an issuer's audit committee are typically responsible for the compensation of the public accounting firm employed by the registrant to provide and audit report.


Representations may be LIMITED to items that management and the auditor agree are MATERIAL.

Materiality considerations do NOT apply to item not directly related to F.S amount (e.g all minutes and all financial records should be made available to the auditor; management's acknowledgement of its responsibility for the F.S; availbility of financial records, and completeness and availability of minutes, instances of fraud involving management.)