Study Unit 16 - Reports - Other Modifications Flashcards
How does the group auditor’s decision on whether to assume liabilities for the audit of a component auditor affect the group audit report?
Decision about responsibility Effect on the group audit report
Not assume responsibility Reference to component auditor
+
Clear indication that the component
was not audited by the group auditor
but by the component auditor
Assume responsibility No reference to component auditor
What are the factors relating to component auditors that group auditors should obtain an understanding of?
The component auditor’s
- Professional competence
- Compliance with ethical requirements
- Independence
When a group auditor assumes the responsibilities for the audit of a component auditor, how does the significance of the component affect the audit procedures performed?
Significant component - An audit (Test of controls + Test of details) of the component
Insignificant component - Analytical procedures at the group level
Which requirement of the component auditor, if not met, would preclude the group auditor from referring to the audit of the component auditor in the auditor’s report or using the component auditor’s work?
The independence requirement relevant to the group audit.
How are the periods covered in an auditor’s evaluation of consistency determined?
The periods covered in an auditor’s evaluation of consistency depend on the periods covered by the auditor’s opinion.
Periods reported in Periods covered
Auditor’s report
Initial audits/Only on Current period + Period preceding the
The current period earliest period (if presented)
Two or more periods All periods reported + Period preceding
the earliest period (if presented)
When does a change in accounting principle occur?
A change in accounting principle occurs when an entity
- Adopts a generally accepted principle different from the one previously used
- Changes the method of applying a generally accepted principle
- Changes to a generally accepted principle when the principle previously used is no longer generally accepted
- Adopts a change in accounting estimate inseparable from a related change in principle
How should a material change in accounting principle be disclosed in the auditor’s report for nonissuers and issuers?
Audit for non issuers Emphasis -of-matter paragraph
Audit for issuers Explanatory paragraph
Note for both: Included until the new principle is applied in all periods presented
How should a correction of a material misstatement in previously issued financial statements be disclosed in the auditor’s report for nonissuers and issuers?
Audit of nonissuers Emphasis-of-matter paragraph
Audit for issuers Explanatory paragraph
Note for both: Included only in the period when the statements are restated
How are changes in classification in previously issued statements disclosed in the auditor’s report?
Changes in classification in previously issued statements do not require recognition in the auditor’s report unless the change is
- a correction of a material misstatement (e.g., classifying debt from long term to short term)
- A change in accounting principle
When auditing comparative financial statements, if an auditor’s opinion on prior-period financial statements differs from the opinions previously expressed, how should the difference be disclosed in the auditor’s report for nonissuers and issuers?
Audit for nonissuers Emphasis-of-matter paragraph or other-matter paragraph
Audit for issuers Explanatory paragraph
What should the predecessor auditor do before reissuing the auditor report for a prior period?
- Consider whether the report is still appropriate (given new information and subsequent events)
- Read the current-period statements
- Compare the prior-period statements with those presented comparatively
- obtain management representations on changes
When should an audit report for prior periods reissued by the predecessor auditor be dated?
The predecessor should use the date of the previous report to avoid implications that (s)he examined any records, transactions, or events after that date.
If a predecessor auditor’s report is not presented in the successor auditor’s report, what should be stated in the successor auditor’s report?
The auditor’s report should include a paragraph stating
- That the prior-period statements were audited by the predecessor auditor (name not revealed)
- The date of the predecessor’s report
- The type of opinion expressed by the predecessor and reasons for any modification
- The nature of any additional disclosures in the predecessor’s report
If audited current-period financial statements are presented comparatively with unaudited prior-period financial statements, how should the issue be disclosed in the current-period auditor’s report?
If prior-period statements are… Effect on current-period auditor’s report
Not audited, be reviewed or compiled Include an other-matter paragraph
Not audited, reviewed, or compiled Include an other-matter paragraph
+ Mark financial statements as
“unaudited”
What are the events or transactions that require the use of an emphasis-of-matter paragraph in an auditor’s report?
- A change in the auditor’s opinion on revised financial statements (an other-matter paragraph may be included instead)
- Substantial doubt exists about an entity’s ability to continue as a going concern
- A material change in principle or correction of a material misstatement in previously issued statements
- Reports on special purpose financial statements
