Unit 1 Flashcards by Brad Hunt

So there are two different standards used for issuers and non issuers…tell me what they are and who publishes them

Issuers: Auditing Standards (ASs) issued by the PCAOB

Non-Issuers: Statements on Auditing Standards (SASs) published by the AICPA

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What are the five main GAAS requirements related to the conduct of an audit

SEJEC

Skepticism (Professional)
Ethical Requirements 
Judgement (Professional)
Evidence is sufficient and appropriate
Compliant with GAAS

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Identify three inherent limitations of an audit

nature of financial reporting
Nature of audit procedures
timeliness of financial reporting and the balance of cost and benefit

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When should the auditor have a modified opinion

if the auditor finds that the FS are materially misstated as a whole (GAAP issue)
OR
the auditor cannot get enough information/documentation to conclude that the FS as a whole are materially misstated (GAAS issue)

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List the primary sections of an unmodified audit opionion for a nonissuer

TITLE: Independent Auditors Report
ADDRESSEE: Based on the cicumstances of the engagement
INTRODUCTION: We have audited the accompanying FS of…
Management’s Responsibility for the FS: Management is responsible for the preparation and fair presentation of the financial statements
Auditors Responsibiltiy: Our responsibility is to express an opinion on these financial statements based on our audit
Opinion: in our opinion the FS referred to above fairly, in all material respects, the financial position

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What is included in the introductory paragraph of an unmodified opinon for a non issuer

The entity
Statement saying the FS were auditted
Title of each FS auditted
Dates/periods covered for each FS

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what should be included in the opinion paragraph

statement that the FS are presented fairly in all material respects, the financial position of the entity as of the BS date and the results of operations and cash flows of then ended
identification of the applicable financial reporting framework

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Where in the standard unmodified opinion (nonissuer) does the auditor refer to 1. the applicable financial reporting framework and 2. GAAS

in the management responsibility paragraph and opinion paragraph
GAAS is referred to in the auditors responsibility paragraph

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List in order the primary sections of an unqualified audit opinion (issuer)

Title
Addressee
Opinion Section
Basis for opinion section
signature, tenure, location
report date

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What should be included in opinion section of the unqualified audit opinion (issuer)

the first section has to say “opinon on the financial statements” and has to include the following”
name of company being auditted
statement identifying each FS and related schedule being auditted
Dates or periods covered
Statement saying they were auditted
that it was presented fairly in all material respects for the proper period in accordance to GAAP

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What should be included in the first paragraph of the basis for opinion section for a issuer with an unqualified opinion

Fs are responsibility of mgmt
auditors will express an opinion
auditor is registered with the pcaob

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What should be included in the second paragraph of the basis for opinion section for a issuer with an unqualified opinion

audit followed PCAOB standards
and
statement that the audit provided a reasonable basis for opinion

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where is the standard unqualified opinion(issuer) does the auditor refer to the 1.accounting framework-gaap 2. standards of the PCAOB

opinion paragraph

2. second paragraph under the basis for opinion parahraph

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auditors report cannot be dated before the auditor has obtained sufficient evidence…this includes evidence that three things have occured, what are those things

audit documentaiton has been reviewed
FS has been prepared
mgmt took responsibility for the FS

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define a critical audit matter (CAM)

matter that was communicated or required to be communicated to the audit committee and that:

relates to acts or disclousres that are material
involved challanging, subjective, or complex auditor judgement

NOTE: must state if any CAMS were present or not present

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how many CAMs do you expect to find in an audit…

usually at least one

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for each CAM identified, what needs to be included

IPAD

Identification of the CAM
Principal considerations that led to determining the CAM
Addressing the CAM in the audit (how was it addressed)
Disclosures or FS accounts referenced if relevant

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what should the auditor of an issuer do if the auditor determines there are no CAMs

State that there werent any fucking CAMs

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when would an auditor use professional judgement to determine whether to issue a qualified opinion or adverse opinion

When evidence indicates that there is material misstatements of the financial statements

Qualified opinion is issued when the auditor concludes that misstatements are material but not pervasive to the FS

Adverse opinion is a misstatement that is both material and pervasive

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If an opinion is qualified due to a material misstatement for an issuer, where does the paragraph explaining the qualification appear

placed immediately after the opinion paragraph..should include the reasons for conclusion, disclosure of the principal effects if the subject matter

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is an auditor required to report on critical audit matters (CAM) when issuing an adverse opinion

NOPE not if its adverse babyyyy

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When does an auditor use profesisonal judgement

when there is limitation of scope

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identify some examples of scope limitations

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time constraints
inability to observe inventory
inability to confirm receivable 
inadequacy of accounting records
refusal of attorney to respond
refusal of mgmt to provide rep letter

What situation may result in a disclaimer of opinion for a non-issuer

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pervasive inability to obtain sufficient appropriate audit evidence

lack of independence

going concern uncertainty.

if an opinion is modified on a nonissuer audit report where does the paragraph explaining the modification appear

prior to the opinion paragraph with any of the following headings: Basis for Qualified Opinion Basis for Adverse Opinion Basis for Disclaimer of Opinion

is an auditor required to report on critical audit matters when issuing a disclaimer of opinion

na they dont have to do that

the term Generally accepted auditing standards means what?

its the measure of the quality of the auditors performance

For a non-issuer, what is the purpose of an emphasis of matter paragraph?

it references a matter that is appropriately presented in the financial statements, but is of such importance that it is fundamental to the user's understanding of the statements

What are the reporting requirements for an emphasis of matter paragraph (non-issuer)

placing the paragraph after the opinion paragraph using the heading "Emphasis of Matter" describing the matter being emphasized

What paragraphs reference GAAS and what paragraphs reference GAAP? (FOR A NON ISSUER)

GAAS is referenced in the AuditorSSSS Responsibility Paragraph GAAP is referenced in the oPPPinon Paragraph

IF you do no audit work or have no audit evidence (GAAS) for an issuer, what kind of opinion do you give on the FS

a disclaimer! Bad Very bad!

When a public accounting firm is associated with a public companies financial statements, but has NOT auditted or reviewed them, what kind of opinion do they give

A DISCLAIMER

Under what circumstance would an emphasis of matter paragraph be required in an auditors report (non-issuer) GAASP

``` Going concern (substantial doubt) Accounting principle change with material effect Auditors opinion changed due to subsequent event Special Purpose framework was used to prepare FS ```

Under what circumstance would an Other-Matter paragraph be required in an auditors report (non-issuer)

prior period FS were audited by another auditor and the other auditor's report is not reissued Current period FS are audited and presented and compared with FS from prior period. Auditor finds a material inconsitency which the client doesnt fix

Who uses an Emphasis of Matter Paragraph? Does having an emphasis of matter paragraph impact the opinion of the auditor? Where does the emphasis of matter paragraph go?

Non-Issuers use it! No having an emphasis of matter paragraph does not impact the opinion. It is put after the opinion paragraph and before the other matters paragraph

Going back to FAR and possible litigation, when do you accrue? When would you disclose?

if it is Probable and estimateable: Accrue and Disclose but if you cant estimate the amount only disclose if it is Reasonably Possible: only disclose if it is remote: ignore

What is the purpose of an other matters paragraph, who uses it and where is it located

It is used by NON-ISSUERS to refer to the other matters not talked about in the FS which are relevant to the users understanding. It is put after the opinion and emphasis of matter paragraph

Who uses an explanatory paragraph? Where is it put? Why do they put it?

Issuers use this paragraph and put it after the opinion paragraph. It is required by the PCAOB or at the auditors judgement and is very similar to an emphasis of matter/other matters paragraph for a non-issuer.

Who uses an unmodified opinion and who uses an unqualified opinion?

``` Non-issuers = unmodified Issuers = unqualified ```

If an emphasis of matter paragraph is included, what is a common sentence included? Hint: it references another part of the FS

after talking about the issue, there is a common line where it refers to the related note of the financial statements for further detail.

If in the current year FS, the opinion differs from the previous opinion, the auditor will include DORCS because DORCS change their mind

``` Date of the previous report Opinion type previously issued Reason for prior opinion Changes that have occurred Statement that the 'opinion...is different' ```

What are the two components needed to reference the use of a component auditor in the audit report?

1. the component auditor has performed an audit in accordance with GAAS or PCAOB 2. component auditor is not restricted use

Where is the referencing of a component auditor referenced in the audit report for a non-issuer, what about for an issuer?

Non-issuer: reference in the auditors responsibility and include them in the opinion paragraph Issuer: reference in the opinion paragraph, and the basis of opinion paragraph.

When are public companies required to evaluate subsequent events, what about non public companies

Management is responsible up until the date the FS are issued for PUBLIC COMPANIES NON PUBLIC COMPANIES have until the FS are available to be issued

Do you recognize subsequent events if the FS are reissued?

NOOOO

After the original date of the auditor report, is there any responsibility of the auditor to look into subsequent events and make an adjustment?

They have no active responsibility after the original date of the auditor report except if the auditor becomes aware of something before the report release date (they missed something)...then they should do something

How in depth does the auditor get when looking at a companies supplemental information

they do limited procedures on the required supplemental info

For a non issuer (private company) if there is required supplementary information, how is it presented in the auditors report?

it is presented in an other matters paragraph which follows the opinion paragraph.

What are the other comprehensive bases of accounting (OCBA)

Cash, tax, and regulatory basis of accounting

When reporting on Other Comprehensive Bases of Accounting (OCBA) what kind of language do you use?

NOT GAAP LANGUAGE

What procedures should an auditor perform during the subsequent event period (PRIME)

Post balance sheet transactions review Representation letter has been obtained Inquire with mgmt whether subsequent events occured Minutes from board/committee minutes are reviewed Examine current interim FS and compare to FS being audited

what procedures relating to subsequent events is the auditor responsible to perform after the date of the auditor report?

NONE, they have no responsibility to do so

When and why is dual dating used?

Dual Dating is used when the subsequent events requiring FS adjustments or disclosures come to the auditors attention after the original date of the audit report. It basically extends the auditors responsibility.

What kind of opinion is related to an "Except For" sentence and additional paragraph

A qualified opinion for an issuer

For an unmodified opinion for a nonissuer, where is GAAS and GAAP Referenced

GAAS is referenced in the Auditors Responsibility | GAAP is referenced in MGMT's responsibility and Opinion paragraph

Unit 1 Flashcards

(55 cards)