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AUD > 15 Reports - Opinions &B Disclaimers > Flashcards

15 Reports - Opinions &B Disclaimers Flashcards

1
Q

What qualitative aspects of the entity’s accounting practices should the auditor evaluate?

A
  1. whether the statements adequately disclose the significant accounting policies
  2. whether the accounting policies selected and applied are consistent with the framework and are appropriate
  3. whether management’s accounting estimates are reasonable
  4. whether the information in the statements is relevant, reliable, comparable, and understandable
  5. whether the statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events
  6. whether the terminology used, including the title of each statement, is appropriate
  7. whether the statements adequately refer to or describe the framework
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2
Q

What should the auditor’s evaluation of fair presentation also consider?

A
  1. the overall presentation, structure, and content of the statements
  2. whether the statements, including the related notes, represent the underlying transactions and events in a manner that achieves fair presentation
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3
Q

If the auditor concludes that the statements are presented fairly what type of opinion should the auditor express?

A

unmodified (unqualified) opinion

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4
Q

What is are the terminology differences between AICPA and PCAOB opinions?

A

AICPA uses unmodified, PCAOB uses unqualified

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5
Q

What should the auditor do if they conclude that the statements are not fairly presented?

A

They should discuss the matter with management, and depending on how the matter is resolved, the auditor should determine whether the opinion should be modified

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6
Q

What is a modified opinion?

A

A qualified opinion, an adverse opinion, or a disclaimer o opinion

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7
Q

When is an opinion considered modified?

A
  1. If the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are materially misstated (qualified or adverse opinion)
  2. If the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement (qualified opinion or disclaimer of opinion)
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8
Q

Who defines the standards for the format of the standard auditor’s report for nonissuers?

A

AICPA

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9
Q

Who defines the standards for the format of the standard auditor’s report for issuers?

A

PCAOB

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10
Q

What does Generally Accepted Auditing Standards, AICPA standards, for an audit of a nonissuer, require to be included in the report?

A
  1. title
  2. addressee
  3. opinion
  4. basis for opinion
  5. responsibilities of management for the financial statements
  6. auditor’s responsibilities for the audit of the financial statements
  7. signature of the auditor
  8. auditor’s address
  9. date of the auditor’s report
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11
Q

Why should the title include the word “independent”?

A

To clearly indicate that the report is by an auditor who is independent of the entity

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12
Q

Who should the report be addressed to?

A

It should be addressed as appropriate for the circumstances of the engagement, for corporations, the addressee is most often the shareholders or the board of directors

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13
Q

What is the first section of the auditor’s report?

A

It should be the auditor’s opinion and should have the heading “Opinion”

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14
Q

What should be included in the Opinion section of the auditor’s report?

A
  1. identify the entity audited
  2. state that the financial statements have been audited
  3. identify the title of each statement
  4. refer to the notes
  5. specify the dates of, or periods covered by, each financial statement
  6. express an opinion
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15
Q

What should an unmodified opinion state?

A

That in the auditor’s opinion the accompanying financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework (ex - in accordance with accounting principles generally accepted in the United States of America)

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16
Q

What is the second section of the auditor’s report?

A

Basis for Opinion

17
Q

What is stated in the Basis for Opinion section of the auditor’s report?

A

That the audit was conducted in accordance with auditing standards generally accepted in the United States of America, it refers to the section of the report that describes the auditor’s responsibilities under GAAS, it includes a statement that the auditor is required to be independent of the entity and to meet the auditor’s other ethical responsibilities, and it states whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the opinion

18
Q

What is the third section of the auditor’s report?

A

Responsibilities of Management for the Financial Statements

19
Q

What should be included in the Responsibilities of Management for the Financial Statements section of the auditor’s report?

A

It should describe management’s responsibility for:

  1. preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework
  2. design, implementation, and maintenance of internal control
  3. fair presentation of financial statements that are free from material misstatement, whether due to fraud or error
20
Q

What is required by US GAAP (and other certain financial reporting frameworks) to be included in the Responsibilities of Management for the Financial Statements section of the auditor’s report regarding going concern?

A

Management is required to evaluate conditions or events, considered in the aggregate, that may raise substantial doubt about the entity’s ability to continue as a going concern, and this responsibility should be included in this section of the report

21
Q

What is the fourth section of the auditor’s report?

A

Auditor’s Responsibilities for the Audit of the Financial Statements

22
Q

Is the risk of not detecting a material misstatement resulting from fraud higher than for one resulting from error?

A

yes

23
Q

What may be involved in fraud?

A
  • collusion
  • forgery
  • intentional omissions
  • misrepresentations
  • override of internal control
24
Q

When are misstatements considered material?

A

If individually or in the aggregate, a substantial likelihood exists that they would influence the judgment of a reasonable user based on the financial statements

25
Q

What responsibilities should the Auditor’s Responsibilities section of the Auditor’s Report include?

A

The auditor’s responsibilities to:

  • exercise professional judgment and maintain professional skepticism
  • identify and assess the risks of material misstatement of financial statements, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements
  • obtain and understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control
  • evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements
  • conclude whether, in the auditor’s judgment, conditions or events, considered in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time
26
Q

Does an auditor express an opinion on the effectiveness of the entity’s internal control?

A

No, unless they are engaged to issue a report on internal control in which an opinion may be expressed.

27
Q

What should the Auditor’s Responsibilities section of the Auditor’s Report state regarding communication?

A

That the auditor is required to communicate with those charged with governance regarding, among other matters:

  • the planned scope and timing of the audit
  • significant audit findings
  • certain internal control-related matters that the auditor identified during the audit
28
Q

Can the signature on the auditor’s report be printed on an unmodified report for a nonissuer?

A

Yes, it can be manual or printed

29
Q

What is important when listing the auditor’s address on the Auditor’s Report?

A

That the report names the city and state where the audit report is issued

30
Q

If a separate statement by management is included in a document containing the Auditor’s Report, should the description of Management’s Responsibility refer to this statement?

A

No

31
Q

If financial statements are comparative, should the report refer to all the years in the statements?

A

Yes

32
Q

What are the basic elements of an unqualified report for an audit of the financial statements of an issuer in accordance with PCAOB standards?

A
  1. title
  2. addressee
  3. opinion
  4. basis for opinion
  5. critical audit matters
  6. signature of the auditor
  7. tenure
  8. auditor’s address
  9. date
33
Q

For an unqualified report for an issuer what must the title be on the report?

A

Report of Independent Registered Public Accounting Firm

34
Q

Who are the addressees on the unqualified report for issuers?

A

shareholders and the board of directors, or equivalents for noncorporate entities

  • other addressees may be added
35
Q

What is the first section of the Auditor’s Report for an unqualified report for issuers?

A

Opinion - titled “Opinion on the Financial Statements”

36
Q

What should be included in the opinion section of an unqualified report for issuers?

A
  1. identify the entity audited
  2. state that the statements have been audited
  3. identify each statement and any related schedules
  4. specify the date or period covered by each statement
  5. express an opinion the statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework, and it should identify the reporting framework (typically US GAAP)
37
Q

What is the second section of the Auditor’s Report for an unqualified report for an issuer?

A

“Basis for Opinion”

38
Q

What should the Basis for Opinion section of the Auditor’s Report for an unqualified report for an issuer state?

A
  1. the statements are the responsibility of the company’s management
  2. the auditor’s responsibility is to express an opinion on the statements based on the audit
  3. the audit was conducted in accordance with PCAOB standards
  4. PCAOB standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement, whether due to error or fraud
  5. that the audit included performing procedures to assess the risks of material misstatement and performing procedures that respond to those risks, examining on a test basis evidence regarding the amounts and disclosures in the statements, and evaluating the overall presentation
  6. the auditor believes that the audit provides a reasonable basis for the opinion
  7. the auditor is a public accounting firm registered with the PCAOB (United States) and is required to be independent with respect to e=the company in accordance with US federal securities laws and the applicable rules and regulations of the SEC and the PCAOB
39
Q

What should the Basis for Opinion section of the Auditor’s Report for an unqualified report for an issuer state?

A
  1. the statements are the responsibility of the company’s management
  2. the auditor’s responsibility is to express an opinion on the statements based on the audit
  3. the audit was conducted in accordance with PCAOB standards
  4. PCAOB standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement, whether due to error or fraud
  5. that the audit included performing procedures to assess the risks of material misstatement and performing procedures that respond to those risks, examining on a test basis evidence regarding the amounts and disclosures in the statements, and evaluating the overall presentation
  6. the auditor believes that the audit provides a reasonable basis for the opinion
  7. the auditor is a public accounting firm registered with the PCAOB (United States) and is required to be independent with respect to e=the company in accordance with US federal securities laws and the applicable rules and regulations of the SEC and the PCAOB

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