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aud > 16 - IV: Audit reports 1 > Flashcards

16 - IV: Audit reports 1 Flashcards

1
Q

PCAOB: Structure of report?

A
  1. Title: Report of independent registered public accounting firm.
  2. Scope paragraph: audit performed by the stds of the public company accounting oversight board (United States).
  3. Opinion paragraph: U.S. generally accepted accounting principles (AICPA: accounting principles generally accepted in the United States of America).
  4. Signature: city, State, date.
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2
Q

PCAOB: What is form AP? What are 3 points included?

A

Auditor Reporting of Certain Audit Practices.

  1. Engagement partner’s name.
  2. Name, location, extent of participation of any other firm that accounts for 5% or more of total audit.
  3. Same above accounts for less than 5%.
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3
Q

Management responsibility: AICPA and PCAOB?

A

A: preparation and fair presentation of FS w/ GAAP, IC.
P: F/S.

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4
Q

PCAOB: audit description?

A

Examine evidence, on test basis, for FS amounts and disclosures; assess accounting principles and estimates; evaluate overall FS presentation.

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5
Q

Conclusion: AICPA and PCAOB?

A

A: Sufficient and appropriate to provide basis for opinion.
P: Reasonable basis for opinion.

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6
Q

Group FS: If the auditor decides to audit group FS, what are 3 objectives?

A
  1. Determine whether to make reference to the audit of a component auditor.
  2. To communicate clearly w/ component auditors.
  3. To obtain sufficient appropriate audit evidence regarding the financial info of the components and the consolidation process to express an opinion on the group FS.
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7
Q

What is a component?

A

An entity for which group or component management prepares financial information that is required by the applicable financial reporting framework to be included in the group financial statements.

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8
Q

Who can be a component auditor?

A

Be a part of the group engagement partner’s firm, a network-affiliated firm, or another unrelated firm.

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9
Q

What is group FS?

A

Financial statements that include the financial information of more than one component.
It also includes combined FS aggregating the financial info under common control.

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10
Q

What is group-wide-controls?

A

Controls designed, implemented, and maintained by group management over group financial reporting.

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11
Q

What is significant components?

A
  1. has individual financial significance.

2. Due to its specific nature, likely has significant RMM of the group FS.

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12
Q

What is the group engagement partner responsible for? (2)

A
  1. The direction, supervision, performance of audit in compliance.
  2. Determine whether the auditor’s report is appropriate in the circumstances.
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13
Q

Group FS: What is required understanding?

A

Understanding of the group, component, environments sufficient to identify sig components.

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14
Q

Group FS: What must the group engagement partner consider re: required evidence?

A

Whether the team will be able to obtain sufficient appropriate audit evidence to act as the auditor of the group FS.

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15
Q

Group FS: what is the understanding must be obtained to assess RMM?

A

Understanding of the consolidation process, includes instructions from group management to components.
Understanding sufficient sufficient to identify sig components.

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16
Q

Group FS: What should be assessed re: audit plan?

A

The extent of the use of the work of component auditors and whether the report will reference the component auditor.

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17
Q

Group FS: what understanding should be obtained re: component auditor? (4)

A
  • Whether component auditor is independent.
  • Competence.
  • Whether info about the consolidation process can be obtained from the component auditor.
  • Whether component auditor operates in a regulated environment (such as PCAOB).
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18
Q

Group FS: 3 materiality considerations?

A
  1. As a whole.
  2. component materiality.
  3. Measure of what is trivial.
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19
Q

Group FS: What are 3 requirements to reference the component auditor’s work? What would be the deciding factor if all 3 met?

A
  1. Component’s FS use the same framework.
  2. Component auditor has compiled w/ GAAS.
  3. Component auditor has issued a report that is not restricted.

Sig findings.

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20
Q

Group FS: What must be made clear in the group auditor’s report if reference component auditor’s work?

A

The component was audited by the component auditor (identify the portion of the FS involved).

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21
Q

Group FS: what does mentioning other auditor mean re: responsibility?

A

Division of responsibility.

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22
Q

Group FS: when referencing component auditor, where is it mentioned in the auditors report?

A

In the 1st paragraph of the auditor’s responsibility.

Opinion.

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23
Q

Group FS: what are doc requirements?

A
  1. An analysis of components re: Sig findings and type of work performed.
  2. Components info for those that were mentioned in the report.
  3. Communication w/ component auditor re: the group engagement team’s requirements.
  4. FS and report of components referenced in the report.
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24
Q

What is emphasis-of-matter paragraph?

A

Refers to a matter;
Appropriately presented/disclosed in FS.
In auditor’s judgment, it’s sig enough for the user’s fundamental understanding of FS.

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25
Q

What is other matters paragraph?

A

Refers to a matter;
Not presented/disclosed in FS.
In auditor’s judgment, it’s relevant for users’ understanding of the audit, auditor’s responsibility, or report.

26
Q

Emphasis-of-matter paragraph: What should it indicate re: opinion?

A

That the auditor’s opinion is not modified.

27
Q

What are 3 situations emphasis-of-matter paragraph is required?

A
  1. Substantial doubt about going concern.
  2. Inconsistency in accounting principles.
  3. FS prepared in accordance w/ special purpose framework.
28
Q

What are 4 situations emphasis-of-matter paragraph maybe used?

A
  1. Uncertainty of outcome of important litigation/regulatory action.
  2. A major catastrophe has a sig effect.
  3. Sig transactions w/ related parties.
  4. Unusually important subsequent events.
29
Q

Other matters: what must be clearly indicated?

A

The other matter is not required to be presented/disclosed in FS.

30
Q

Other matter: When is it required?

A

When the opinion is different than prior year.

31
Q

Other matter: When can it be used?

A

When reporting on more than one set of FS (ex: 1 w/ GAAP, other w/IFERs), reference the other report in each report.
When management imposed a pervasive scope limitation, but the auditor can’t withdraw.

32
Q

Emphasis-of-matter and other matters: communication requirement w/ those charged with governance?

A

Should communicate the proposed wording of any expected paragraphs.

33
Q

When is a modified opinion expressed (2)?

A
  1. Presentation: The auditor concludes FS as a whole are misstated.
  2. Scope: Unable to obtain sufficient appropriate audit evidence to conclude FS as whole are free from MM.
34
Q

What are 3 types of modified opinions?

A
  1. Qualified.
  2. Adverse.
  3. Disclaimer of opinion.
35
Q

What are 3 possible opinions for scope limitations?

A
  1. Unmodified: If scope limitation is NOT material.
  2. Qualified: Scope limitations material, but NOT pervasive.
  3. Disclaimer of opinion: Scope limitation material and pervasive.
36
Q

What are 3 definition keys for pervasive?

A
  1. Effects not confined to specifics.
  2. Effects could be a substantial portion.
  3. Lack of disclosure that are fundamental.
37
Q

What is the meaning of qualified opinion?

A

For scope limitation: Unable to gather evidence, but concludes any possible effect on FS could be material, but not pervasive (express reservations, but taken as a whole, FS still fairly stated).

38
Q

Qualified opinion due to scope limitation: Impact on introductory and management responsibility paragraphs?

A

Nothing.

39
Q

Qualified opinion due to scope limitation: Impact on auditor’s responsibility paragraph?

A

In the last sentence, “we believe…..to provide a basis for our qualified audit opinion.”

40
Q

Qualified opinion due to scope limitation: What is the new paragraph added on the report?

A

“Basis for qualified opinion” right after the auditor’s responsibility.

41
Q

Qualified opinion due to scope limitation: Impact on opinion paragraph?

A

The title: Qualified opinion.
“In our opinion, except for the possible effect of the matter described in the Basis for Qualified Opinion paragraph, ….”

42
Q

What are 3 possible opinions when FS are misstated?

A
  1. Unmodified: misstatement NOT material.
  2. Qualified: misstatement material, but NOT pervasive.
  3. Adverse opinion: misstatement material and pervasive.
43
Q

What is the meaning of qualified opinion when FS is materially misstated?

A

Expresses reservations, but FS taken as a whole are still fairly stated.

44
Q

What is the meaning of adverse opinion?

A

FS are not fairly presented (misleading).

45
Q

Adverse opinion: impact on the adverse opinion paragraph?

A

“In our opinion, because of the significance of the matter discussed in the Basic for Adverse Opinion paragraph,…FS…do not present fairly.”

46
Q

What is a piecemeal opinion? Is it allowed?

A

Conflicting opinions appearing in the same report.

No.

47
Q

Are different opinions on different stmts allowed (BS, IS, etc) when auditing the complete set of FS?

A

Yes.

48
Q

Is auditing a single FS allowed?

A

Yes.

49
Q

Is auditing specific elements, accounts, or items on FS allowed?

A

Yes.

50
Q

When adverse opinion or disclaimer are issued on FS as a whole, is providing other opinion elements allowed? On what requirements? On a single FS?

A

Yes. Only unmodified opinion allowed only if there is a separate report AND the element is NOT a major portion of FS or based on stockholder’s equity or NI.

No (single FS=major portion).

51
Q

What is the meaning of disclaimer of opinion?

A

No conclusion is expressed.

52
Q

Disclaimer of opinion: Impact on the auditor’s report: Auditor’s responsibility?

A

There will be only 2 sentences.
“Responsibility is to express an opinion…in accordance w/ adducting stds generally accepted in the United States of America. Because of the matter described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.”

53
Q

Disclaimer of opinion: Impact on the auditor’s report: what is a new part added?

A

Basis for Disclaimer of Opinion.

54
Q

Disclaimer of opinion: Impact on the auditor’s report: Disclaimer of Opinion paragraph?

A

“Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these financial statements.”

55
Q

Must the auditor evaluate the consistency of FS for the periods presented?

A

Yes.

56
Q

What are 2 situations comparability may have been materially affected?

A
  1. A change in accounting principles.

2. Adjustments to correct a MM in previously issued FS.

57
Q

What are the periods the auditor must evaluate re: consistency when audit report covers 2 periods?

A

The earliest period covered by the report and the prior period.

58
Q

Change in accounting principles: What are 4 criteria must be evaluated?

A
  1. Whether the new principle is in accordance w/ applicable framework.
  2. Whether the effect of the change is properly accounted for.
  3. Whether the disclosures are adequate.
  4. Whether the entity justified the use.
59
Q

Change in accounting principles: When the 4 criteria are met, what paragraph should be added to the report? How long must the paragraph reported subsequently?

A

Emphasis-of-matter.

Until the new principle is applied in all periods presented.

60
Q

Change in accounting principles: When the 4 criteria are not met, what must the auditor do?

A

Evaluate whether the change results in a MM and the audit report should be modified.

61
Q

Correction of previously issued FS: what paragraph needs to be added? How long must the paragraph reported subsequently?

A

Emphasis-of-matter.

No need to report in subsequent periods.

aud (24 decks)

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