17 - IV: Audit reports 2

Question 1

PCAOB: evaluating consistency: What are 2 situations?

Answer 1

1. Changes in accounting principles.

2. Restatements.

Question 2

PCAOB: evaluating consistency: change in accounting principles: What are 4 matters that must be evaluated?

Answer 2

1. Adopted principle is GAAP.
2. Method is FASB.
3. Disclosures are adequate.
4. Alternative principle is justified as preferable.

Question 3

PCAOB: evaluating consistency: change in accounting principles: What must the auditor do when 4 criteria met? Not met?

Answer 3

Met: Add an explanatory paragraph.
No: Treat the change as GAAP departure.

Question 4

PCAOB: evaluating consistency: restatement: What must the auditor?

Answer 4

Add an explanatory paragraph.

Evaluate the adequacy of disclosures.

Question 5

How is the change in classification treated?

Answer 5

Does not normally require mention in the report.

Question 6

Opening balance: What are 2 objectives?

Answer 6

To obtain sufficient appropriate audit evidence about whether

1. Opening balance contain misstatements that materially affect the current periods FS.
2. Accounting policies reflected in the opening balances have been consistently applied in the current period (or changes are appropriately accounted for and adequately presented/disclosed).

Question 7

What is the definition of “initial audit engagement”?

Answer 7

1. the FS for the prior period were not audited or

2. the FS for the prior period were audited by a predecessor auditor.

Question 8

What is the definition of “opening balances”?

Answer 8

Existed at the beg of the period. Also includes matters requiring disclosure that existed at the beg of period, such as contingencies/commitments.

Question 9

What is the definition of “reaudit”?

Answer 9

An initial audit engagement to audit FS that have been previously audited by a predecessor.

Question 10

Opening balance: Audit procedures?

Answer 10

1. Read most recent FS, predecessor’s audit report.

2. Request management to authorize the predecessor to respond fully to inquires and review his audit doc.

Question 11

Opening balance: Evaluation 3 points?

Answer 11

1. Determine whether the prior closing balances have been properly brought forward.
2. Determine whether the opening balances reflect the application of appropriate accounting policies.
3. Evaluate whether current period audit procedures provide evidence relevant to the opening balance (includes reviewing predecessor’s audit doc).

Question 12

What must the auditor do if discovers possible MM in prior period FS? What if management refuses or the auditor is not satisfy with the resolution?

Answer 12

Request management to inform the predecessor and arrange a 3-way meeting.

Evaluate the implications to the current engagement.

Question 13

Should the auditor reference the predecessor auditor as the partial basis for the opinion?

Answer 13

No. No division of responsibility.

Question 14

Opening balance: If the auditor is not able to obtain sufficient appropriate evidence, what should he do? If material misstatement is present?

Answer 14

Qualified or disclaimer of opinion.

Qualified or adverse opinion.

Question 15

Is the auditor responsible to act appropriately when FS and report are included in other doc?

Answer 15

Yes.

Question 16

Other info: Objective?

Answer 16

Respond appropriately when other info could undermine the credibility of FS and report.

Question 17

What is the excluded item from “other info”?

Answer 17

Required supplemental information.

Press release. Cover letter.

Question 18

What are examples of “other info”?

Answer 18

Report by management/those charges with governance.
ex: Financial summaries, ratios, highlights. Employment data. Planned capital expenditures, name of officers and directors, selected quarterly data.

Question 19

Other info: What is the procedures?

Answer 19

Obtain and read the other info (preferably before report release date.

Question 20

Other info: what must the auditor do if there is a material inconsistency (before release date)?

Answer 20

Determine whether FS or other info should be revised.

Question 21

Other info: if management refuses to make the revision, what should the auditor do? (before release date).

Answer 21

1. Communicate with those charged with governance.

2. May add an “other matter” paragraph, withhold report, or withdraw (if possible).

Question 22

Other info: what must the auditor do if there is a material inconsistency (after release date)?

Answer 22

Determine whether FS or other info should be revised.

Question 23

Other info: if management makes the revision, what should the auditor do? If refuse? (after release date).

Answer 23

Revised: Review steps taken by management to inform users.

Not revised: Inform those charged with governance (may seek legal counsel).

Question 24

Other info: What must the auditor do if there is a material “misstatement of fact”?

Answer 24

1. Discuss with management.
2. Request management to consult with appropriate parties (ex: entity’s legal counsel).
3. Notify those charged w/ governance if management refuses correction.

Question 25

Other info: what is the example of disclaimer look like?

Answer 25

Other info is not a required part of the basic FS....not been subject to the auditing procedures applied...accordingly we do not express an opinion or provide any assurance on it.

Question 26

Supplementary info: Objective when reporting on this matter?

Answer 26

Report on supplementary info in relation to the FS as a whole. To evaluate the presentation whether it's fairly stated, in all material respects, relation to the FS as a whole.

Question 27

Supplementary info: What is the characteristic of the engagement to report on it?

Answer 27

1. Auditor also audited FS. 2. Either unmodified or qualified opinion was expressed. 3. Supplementary info will accompany the audited FS or readily available. 4. Supplementary info was derived from the record used to prepare FS. 5. Supplementary info relates to the same period as FS.

Question 28

Supplementary info: Audit procedures?

Answer 28

1. Ask management: purpose of info/criteria used. 2. Compiles w/ applicable criteria? 3. Obtain an understanding of methods used (and whether those methods changed). 4. Compare/reconcile to FS or to the underlying records used for FS. 5. Ask management: sig assumptions used. 6. Evaluate appropriateness relative to FS. 7. Obtain written representations from management about responsibility, SI will be readily available, etc.

Question 29

Supplementary info: Must the auditor issue a separate report on FS and supplementary info?

Answer 29

No. Either is ok.

Question 30

Supplementary info: if the auditor issue a separate report on FS and SI, what must be done?

Answer 30

Cross reference.

Question 31

Supplementary info: if misstated in relation to FS, what must do?

Answer 31

Discuss w/ management/propose revision.

Question 32

Supplementary info: if misstated in relation to FS: if management does not revise, what must do?

Answer 32

Modify the opinion. | or Withhold the auditor's separate report on supplementary info.

Question 33

Required Supplementary info: Objectives?

Answer 33

To perform procedures to; 1. Describe whether RSI is presented. 2. Communicate when RSI has not been presented according to accounting guidelines, or the auditor has identified material modification necessary.

Question 34

RSI: audit procedures?

Answer 34

1. Ask; whether presented according to guidelines, methods changed since last period, sig assumptions? 2. Evaluate info for consistency w/ management responses to inquires, with FS, and w/other knowledge obtained.

Question 35

RSI: how must it be presented?

Answer 35

Add other matter paragraph; * RSI is included. * RSI is omitted. * Some of RSI is missing and some presented according to guidelines. * Auditor identified material departures etc.

Question 36

RSI: Does its presentation/omission affect the FS opinion?

Answer 36

No.

Question 37

Who requires RSI?

Answer 37

A designated accounting standard setter.

Question 38

What are examples of RSI?

Answer 38

* GASB: MDandA, budgetary comparison stmts. * Common interest realty association (HOA): estimates of current/future costs of major repairs, replacement required by FASB.

Question 39

What are examples of Supplementary info?

Answer 39

Branch/division detail as shown in Stmt of operations. Other income. Detail of General and Administrative Exp.

Question 40

PCAOB: Supplementary info: definition keys?

Answer 40

1. ancillary to the audited FS. 2. derived from the company's accounting books/record. 3. covered in relation to FS that are audited.

Question 41

PCAOB: Supplementary info: audit procedures?

Answer 41

``` Obtain an understanding; *Purpose and criteria. *Methods used/consistency. Ask about sig assumptions. Verify info agrees to the FS/other records. Test the completeness/accuracy. Evaluate compliance. Obtain management representations. ```

Question 42

PCAOB: Supplementary info: how does it need to be reported?

Answer 42

Together or separately from report on FS.

Question 43

PCAOB: Supplementary info: What opinion must be expressed when qualified opinion on FS was expressed? Adverse opinion?

Answer 43

Q: qualified opinion. A: adverse opinion or disclaimer.

Question 44

PCAOB: Supplementary info: What must the report include?

Answer 44

That SI is management responsibility. That complies with regulatory requirement. Opinion.

Question 45

Alert: objective?

Answer 45

Restrict the use of the auditor's written communication when it may be misunderstood if taken out of context.

Question 46

Alert: is the auditor responsible for controlling the distribution of the written communication after its release?

Answer 46

No.

Question 47

Alert: when is it required?

Answer 47

1. Criteria suitable to a limited number of users. 2. Criteria available only to the specified users. 3. Matters presented are "by-product report" (not the primary objective of the audit engagement).

Question 48

Alert: How can specified parties be added?

Answer 48

Obtain acknowledgment in writing from other parties of their understanding; * About the nature of the engagement. * About the criteria related to the subject matter. * About the auditor's written communication.

Question 49

Alert: How can specified parties be added after the release date?

Answer 49

Provide written indication to management and other parties of the addition.

Question 50

Alert: How is it presented?

Answer 50

As Other Matter paragraph. "This report....is intended solely for the info and use of... and is not intended to be and should not be used by anyone other than these specified parties."

Question 51

Another country: Objective?

Answer 51

To address appropriately the consideration relevant to; 1. The acceptance of the engagement. 2. The planning/performance of the engagement. 3. Forming an opinion and reporting on FS.

Question 52

Another country: Acceptance: what understandings must be obtained?

Answer 52

* The purpose for which the FS are prepared. * The intended users. * Steps taken by management to determine the framework is acceptable in the circumstances.

Question 53

Another country: audit performance: procedures? (FS intended used only outside US).

Answer 53

Perform the audit under GAAS (except reporting requirements). If engaged to apply stds of the country, obtain an understanding of the stds, apply them in addition to GAAS.

Question 54

Another country: Report: 2 options (FS intended used only outside US)? 1 option (FS used for both outside/inside)?

Answer 54

1. use the report form and content of the other country. 2. use a US form of report (add emphasis-of-matter, describing the basis used and the country involved). use a US form of report (add emphasis-of-matter, describing the basis used and the country involved).

Question 55

Summary FS: Objectives? (2).

Answer 55

* To determine whether it's appropriate to accept the engagement. * If engaged, to perform necessary procedures to form/express an opinion and its basis that they are or they are not consistent w/audited FS.

Question 56

Summary FS: definition?

Answer 56

Historical financial info derived from FS, but not detailed, but structured consistent w/ FS.

Question 57

Summary FS: applied criteria - definition?

Answer 57

The criteria applied by management in the preparation of the summary FS.

Question 58

Summary FS: Acceptance: what's the criteria and must be determined?

Answer 58

Must have audited the FS. | Determine applied criteria are acceptable and obtain a written agreement from management re: responsibilities.

Question 59

Summary FS: Procedures? (7).

Answer 59

1. Determine whether the audited FS are readily available to users (available on website ok. available upon request NOT ok). 2. Evaluate whether summary FS adequately disclose nature/identify audited FS. 3. Evaluate whether FS adequately disclose the applied criteria. 4. Compare the summary FS w/ audited FS. 5. Evaluate: Summary FS in accordance w/ applied criteria. 6. Evaluate: Not misleading (enough info contained). 7. Obtain written representations from management.

Question 60

Summary FS: reporting: what must say? (Unmodified).

Answer 60

Summary FS are consistent in all material respects w/ the audited FS...in accordance w/ applied criteria.

Question 61

Summary FS: reporting: what must say? (Adverse).

Answer 61

Summary FS not consistent with the audited FS.

Question 62

Summary FS: when the audited FS has an adverse opinion or disclaimer, what must the auditor do?

Answer 62

Prohibited to express an opinion.

Question 63

Interim financial info: Objective?

Answer 63

To obtain a basis for reporting whether the auditor is aware of any material modifications that should be made for it to be accordance w/applicable frameworks through limited procedures.

Question 64

Interim financial info: definition?

Answer 64

Financial info prepared/reported in accordance w/applicable framework that comprises wither completed or condensed set of FS, covering the period less than 1 full yr or 12 month w/ end date other than the entity's fiscal yr end.

Question 65

Interim financial info: Acceptance: what must the auditor determine? What does the engagement letter contain after acceptance?

Answer 65

Determine the applicable financial reporting framework is acceptable. The objective of the engagement. Responsibilities of management and auditor. The limitation of a review engagement. Identification of the applicable framework.

Question 66

Interim financial info: procedures: what understanding must be obtained? For what purposes?

Answer 66

An understanding of the entity and its environment, including I/C related to the preparation of the annual and interim FS. To identify the types of potential MM (and their likelihood). Assists in selecting the inquiries and analytical procedures.

Question 67

Interim financial info: What are basis for conclusions?

Answer 67

1. analytical procedures. | 2. inquires - obtain a written representations letter to record inquires/responses.

Question 68

Interim financial info: what should the date of management representation letter?

Answer 68

The same date as the auditor's review report.

Question 69

Interim financial info review: Report title?

Answer 69

Independent auditor's review report.

Question 70

Interim financial info review: Report: how many paragraph?

Answer 70

4.

Question 71

Interim financial info review: Report: what is contained in the 1st paragraph?

Answer 71

Report on FS: Nature and subject matter involved.

Question 72

Interim financial info review: Report: what is contained in the 2nd paragraph?

Answer 72

Management responsibility.

Question 73

Interim financial info review: Report: what is contained in the 3rd paragraph?

Answer 73

Auditor's responsibility: NOT audit - do not express an opinion: disclaimer of opinion.

Question 74

Interim financial info review: Report: what is contained in the 4th paragraph?

Answer 74

Conclusion (expressed as negative assurance): Not aware of any need of material modification.

Question 75

Interim financial info review: Report: how does it end?

Answer 75

Signature (firm name), City, State, Date.

Question 76

Interim financial info review: Report: when it's not prepared in accordance w/ applicable framework, what must the auditor do?

Answer 76

Modify the review IF the auditor believes that is sufficient to address the departure. If modification is not sufficient, withdraw.

Question 77

Interim financial info review: Doc requirement: who must be able to understand what?

Answer 77

Who: experienced auditor. What: *The nature, timing, extent of procedures performed. *The results. *Sig findings or issues, conclusions, sig professional judgment made.