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AUD > 17 - IV: Audit reports 2 > Flashcards

17 - IV: Audit reports 2 Flashcards

1
Q

PCAOB: evaluating consistency: What are 2 situations?

A
  1. Changes in accounting principles.

2. Restatements.

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2
Q

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

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

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

A

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

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4
Q

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

A

Add an explanatory paragraph.

Evaluate the adequacy of disclosures.

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5
Q

How is the change in classification treated?

A

Does not normally require mention in the report.

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6
Q

Opening balance: What are 2 objectives?

A

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).
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7
Q

What is the definition of “initial audit engagement”?

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

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

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8
Q

What is the definition of “opening balances”?

A

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

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9
Q

What is the definition of “reaudit”?

A

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

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10
Q

Opening balance: Audit procedures?

A
  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.

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11
Q

Opening balance: Evaluation 3 points?

A
  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).
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12
Q

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?

A

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

Evaluate the implications to the current engagement.

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13
Q

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

A

No. No division of responsibility.

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14
Q

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

A

Qualified or disclaimer of opinion.

Qualified or adverse opinion.

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15
Q

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

A

Yes.

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16
Q

Other info: Objective?

A

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

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17
Q

What is the excluded item from “other info”?

A

Required supplemental information.

Press release. Cover letter.

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18
Q

What are examples of “other info”?

A

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.

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19
Q

Other info: What is the procedures?

A

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

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20
Q

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

A

Determine whether FS or other info should be revised.

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21
Q

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

A
  1. Communicate with those charged with governance.

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

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22
Q

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

A

Determine whether FS or other info should be revised.

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23
Q

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

A

Revised: Review steps taken by management to inform users.

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

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24
Q

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

A
  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.
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25
Q

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

A

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.

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26
Q

Supplementary info: Objective when reporting on this matter?

A

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.

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27
Q

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

A
  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.
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28
Q

Supplementary info: Audit procedures?

A
  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.
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29
Q

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

A

No. Either is ok.

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30
Q

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

A

Cross reference.

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31
Q

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

A

Discuss w/ management/propose revision.

32
Q

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

A

Modify the opinion.

or Withhold the auditor’s separate report on supplementary info.

33
Q

Required Supplementary info: Objectives?

A

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.
34
Q

RSI: audit procedures?

A
  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.
35
Q

RSI: how must it be presented?

A

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.
36
Q

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

A

No.

37
Q

Who requires RSI?

A

A designated accounting standard setter.

38
Q

What are examples of RSI?

A
  • GASB: MDandA, budgetary comparison stmts.
  • Common interest realty association (HOA): estimates of current/future costs of major repairs, replacement required by FASB.
39
Q

What are examples of Supplementary info?

A

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

40
Q

PCAOB: Supplementary info: definition keys?

A
  1. ancillary to the audited FS.
  2. derived from the company’s accounting books/record.
  3. covered in relation to FS that are audited.
41
Q

PCAOB: Supplementary info: audit procedures?

A 
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.
42
Q

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

A

Together or separately from report on FS.

43
Q

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

A

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

44
Q

PCAOB: Supplementary info: What must the report include?

A

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

45
Q

Alert: objective?

A

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

46
Q

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

A

No.

47
Q

Alert: when is it required?

A
  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).
48
Q

Alert: How can specified parties be added?

A

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.
49
Q

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

A

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

50
Q

Alert: How is it presented?

A

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.”

51
Q

Another country: Objective?

A

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.
52
Q

Another country: Acceptance: what understandings must be obtained?

A
  • The purpose for which the FS are prepared.
  • The intended users.
  • Steps taken by management to determine the framework is acceptable in the circumstances.
53
Q

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

A

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.

54
Q

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

A
  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).

55
Q

Summary FS: Objectives? (2).

A
  • 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.
56
Q

Summary FS: definition?

A

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

57
Q

Summary FS: applied criteria - definition?

A

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

58
Q

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

A

Must have audited the FS.

Determine applied criteria are acceptable and obtain a written agreement from management re: responsibilities.

59
Q

Summary FS: Procedures? (7).

A
  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.
60
Q

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

A

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

61
Q

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

A

Summary FS not consistent with the audited FS.

62
Q

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

A

Prohibited to express an opinion.

63
Q

Interim financial info: Objective?

A

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.

64
Q

Interim financial info: definition?

A

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.

65
Q

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

A

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.

66
Q

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

A

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.

67
Q

Interim financial info: What are basis for conclusions?

A
  1. analytical procedures.

2. inquires - obtain a written representations letter to record inquires/responses.

68
Q

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

A

The same date as the auditor’s review report.

69
Q

Interim financial info review: Report title?

A

Independent auditor’s review report.

70
Q

Interim financial info review: Report: how many paragraph?

A

4.

71
Q

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

A

Report on FS: Nature and subject matter involved.

72
Q

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

A

Management responsibility.

73
Q

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

A

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

74
Q

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

A

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

75
Q

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

A

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

76
Q

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

A

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

77
Q

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

A

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

AUD (24 decks)

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