9/9 Class Ch 3 & 25

Question 1

standards of reporting

Answer 1

FS presented in accordance with GAAP
Report inconsistencies in application of GAAP
report lack of adequate disclosure
express opinion or an assertion that an opinion cannot be expressed

Question 2

standard reports

Answer 2

report title
   must include independent
audit report address
intro paragraph
managements responsibility
   fs are managements responsibility 
   mgt must select appropriate accounting principles and     ....maintain internal control 
auditors responsibility
   US GAAS or PCAOB Standards
   nature of the audit
   what we did and how we did it
   basis for opinion
   reasonable assurance
   FS free of material misstatement 
scope paragraph
auditors opinion
   opinion whether f/s fairly stated in accordance with US    ....GAAP in all material respects
name and address of CPA Firm
Audit Report Date(Date audit field work was completed)

Question 3

GAAS

Answer 3

private

Question 4

PCAOB

Answer 4

public

Question 5

types of opinions

Answer 5

unqualified - standard
unqualified - modified(shared)
unqualified with explanatory paragraph
qualified(except for)
adverse - causes us to believe they are not correctly   .....................stated
disclaimer - couldn't get an opinion

Question 6

unqualified(standard) opinion

Answer 6

clean opinion
most desirable for of expression
may be issued if:
include required fs
compliance with GAAS or PCAOB
evidence has been obtained
compliance with GAAP or IFRS(including disclosures)
no circumstances require:
explanatory opinion 
modification

Question 7

separate reports on internal controls sect 404

Answer 7

effectiveness of internal control over financial reporting
6 paragraphs
opinion
effectiveness of internal controls
option of combined reports
reference to audit of financial statements

Question 8

extra paragraph required(unqualified)

Answer 8

no loss of quality 
does not "dirty" opinion
still unqualified
draws attention
causes:
lack of consistent application of GAAP
substantial doubt about going concern
Agree with departure from GAAP
Emphasis of a matter
other auditors involved

Question 9

lack of consistent application of GAAP

Answer 9

inconsistency:
disclose change
effects on financial statements
keep unqualified if:
new principle is GAAP
management justification for change is reasonable

Question 10

going concern(unqualified)

Answer 10

indicators:
recurring operation losses
negative cash flows
defaults on loan agreements
legal proceedings
work stoppages
adverse financial ratios/trends

Question 11

justified departure

Answer 11

appropriate to depart from GAAP or financial statements would not be fair
very, very, uncommon

Question 12

emphasis of a matter

Answer 12

related party transactions described in a note to f/s
significant subsequent events
company is component of larger business enterprise
comparability issues other than changes in principle
risk of uncertainty(resolution of matter at future date - loss contingency)
explanatory paragraph is not required - at auditor’s discretion based on judgement

Question 13

part of audit performed by other auditors

Answer 13

make no reference to other auditors
principal auditor accepts work ….as own
make reference (shared opinion)
auditor responsibility and ….opinion sections are modified

Question 14

unqualified

Answer 14

standard

Question 15

qualified opinions

Answer 15

overall f/s are fairly stated
scope limitation
fair presentation(GAAP)
explanatory paragraph before opinion
opinion = except for
   reasons 
   materiality of exception

Question 16

scope limitation

Answer 16

client imposed
   clean, qualified, or ....disclaimer
   disclaim(if material/pervasive)
circumstance imposed
   auditor cannot satisfy with ....alternative procedures
   qualify or disclaim based on
      omitted procedure
      significance/pervasiveness to ........f/s

Question 17

Qualified(departures from GAAP)

Answer 17

immaterial(unqualified)
material but not pervasive (qualified)
material departure, not pervasive
does not otherwise ….overshadow overall fairness ….of f/s

Question 18

Adverse Opinion

Answer 18

material and pervasive
material departure that is ….pervasive
very misleading
opposite of unqualified
auditor has knowledge
f/s do no present fairly
very material/pervasive departures from GAAP
Give reasons in separate ….paragraphs
rare as clients will usually ….remedy departure

Question 19

table 3-2 pg 66

Answer 19

expresses opinions

Question 20

disclaimer of opinion pg 65 examples

Answer 20

no opinion is rendered(lack of knowledge)
situations
   lack of independence
   severe scope limitation
   major going concern issues

Question 21

Ch 25

Answer 21

on it

Question 22

pg 784 figure 25-1

Answer 22

shows graph on services

Question 23

review reports

Answer 23

done in accordance with SSARS
   includes inquiries of management
   analytical procedures
   substantially less in scope ....than audit
limited assurance
   no opinion expressed 
   negative assurance "not aware of material modifications"
requires independence

Question 24

review procedures

Answer 24

inquiries
analytical procedures
obtain trial balance-trace to GL & financial statements
Management representation letter
read report for conformity with GAAP
Statements on standards for accounting and review Services (SSARS) - AICPA

Question 25

compilation

Answer 25

no assurance
not an attestation engagement
read financials for conformity with GAAP
May omit disclosures
SSARS - AICPA
Paragraph added if lacking independence or if disclosures are omitted

Question 26

special reports

Answer 26

report on specified elements of FS
reports on controls at service organizations
   SAS 70 - SSAE 16
   Type 1 vs. Type 2
examination of prospective f/s
   forecast - best estimate
   projection - hypothetical    .............................assumptions
agreed upon procedures