A1 Flashcards
In which of the following should an auditor’s report for a nonissuer refer to the lack of consistency when there is a justified change in accounting principle that is significant?
A. The basis of opinion section
B. An emphasis-of-matter paragraph
C. The opinion section
D. An other-matter paragraph
B. An emphasis-of-matter (and auditor would issue an unmodified opinion)
If the auditor was able to obtain sufficient audit evidence except was unable to verify the opening balance of inventory, what type of opinion would she be able to issue?
UNMODIFIED FOR B/S & DISCLAIMER FOR INCOME STMT
Should the auditor always consider that fraud might occur regardless of any past experience with the entity?
YES
What opinion uses that phrase: “In our opinion, except for [reference to matter giving rise to qualification] described in the Basis for Qualification section of our report . . . “
QUALIFIED
When financial statements include supplementary information outside the basic financial statements but are required by GAAP, the auditor may __________ an opinion, report on whether the information is ________ fairly stated in relation to the F/S, or express an _________ on the information, if she has been engaged to examine such information.
DISCLAIM; FAIRLY; OPINION
When an auditor of a nonissuer expresses an adverse opinion, the Opinion section should include a __________ reference to a ______________ section disclosing the basis of opinion.
DIRECT; SEPARATE
A entity prepares its F/S on its income tax basis. A description of how that basis differs from GAAP should be included in the _________ to the financial statements.
NOTES
A scope limitation sufficient to preclude an unmodified opinion always will result when management ________ to acknowledge its responsibility for the _____ representation of the financial statements.
REFUSES; FAIR
An auditor who uses the work of a specialist may refer to the specialist in the auditor’s report if the auditor _______ the report because of the difference between the client’s and the specialist’s valuations of an asset.
MODIFIES
Proper segregation of duties reduces the opportunities to allow persons to be in positions to both __________ and __________ errors and fraud.
PERPETRATE; CONCEAL
Compliance with the enhanced financial disclosures associated with issuer reports includes:
(1) Management’s assessment of the ___________________ of internal control
(2) Disclosure of the existence of an __________ on the audit committee or why one does ____ exist
(3) Disclosure of ________________ with principal shareholders
EFFECTIVENESS; EXPERT; NOT; TRANSACTIONS
In reporting on internal controls, SOX requires that the CEO and CFO who sign the report assert that they have disclosed ______ significant internal control deficiencies to both the _________ committee and the __________ auditors.
ALL; AUDIT; ISSUERS’
An entity’s comparative F/S include the F/S of the PY that were audited by a predecessor auditor whose report is not presented. If the predecessor’s report was qualified, the successor should indicate the ___________________ reasons for the qualification in the predecessor’s opinion.
SUBSTANTIVE
A successor auditor ordinarily should request to review the predecessor’s audit documentation relating to _________________ and internal _____________.
CONTINGENCIES; CONTROLS
In addition to making management inquiries, an auditor should perform the following procedures to identify client contingencies:
(1) obtain client _________________ letter
(2) _____________ the status of long-term leases
(3) discuss ________ contracts with the sales manager
REPRESENTATION; REVIEW; SALES
Are human resource policies and practices considered control environment factors?
YES
Levine, CPA, is auditing the financial statements of a nonissuer. In auditing the long-term investments account, Levine is unable to obtain audited financial statements for an investee located in a foreign country. Levine concludes sufficient appropriate audit evidence regarding this investment cannot be obtained.
Assume the potential effect on the financial statement is moderate.
What type of opinion would the auditor issue?
What modifications would have to be made to the audtior’s responsibility section, opinion section, and basis of opinion section?
Opinion Type: QUALIFIED
Auditor’s Responsibility: NO CHANGE
Opinion Section: MODIFY
Basis for Opinion section: MODIFY
Levine, CPA, is auditing the financial statements of a nonissuer. In auditing the long-term investments account, Levine is unable to obtain audited financial statements for an investee located in a foreign country. Levine concludes sufficient appropriate audit evidence regarding this investment cannot be obtained.
Assume the potential effect on the financial statement is high.
What type of opinion would the auditor issue?
What modifications would have to be made to the auditor’s responsibility section, opinion section, and basis of opinion section?
Opinion Type: DISCLAIMER
Auditor’s Responsibility: NO CHANGE
Opinion Section: MODIFY
Basis for Opinion section: MODIFY
The five subsequent event audit procedures an auditor should perform are:
(1) Review of _______ balance transactions
(2) Review of __________________ representation letter
(3) Make ____________ of management regarding any unusual adjustments
(4) Review of the _____________ of the stockholders meeting that took place one month after year-end
(5) Examine the latest _____________ financial statements
POST; MANAGEMENT; INQUIRIES; MINUTES; INTERIM
When an auditor of a nonissuer expresses an adverse opinion, the Opinion section should include a ______________ reference to a separate section disclosing the basis for the opinion.
DIRECT
A limitation on the scope of an audit sufficient to preclude an unmodified opinion will usually result when management is _____________ to obtain audited financial statements supporting the entity’s investment in a ___________ subsidiary.
UNABLE; FOREIGN
_______________ guidance provided by the Statement on Auditing Standards provides the most authoritative guidance for the auditor of a nonissuer.
GENERAL
When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should ______ refer to the change in the auditor’s report.
NOT
When an independent CPA assists in preparing the financial statements of a publicly held entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyond ____________ the financial statements for obvious material misstatements.
READING
During an audit, the auditor sent the client’s attorney a letter of inquiry for any pending litigation or unasserted claims. The attorney returned the letter, indicating that the attorney would not respond to the inquiry. Under these circumstances the auditor most likely would consider the impact of a ___________ limitation.
SCOPE
An auditor decides to issue a qualified opinion on an entity’s financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor’s report should state that the qualification pertains to the possible __________ on the financial statements.
EFFECTS
An audit of financial statements prepared in conformity with the cash basis of accounting should include an _____________-__-_________ paragraph alerting readers about the preparation in accordance with the cash basis of accounting.
EMPHASIS-OF-MATTER
An auditor would use only substantive procedures to evaluate specific relevant assertions and risks because testing the _________________ effectiveness of the relevant controls would not be efficient.
OPERATING
An auditor is required to document the auditor’s understanding of the entity’s ___________ activities that help ensure management directives are carried out, and the control ________________________ factors that help the auditor plan the engagement.
CONTROL; ENVIRONMENT
The primary objective of an auditor when considering the acceptance of an initial audit engagement of a nonissuer is to establish whether the ___________________ for an audit are present.
PRECONDITIONS
Economic indicators are often used to try to predict or explain economic activity. An example of a leading economic indicator is ______________________ and trade sales.
MANUFACTURING
Under U.S. auditing standards, an auditor will ordinarily issue an unmodified audit opinion without an emphasis-of-matter paragraph when the auditor decides to make ________________ to the audit of a ___________________ auditor as a basis, in part, for the auditor’s opinion.
REFERENCE; COMPONENT
An auditor must obtain evidence that controls are operating effectively during the _________ period of reliance if the auditor plans to assess control risk at less than the ______________.
ENTIRE; MAXIMUM
Statements on Standards for Attestation Engagements provide information addressing attestation services for the following subject matters:
(1) ______-_________ procedures
(2) Financial ____________ and projections
(3) Pro ________ financial statements
(4) Compliance
(6) Management’s ____________ and analysis
(7)Reporting on ___________ at a service organization
AGREED-UPON; FORECASTS; FORMA; DISCUSSION; CONTROLS
What standards apply to audit engagements?
SAS (STATEMENTS ON AUDITING STANDARDS); PCAOB (STANDARDS FOR ISSUERS)
What standards apply to Preparation, compilation, and review engagements?
SSARS (STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES)
What standards apply to attest engagements?
SSAE (STATEMENTS ON STANDARDS FOR ATTESTATION ENGAGEMENTS)
A financial forecast is a framework that ____________ a company’s financial conditions in the past, present, and future.
ESTIMATES
A financial projection is essentially a _____ of financial statements.
SET
