A1 Flashcards
Generally accepted auditing standards (“GAAS”)
measures of the quality of the auditor’s performance this what they look at so they can figure out how to perform an audit.
Hierarchy
SAS(Private) and PCAOB(Public)
Interpretive Publication
Other auditing publications
An auditor of a nonissuer must conduct the audit in accordance with:
ASB standards.
U.S. generally accepted accounting principles is an accounting term that
Encompasses the conventions, rules, and procedures necessary to define U.S. accepted accounting practice at a particular time.
The term should
indicates a presumptively mandatory requirement, which must be followed in all cases in which the requirement is relevant, except in rare circumstances when departure from the requirement is permitted if there is appropriate justification, performance of sufficient alternative procedures, and thorough documentation.
The term must
indicates an unconditional requirement, which must be followed in all cases in which the requirement is relevant.
The term may/might/could
indicates explanatory material that does not impose a professional requirement for performance.
responsibility to consider but not execute
Steps in the audit cycle
Engagement acceptance
Assess risk and plan response
Perform procedures and obtain evidence
Form conclusion
Report
What is not a practice of professional skepticism
Asking prior year auditors on whether or not the client was open and “fraud-free”
What is not a requirements of an auditor
To have experience with the industry
In order to obtain reasonable assurance, the auditor must
(a) plan the work and properly supervise any assistants;
(b) determine and apply appropriate materiality levels;
(c) identify and assess risks of material misstatement, whether due to error or fraud; and
(d) obtain sufficient appropriate audit evidence.
Requirement for audit evidence
Appropriate
Types of opinions
Unmodified (Nonissuers)
Unqualified (Issuers)
For Audit issues
Qualified
Disclaimer
For FS issues
Qualified
Adverse
GAAP
Auditors use this to see if the transactions in the FS are reported fairly and squarely
The auditor modifies an opinion when
FS as a whole is materially misstated
or
when the auditor doesn’t receive enough information to conclude that they FS is free form error.
Unmodified audit opinion Sections
OBRA
Opinion
Basis of opinion
KAM’s (if requested)
Responsibility of management for the FS
Auditors responsibility for the audit of the FS
Unqualified opinion Sections
Opinion
Basis of opinion
Critical audit matters
Problems with the scope of an audit
Scope problems occur when
the timing of the work,
the inability to obtain sufficient appropriate audit evidence,
or
an inadequacy in the accounting records
An auditor uses an emphasis of matter when
CAP
Consistency (Lack of)
Audit opinion change
Purpose - Special purpose framework
We do not use emphasis of matter to address a lawsuits unless otherwise stated an unusually large one.
Other-matter paragraphs refer to
matters other than those disclosed in the financial statements.
Updating a change in the prior year opinion
DORCS
Date of the auditor’s previous report
Opinion previously issued
Reason for prior year opinion
Changes that have occurred
Statement that the opinion is different
Before reissuing the prior year’s auditor’s report on the financial statements of a former client, the auditor should
1) read the financial statements of the current period,
2) compare the prior-period information that the auditor reported with the financial statements to be presented for comparative purposes,
3) obtain a letter of representation from the successor auditor, and
4) obtain a letter of representation from the former client’s management.
When a predecessor auditor’s report is not presented, the successor auditor should indicate the following items:
That the statements were audited by a predecessor auditor. The predecessor auditors should not be named unless the practice of the predecessors was acquired by or merged with that of the successor.
The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the reason for the modification.
The nature of any emphasis-of-matter, other-matter, or explanatory paragraph included in the predecessor auditor’s report.
The date of the predecessor auditor’s report.
Auditors responsibility for Subsequent Events
PRIME
Post Balance sheet transactions (Changes in stock or long term debt)
Representation letter (Management states changes occurring after year-end here)
Inquiry (Ask management)
Minutes
Examine (the latest interim FS)
Where in the audit repost is GAAP mentioned
Opinion and
management responsabilities
what are the statements for issuers and non-issuers
Issures OBC
Non-issuer OBRA
What changes when there is a qualified and adverse opinion for issuers
Qualified: Two things in the Opinion paragraph
Disclaimer: Two things in the Opinion section and an elimination of the Critical matters section
What changes when there is a qualified and adverse opinion for non-issuers
Qualified: One change to the Opinion paragraph Two changes to the Basis of opinion paragraph
Adverse: Same thing as Qualified
Where would we report a substantial doubt of the ability of a company to continue moving forward?
In a seperate emphasis of matter paragraph or a seperate section of the auditors report
What is an example of an inadequate disclosure and how do auditors treat it?
The Audit report does not contain a statement of cash flows
This would result in a qualified opinion
When do we make an emphasis of matter paragraph
Consistency (Lack of)
Audit opinion change
Purposde (Special purpose framework)
What should the auditor disclose when there is change in opinion
Emphasis of matter or other matters paragraph up to the auditors discretion
what should an auditor do with other information
Simply read it and confirm that it is consistent with the FS
Where is supplementary information reported in the FS
The auditor will make a separate section in the FS for example (Supplementary information)
What does the emphasis of the matter paragraph do when reporting with OCBOA (An accounting method allowed other than GAAP)
Refers to the note to the financial statements that describes the basis of accounting.
Up to what date is management suppose to report on subsequent events
Issuers: the date the FS are issued and widely distributed
Non Issuers: when the FS are able to be issued or when in conformity with GAAP and all approvals for issuance have been received
What are auditors responsibility with subsequent events
Post balance sheet transactions (Changes in stock or long-term debt after year-end)
Representation letter
Inquire to management about any subsequent events
Minutes review the minutes of stockholders
Examine the latest available interim FS and compare them with the FS under audit
Up to when do auditors report on subsequent events
When the auditors have received sufficient audit evidence and have dated the report.
What is does an auditor do with other information, supplementary information, and required supplementary information
Other information: Read it and make sure it ties in with the information in the FS
Supplementary information: Apply tests to form an opinion and add a separate section to the financial statement audit report.
Required supplementary test: Limited procedures and add a separate section to the financial statement audit report.
