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Becker AUD > A1 > Flashcards

A1 Flashcards

1
Q

Can financial statements deviate from standards in order to better present things in a fair manner?

A

Yes

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2
Q

Management’s Responsibilities

A

financial statements & internal controls

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3
Q

3 Inherent Limitations of an Audit

A
  1. nature of financial reporting
  2. nature of audit procedures
  3. timeliness of financial reporting and cost/benefit
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4
Q

Auditing Standards that will apply for certain clients

A

public company issuers: PCAOB

private company: ASB

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5
Q

Three Levels of Auditing Guidance

A
  1. AICPA’s SAS and PCAOB Auditing Standards
  2. interpretive publications (no authoritative power)
  3. other auditing publications
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6
Q

Two Overall Objectives of the Auditor and the Conduct of the Audit

A
  1. obtain reasonable assurance

2. report on the financial statements

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7
Q

Conduct of the Audit Requirements

A
  1. professional skepticism
  2. ethical requirements
  3. professional judgment (nature, extent, timing)
  4. sufficient appropriate evidence and audit risk
  5. compliance with GAAS
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8
Q

Do weak internal controls mean that an adverse opinion should be given?

A

Not necessarily; it is used in audit planning

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9
Q

Introductory Paragraph for Unmodified Opinion

A
  1. identify the entity
  2. state that the financial statements have been audited
  3. identify the title of each financial statement
    specify the date or period covered by each financial statement
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10
Q

Overall Framework for Unmodified Opinion

A 
M anagement's
R esponsibility 
D esign
I mplementation
M aintenance 
R esponsibility of Auditor 
E xpress an opinion 
P lan and perform the audit 
P erforming procedures to 
O btain audit evidence 
R isks of mm due to fraud or error (taken into account)
T inTernal control consideration 
S tatements 
C internal Controls will not have an opinion expressed 
R easonableness (evaluating reasonableness)
A ccounting estimates made by 
M anagement 
E valuating overall presentation of the financial statements
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11
Q

Where are references to GAAS and GAAP in the audit report?

A

GAAS - scope (auditor’s responsibility)

GAAP - opinion

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12
Q

What to report if the client is audited in accordance with both GAAS and another set of standards?

A

report that the audit was conducted with X and Y

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13
Q

Differences between US GAAS and ISA

A
  • ISA refers to a true and fair view
  • I/C
  • *ISA: necessary to enable the preparation
  • *GAAP: D I M
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14
Q

Making Reference to the Component Auditor - Requirements

A
  1. component auditor has performed an audit in accordance with GAAS or PCAOB
  2. component auditor’s report is not restricted use
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15
Q

Making Reference to the Component Auditor - different financial reporting framework

A
  1. must be similar

2. group engagement team has obtained sufficient appropriate evidence to evaluate the appropriateness of the adjustments

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16
Q

What to do if the component auditor issues a modified opinion?

A

*group auditor should determine the effect on the auditor’s report on the group financial statements

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17
Q

Assumption of Responsibility for Component Auditor

A
  • no reference should be made
  • group engagement team should determine the type of work to be performed on the financial information of the components
  • a significant group or area of higher RMM should be audited by the group
  • not significant portion should have analytical procedures applied
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18
Q

Except for (GAAP Reasons)

A
  1. accounting policy
  2. presentation
  3. disclosure
  4. estimates
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19
Q

Adverse (GAAP)

A
  1. accounting policy
  2. presentation
  3. disclosures
  4. estimates
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20
Q

Except for (GAAS Reasons)

A
  1. insufficient evidence
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21
Q

Disclaimer (GAAS)

A
  1. insufficient evidence
  2. significant going concern uncertainty
  3. lack of independence
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22
Q

Emphasis-of-Matter Paragraphs

A
  • includes items that are appropriately presented or disclosed
  • does not change the auditor’s opinion
  • after the opinion paragraph
  • indicate that the auditor’s opinion is not modified
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23
Q

Reasons to use Emphasis-of-Matter Paragraphs

A
  1. going concern
  2. consistency
  3. changing prior opinion (or other-matter paragraph)
  4. special purpose framework

*professional judgment for other reasons when they are disclosed

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24
Q

Other-Matter Paragraphs

A
  • items other than those presented or disclosed
  • after opinion and after emphasis-of-matter
  • make reference to the location of relevant disclosures
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25
Q

Required Use of Other-Matter Paragraph

A
  • restricted use
  • change in opinion (or emphasis-of-matter)
  • audited by a predecessor and not reissued
  • comparative form with compiled or reviewed financials or comparative form that were not audited, reviewed, or compiled
  • material inconsistencies
  • report on supplementary information
  • refer to required supplementary information
  • report on compliance
26
Q

Going Concern

A
  • ISA: use the same period that was used by management
  • SUBSTANTIAL DOUBT
  • GOING CONCERN
  • DO NOT SAY 1 YEAR
27
Q

Procedures & Conditions for Going Concern

A 
A nalytical procedures
D ebt compliance
M inutes
I nquiry of legal counsel 
T hird parties
S ubsequent events review

F inancial difficulties
I nternal matters
N egative trends
E xternal matters

28
Q

Does an unmodified opinion mean this company is a good investment?

A

No

29
Q

Mitigating Factors for Going Concern

A
  1. plans to borrow money or restructure debt
  2. plans to sell assets
  3. plans to delay or reduce expenditures
  4. plans to increase ownership equity
30
Q

Can an auditor disclaim an opinion rather than report an emphasis-of-matter?

A

Yes

31
Q

What happens if disclosures about going concern are inadequate?

A

a departure from GAAP exists

32
Q

Lack of Consistency

A
  • ACCEPTABLE/JUSTIFIED changes in accounting principle
  • included until all statements present the consistent application
  • depreciation method goes in emphasis-of-matter paragraph
33
Q

Is consistency of the financial statements explicitly stated or implied?

A

implied

34
Q

Where is a change in depreciation method reported?

A

emphasis-of-matter paragraph

35
Q

Are changes in estimates and corrections of errors reported in emphasis-of-matter paragraphs?

A

No

36
Q

Alert that restricts use

A
  • written communication is intended solely for the information and use of the specified parties
  • list the parties
  • should not be used by anyone else
37
Q

Form/Outline of Qualified or Adverse Report

A
  • no change to:
  • *introduction
  • *management responsibility

Auditor’s Responsibility
*evidence obtained is sufficient and appropriate to provide basis for modified opinion

Basis for Modification Paragraph

  • *quantification
  • *required footnote
  • *description of omitted information
38
Q

What happens if an omission or scope limitation makes the F/S false, fraudulent, deceptive, or misleading?

A

withdraw from the engagement

39
Q

Opinion Paragraph - Qualified

A

except for

40
Q

Opinion Paragraph - Adverse

A

because of

41
Q

If alternative procedures can be performed in order to obtain sufficient appropriate evidence, is there a scope limitation?

A

No

42
Q

If there are undetected misstatements that could be both material and pervasive, then the auditor should:

A

disclaim an opinion or withdraw

43
Q

Form/Outline of a Disclaimer

A
  • no change to
  • *management’s responsibility

*introduction is changed to say that the auditor was engaged

  • disclaimer of opinion paragraph
  • *because of
  • *does not express an opinion
44
Q

Updating (Changing) Prior Opinions

A 
D ate of the auditor's previous report
O pinion previously issued
R eason for the prior opinion
C hanges that have occurred 
S tatement that the "opinion is different"
45
Q

If different opinions are expressed on comparative financial statements…

A

*it is possible to disclaim one set or portion of the financials

46
Q

Prior Period Financial Statements Audited by Predecessor

A
  • report of the predecessor auditor can be:
    1. presented
    2. not reissued
47
Q

Prior Period Financial Statements Audited by Predecessor: Report is Presented

A
  • old auditor should
    1. read the statements for the current period
    2. compare the statements audited with the current period
    3. obtain a letter from the successor auditor
    4. inquire of and obtain a letter of representation from management

Unrevised: original date
Revised: dual date

48
Q

Prior Period Financial Statements Audited by Predecessor: Report not Reissued

A

*use an other-matter paragraph

successor should:

  1. predecessor auditors should not be named
  2. type of opinion expressed
  3. nature of any emphasis-of-matter or other-matter paragraph
  4. date of previous report
49
Q

Prior Period Financial Statements Not Audited

A

Reviewed or Compiled

  • other-matter paragraph
  • service performed
  • date of the prior period report
  • description of any material modifications
  • statement that the service was less in scope
  • not audited, reviewed, or compiled
  • other-matter paragraph and express no responsibility
50
Q

Subsequent Events: Event Types

A

Type I: existed at the balance sheet date (adjustment)

Type II: conditions existing after the balance sheet (disclosure)

51
Q

Auditor’s Responsibility for Subsequent Events

A

*active duty up to date of report

P ost balance sheet transactions
R epresentation letter
I nquiry
M inutes of stockholders, directors, etc.
E xamine latest available interim financial statements

52
Q

Auditor’s Responsibility after the Original Date of the Auditor’s Report

A

*no active responsibility but should consider things when brought to their attention

53
Q

Report Date for Subsequent events

A

*dual dating is a possibility or extend the date of the auditor’s report

54
Q

Actions auditor should take following a subsequent discovery of facts after the report release date

A

*advise client to reissue, make necessary disclosures and revisions, possibly notify that the report should not be relied upon

55
Q

If client refuses to follow procedures following subsequent discovery, the auditor should

A

D isassociate
A lert agencies
R elying parties

56
Q

Omitted Audit Procedures Discovered

A
  1. determine whether other audit procedures were adequate
  2. promptly undertake to apply the omitted procedures
  3. D A R (if deemed necessary)
57
Q

Reporting on Other Information in Documents Containing Audited Financial Statements

A

GR: no responsibility

read over
look for material inconsistencies
possibly include an other-matters paragraph

*may disclaim an opinion in an other-matters paragraph

58
Q

Reporting on Supplementary Information in Relation to the Financial Statements Audited

A
  • two objectives
  • *evaluate the presentation of the supplementary information in relation to the financial statements
  • *report on whether it is fairly stated in material respects
  • OBTAIN WRITTEN REPRESENTATIONS FROM MANAGEMENT
  • other-matter or separate report
59
Q

Required Supplementary Information

A
  • limited procedures and other-matters paragraph
  • opinion is optional

*obtain WRITTEN REPRESENTATIONS FROM MANAGEMENT

60
Q

Reports on Application of the Requirements of an Applicable Financial Reporting Framework

A
  • no reports on hypothetical transactions
  • not required to be independent
  • management is responsible
  • statement that any difference in the facts, circumstances, or assumptions presented may change the report
  • if the reporting accountant is not independent, a statement indicating that lack
  • restrict the use of the report
61
Q

Reporting on Financial Statements Prepared in Accordance with a Framework used in a Different Country

A
  • auditor should obtain understanding of
  • *purpose
  • *intended users (can be obtained from management)

Outside US
*report of the other country or the report set out in SA
or
*modified US form that reflects that the statements being reported on have been prepared in accordance with a financial reporting framework

Inside US

  • US form report
  • emphasis-of-matter
  • identifies framework
  • refers to note
  • indicates that the framework differs
62
Q

GAAS (listed)

A

General
T raining
I ndependence
P rofessional care

Fieldwork
P lanning & supervision
I nternal control understanding
E vidence (sufficient and appropriate)

Reporting
C onsistency (implied)
D isclosures (implied)
O pinion
G AAP in accordance with

Becker AUD (6 decks)

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