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AUDIT > A1 > Flashcards

A1 Flashcards

1
Q

What is an auditor’s responsibility?

A

To express an opinion on FS based on an audit

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2
Q

What is compilation engagement?

A

An auditor may draft an entity’s FS based on the info from managements financial system.

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3
Q

US GAAP is an accounting term that …

A

encompasses the conventions, rules and procedures necessary to define US accepted practice at a particular time.

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4
Q

What is appropriate?

A

the quality of being both reliable (valid, factual, objective and supportable) and relevant (related to the FS assertion under consideration)

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5
Q

What is the purpose of an audit?

A

provide FS users with an opinion on whether the FS are presented fairly

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6
Q

What are management responsibilities

A

FS and internal control
~preparation and fair presentation of FS
~the design, implementation and maintenance of internal control
~providing the auditor with access to info needed to complete the audit

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7
Q

What are auditor responsibilities

A

Attest Function = for expressing an opinion on the FS based on the audit

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8
Q

What is reasonable assurance?

A

is a high, but not absolute, level of assurance

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9
Q

What are the inherent limitations of an audit?

A

~The nature of Fin Reporting - because they involve judgment by management (ex. intangibles, impairment, asset life/salvage, bad debts, warranties, lawsuits)

~The nature of audit procedures = Fraud (intentional) or errors (unintentional)

~Timeliness of Fin Reporting and the balance between cost and benefit

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10
Q

What does GAAS stand for?

A

Generally Accepted Auditing Standards

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11
Q

What is PCAOB?

A

Public Company Accounting Oversight Board

Required when auditing an “issuer” (public company)

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12
Q

International Standards on Auditing

A

International Auditing and Assurance Standards Board (IAASB), a standard setting board of the international Federation of Accountants (IFAC)

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13
Q

What is the Sarbanes-Oxley Act of 2002 -

A

PCAOB auditing and related professional practice standards to be used in the preparation and issuance of audit reports for issuers
~Issuers consist of entities subject to the rules of the SEC (primarily public companies)
~Public accounting firms must register with the PCAOB in order to audit a public company

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14
Q

What is the International Auditing and Assurance Standards Board

A

A standard setting board of the International Federation of Accountants (IFAC)

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15
Q

Who sets the international code of ethics?

A

International Ethics Standards Board of Accountants (IESBA), a standard setting broad of the IFAC

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16
Q

In the US who are auditors required to comply with?

A

Nonissuers = SASs (AICPA Statements of Auditing Standards)

Issuers = PCAOB Auditing Standards

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17
Q

What are the overall objectives of the auditor?

A

To obtain reasonable assurance

To report on the FS

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18
Q

What are the general requirements related to the conduct of the audit?

A

~Professional Skepticism
~Ethical Requirement - independence in both fact and appearance
~Professional Judgment - in planning and performing the audit
~Sufficient Appropriate audit evidence and audit risk (Exam trick= Weak IC doesn’t mean adverse opinion)
~Compliance with GAAS

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19
Q

What are the most authoritative standards for an auditor of a nonissuer?

A

General guidance provided by a Statement on Auditing Standards is the most authoritative of level of auditing guidance for audits of nonissuers.

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20
Q

What is the auditors responsibility with respect to the Statements on Auditing Standards?

A

The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.

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21
Q

What are the ASB Standards?

A

GAAS = Issued by AICPAs Auditing Standards Board (ASB) in the form of SAS

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22
Q

What is the first general standard for an independent auditor?

A

The auditor must have adequate technical training and proficiency

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23
Q

What does AICPA’s quality control standards consist of?

A

Policies and procedures designed, implemented, and maintained to ensure that the firm complies with professional standards and appropriate legal and regulatory requirements, and that any reports issued are appropriate in circumstances.

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24
Q

The Public Company Accounting Oversight Board was established by …

A

Sarbanes-Oxley Act of 2002

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25
Q

The preparation and fair presentation of the FS requires…

A

identification of the applicable financial reporting framework and inclusion of an adequate description of the framework, as well as preparation and fair presentation in accordance with the framework.

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26
Q

where should the lack of evidence be disclosed (when a qualified opinion is issued due to the lack of sufficient audit evidence) ?

A

Auditor’s Responsibility Paragraph - Basis of qualified opinion

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27
Q

What actions would improve a weak cash flow situation

A 
~Plans to increase ownership equity
~To Borrow Money
~To Restructure debt
~Sell Assets
~Reduce or delay expenditures
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28
Q

The auditor’s report should include reference to the US as the country of origin of both…

A

accounting principles used to prepare the FS and the auditing standards the auditor followed in performing the audit.

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29
Q

What are the conditions that might be indicative of substantial doubt about going concern?

A

~Financial Difficulties
~Internal Matters
~Negative Trends
~External matters

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30
Q

If an auditor has significant doubt about going concern the wording of the emphasis of matter paragraph must include

A

The terms “substantial doubt” and “going concern”

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31
Q

What does consistency deal with?

A

deals with the comparability of the FS from year to year.

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32
Q

When an auditor believes that there is substantial doubt about an entity’s ability to continue as a going concern, mitigating factors would include…

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
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33
Q

When is a qualified opinion not an option?

A

When the auditor lacks independence with respect to the audited entity

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34
Q

What is an unmodified audit opinion?

A

Clean Opinion

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35
Q

What does an unmodified audit opinion include?

A 
~Title
~Addressee - GR: not to management
~Introductory Para
~Management's Responsibility for the FS
~Auditor's Responsibility
~Auditor's Opinion
~Other Reporting Responsibilities
~Signature Auditor
~Auditor's Address
~Date of the Auditor's Report
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36
Q

What does that management’s Responsibility for the FS for the actual report?

A

MR: Management’s Responsibility (an explanation that management is responsible for the preparation and fair presentation of FS)

DIM: Design, Implementation, and Maintenance (a statement that this responsibility includes the DIM of internal control relevant to FS that are free from error)

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37
Q

What is the Auditor’s Responsibility for the FS for the actual report?

A

R: Auditor’s Responsibility
E: Express and opinion on the FS based on the audit
P: Plan - Requires the auditor to plan and perform the audit to obtain reasonable assurance
~A description of the Audit
P O: Performing procedures to obtain audit evidence
R: Risks of Material misstatement of FS (assessment)
T S: Test (IC) relevant to the entity’s preparation and fair presentation of FS
C: Effectiveness of IC
R A M E: Audit includes evaluation the appropriateness of the accounting policies used and the reasonableness of sign acct est made by management as well as evaluating the overall presentation of the FS

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38
Q

What is the auditor’s opinion include

A

A statement that FS present fairly, in all material respects, the financial position of the entity as of the BS date and the results of operations and its cash flows for the period then ended, in accordance with the applicable fin reporting framework

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39
Q

What does the auditor’s report date show?

A

Shows the final date of auditor responsibility. For comparative FS, the audit report date for the most recent audit should be used.

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40
Q

What is a difference between ISA’s and GAAS?

A

IAS states that the description of the auditor’s report can state the preparation of FS that give a true and fair view

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41
Q

What is a component?

A

is an entity or business activity

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42
Q

What is a component auditor?

A

Is an auditor who performs work on the financial info

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43
Q

What is group engagement partner?

A

is the partner in the firm who is responsible for the group audit engagement

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44
Q

What is group engagement team?

A

Includes the group engagement partner, other partners, and staff who establish the overall audit strategy, communicate with component auditors, perform work.

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45
Q

What is a group financial statements?

A

Are FS that include financial information of more than one component.

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46
Q

What are the emphasis-of-matter and other-matter paragraphs?

A

In certain circumstances, the auditor may determine that it is necessary to add additional communications to the auditor’s report without modifying the auditor’s opinion.

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47
Q

What are the types of modified opinions?

A

Qualified Opinion - GAAP or GAAS = material issue

Adverse Opinion - GAAP = Very Material issue (pervasive)

Disclaimer of Opinion - GAAS = Very material issue (pervasive/significant)

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48
Q

When is an emphasis of matter para used?

A

Is used when referring to a matter that is appropriately presented or disclosed in the FS and is of such importance that it is fundamental to the users’ understanding of the FS

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49
Q

What are the emphasis of matter para requirements>

A
  • after the opinion para
  • heading “Emphasis-of-matter”
  • describe the matter
  • indicate that the auditor’s opinion is not modified
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50
Q

When is the emphasis of matter para required? may be used?

A

Required

  • doubt going concern
  • justified change in acct principle
  • change in audit opinion
  • special purpose framework

May be used:

  • uncertainty
  • major catastrophe
  • related party transactions
  • subsequent events
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51
Q

What does the other matter paras refer to?

A

Matter other than those presented or disclosed in the FS that are relevant to the user’s understanding.

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52
Q

What are the other matter paras requirements?

A
  • After the opinion para and emphasis-of-matter para
  • use the heading “Other-matter”
  • Describe the matter being emphasized and the location
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53
Q

Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern - Procedures

A

ADMITS:

  • Analytical Procedures
  • Debt Compliance
  • Minutes
  • Inquiry of Client’s legal counsel
  • Third Parties
  • Subsequent Events Review
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54
Q

Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern - Conditions and Events after the procedures are performed

A

FINE:

  • Financial Difficulties
  • Internal Matters
  • Negative Trends
  • External Matters
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55
Q

What must the the wording of the Emphasis-of-matter para include?

A

“substantial doubt”

“Going Concern”

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56
Q

What is the modification of Auditor’s Responsibility Paragraph?

A

When the auditor expresses a qualified or adverse opinion, the Auditor’s responsibility paragraph should be amended to state that the auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s modified audit opinion.

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57
Q

The preparation and fair presentation of the FS requires identification of the applicable fin reporting framework and inclusion…

A

of an adequate description of the framework, as well as preparation and fair presentation in accordance with the framework.

58
Q

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the ….

A

Should be disclosed in the Auditor’s Responsibility Para and discussed in and explanatory para before the opinion para

59
Q

What could management plans be to mitigate the adverse effects of particular conditions and events?

A

Plans to increase ownership equity, to borrow money, to restructure debt, to sell assets and/or reduce or delay expenditures might all be considered mitigating factors

60
Q

What is an example of an event that an auditor’s report omits any reference to consistency?

A

A change in accounting estimate (depreciation) is accounted for prospectively and does not affect the comparability of FS between periods

61
Q

What would an unjustified accounting change cause?

A

The auditor to issue a qualified or adverse opinion.

62
Q

What is the requirement for a material weakness?

A

Must be reported to management and those charged with governance, but would not be disclosed in an emphasis-of-matter paragraph added to an otherwise unmodified opinion.

63
Q

Where is a material change in accounting principle between periods disclosed in the auditors reports?

A

In an EOM para - added to an otherwise unmodified opinion

64
Q

What does an inability to obtain audited FS of a consolidated investee represent?

A

A Scope limitation - may result in a qualified opinion or a disclaimer opinon

65
Q

What should the auditor’s state when the inadequate disclosure has a material but no pervasive effect on the FS?

A

Should state “in our opinion, except for the ommission of the info described in the basis for Qualified opinion para…”

66
Q

What terms must the EOM para include

A

“Substantial doubt” and “Going Concern”

67
Q

What happens when an group engagement partner makes reference to the audit of another auditor (Component auditor)?

A

The report should indicate clearly the division of responsibility b/n the portion of the FS covered by an audit

68
Q

Who should the auditor address their report?

A

To the entity that engaged them

69
Q

What does the Qualified Opinion (GAAP) include?

A

“Except For”

  • Accounting policy
  • Presentation
  • Disclosures
  • Estimates
70
Q

What does the Adverse Opinion (GAAP) Include?

A
  • Accounting policy
  • Presentation
  • Disclosures
  • Estimates
71
Q

What does the Qualified Opinion (GAAS) include?

A

“Except for”

-Insufficient Evidence

72
Q

What does the Disclaimer (GAAS) include?

A
  • Insufficient Evidence
  • Significant Going Concern Uncertainty
  • Lack of Independence
73
Q

What happens when the group auditor decides not to make reference to the audit of a component auditor?

A

The group assumes responsibility for the work of the component auditor & should determine the type of work to be performed on the financial info of the component

74
Q

What happens when an accountant is associated with the FS of a public entity, but has not audited or reviewed the statements?

A

The accountant must issue a report disclaiming any opinion on the statements

75
Q

What are the requirements of an accountant when they are associated with the FS of a public entity, but has not audited or reviewed the statements?

A

The accountant is only required to read for obvious material misstatements

76
Q

When would the EOM paragraph be needed?

A
  • Uncertainty about litigation or regulatory action
  • Major catastrophe
  • Related Party Transactions
  • Subsequent Events
77
Q

What happens when the accounting change has no material effect on the comparability of FS?

A

The auditor does not need to recognize the change in the current year audit report

78
Q

What type of report will be issued with the opening inventory can’t be verified?

A

IS - Disclaimer = COGS can’t be verified

BS - Unmodified = Inventory can be verified as of BS date

79
Q

Where does the audit report refer to GAAS? and GAAP?

A 
GAAS = Auditor's Responsibility
GAAP = Opinion Paragraph
80
Q

What type of opinion should the auditor issue if the contingent liability is probable but not estimable and it is disclosed int he footnotes?

A

The auditor should issue an unmodified opinion

81
Q

What are some examples of scope limitation?

A
  • timing of work
  • inability to obtain sufficient appropriate audit evidence
  • inadequacy in the accounting records
  • inability to obtain audited FS supporting the entity’s investment in the foreign subsidiary
82
Q

In the adverse opinion - what should the opinion paragraph state?

A

Should state that, “ in the auditor’s opinion, because of significance of the matter(s) described in the basis for adverse opinion para, the FS are…

83
Q

Where is the EOM para located?

A

After the opinion paaragraph

84
Q

Which types of opinions would an auditor choose between when the auditor was unable to obtain sufficient appropriate evidence concerning certain transactions due to the inadequacy in the entity’s accounting records?

A

Disclaimer or opinion and a qualified opinion

Client-imposed restrictions of scope such as those caused by inadequate records would cause the auditor to choose between issuing a disclaimer of opinion and a qualified opinion

85
Q

When a qualified opinion results from a limitation on the scope of the audit, the situation should be described in a Basis for Modification Para:

A

Preceding the opinion para, should have the heading “Basis for Qualified Opinion” and should describe the reasons for the inability to obtain sufficient appropriate audit evidence

86
Q

What happens if an auditor concludes that there is substantial doubt about an entity’s ability to continue as a going concern and that the entity’s disclosures are adequate, then the audit report may be either:

A

-Unmodified with EOM para, or
- Disclaimed
(Generally, an unmodified opinion is issued, but the auditor is not prohibited from choosing to issue a disclaimer)

87
Q

Where is the basis of modification para located in an adverse opinion?

A

Preceding the opinion para

88
Q

When management does not provide reasonable justification that a change in acct principle is preferable and it presents comparative FS, the auditor should express a qualified opinion in what year/s?

A

Each year that the FS are initially reflecting the change are presented

89
Q

When an independent CPA is associated with the FS of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(an):

A

Disclaimer of opinion

90
Q

What does the auditors report not include?

A

The assessment of sampling risk factors

91
Q

An auditor reporting on the audit of FS of an issuer should indicate in the auditors responsibility paragraph that … 1, and should refer to GAAP in the ….2.

A
  1. the engagement was conducted in accordance with PCAOB standards
  2. opinion para
92
Q

What happens if the auditor is unable to obtain the audited FS of a significant subsidiary?

A

A scope limitation exists – Assuming the effect is material, the auditor would issue either a qualified opinion or a disclaimer of opinion

93
Q

What happens if management refuses to make the changes suggested by the CPA on not be conformity with GAAP?

A

The CPA should add a paragraph modifying the disclaimer to describe the nature and effect on the departure from GAAP

94
Q

What happens with the auditor’s proposed adjustments that were immaterial were turned down by managements?

A

The auditor should issue an unmodified opinion and the footnote disclosures are not required

95
Q

Under ISAs and US Auditing Standards - when is the going concern period

A

ISAs - Must be at least, but not limited to, twelve months from the date of the FS being audited

US - cannot exceed one year from the date of the FS being audited

96
Q

An auditor is unable to complete a procedure during an audit. Based on this situation, which opinion is least likely to be rendered?

A

An adverse opinion

97
Q

When the group engagement partner accepts responsibility for the work performed by a component auditor, the group engagement partner must

A

Contact the component auditor and review the audit program and working papers pertaining to the component

98
Q

What does the introductory paragraph include?

A

the nature of the engagement, the FS covered in the audit engagement, the name of the entity whose FS have been audited and the dates covered by each FS

99
Q

What is the format for updating (changing) prior opinions?

A

The auditor should disclose the reason(s) in an EOM or OM paragraph that discloses the following: (DORCS)

  • D: Date of the auditor’s previous report
  • O: Opinion type previously issued
  • R: Reason for the prior opinion
  • C: Changes that have occurred
  • S: Statement that the “opinion…is different”
100
Q

In deciding whether to reissue their previous report, the predecessor auditors should:

A
  1. Read the statements for the current period
  2. Compare the statements audited with current period statements
  3. Obtain a letter of representation from the successor auditor
  4. Inquire of and obtain a letter of representation from management
  5. Date the report as appropriate:
    ~Unrevised - original report date in any reissue of a previous report
    ~Revised - dual date
101
Q

When the successor auditor does not present the predecessor auditors report, the successor auditor should express an opin on the current period FS only and indicate in an OM para:

A
  1. FS of the prior period were audited by the predecessor auditor. Only name if the predecessors was acquired by or merged with that of the successor
  2. Type of opinion expressed by the predecessor auditor and, if the opin was modified, the reasons for the modification
  3. Nature of the EOM or OM para included in the predecessor auditor’s report
  4. Date of the predecessor auditor’s report
102
Q

Prior period statements reviewed or compiled, the auditor should include an OM para that includes:

A
  1. the service (review or compilation) performed in the prior period
  2. Date of the prior period report
  3. Description of any material modifications described in the report
  4. Statement that the service was less in scope than an audit and does not provide the basis for expressing an opin on the FS
103
Q

What happens if the prior period statements were not audited, reviewed or compiled?

A

The auditor’s report should include an OM para to indicate that the auditor did not audit, review or compile the prior period FS and that the auditors assumes no responsibility for them

104
Q

What should happen if auditors have previously qualified their opinion or expressed an adverse opinion on the FS of a prior period because of a departure from GAAP, and the prior period FS are restated in the current period to conform with GAAP

A

The auditor’s updated report on the FS of the prior period should indicated that the statements have been restated and should express an unmodified opinion in respect to the restated FS

105
Q

What is a Recognized (Type I) Event?

A

Conditions existing on or before the BS date

-Requires a FS adjustment

106
Q

What is Nonrecognized (Type II) Event?

A

Conditions existing after the BS Date

  • May require footnote disclosure
  • Conditions that did not exist at year-end but arose after end are Type 2 (nonrecognized) subsequent events that must be disclosed to keep the FS from being misleading
107
Q

What is the GR on the CPA Responsibility?

A

Responsible for up to date of audit report

108
Q

What is the subsequent period?

A

The period between the date of the FS and the date of the auditor’s report

109
Q

What is the Auditor’s responsibility for subsequent events?

A

PRIME

  1. P-Post BS transactions
  2. R-Representation letter should be obtained from management
  3. I- Inquiry
  4. M-Minutes of Stockholders, directors, and other committee meetings should be read during the subsequent period
  5. E-Examine latest available interim FS; compare them with the FS under audit
110
Q

What is the auditor’s responsibility after the original date of the auditor’s report?

A

The auditor has no active responsibility to make any inquires or to perform any further auditing procedures to discover subsequent events after the auditor’s report.

111
Q

What opinions should the auditor express if the auditor believes that the FS need to be revised to reflect a subsequent event and management does not make the revision?

A

Qualified or Adverse opinion - GAAP issue

112
Q

What happens with the report date if adj or disclosures are made after the original date of the auditor’s report?

A

The auditor may dual date the report to extend responsibility only for the particular subsequent event. The org date is kept for the rest of the FS

Ex. of dual dating: “Jan 21, 20x2, except as to Note 2, which is as of Feb 3, 20x2”

Alternatively- a later date may be used for the report, but this extends the auditor’s responsibility for all subsequent events to this later date

113
Q

What are the auditor’s actions if subsequent discovery of facts after the report release date?

A
  1. Advise the client to issue revised FS (along with a new audit report) describing the reasons for revisions
  2. Advising the client to make the necessary disclosures and revisions to any imminent FS (accompanied by an auditor’s report for a subsequent period)
  3. If the effect on the FS cannot be determined on a timely basis, providing notification that the FS and auditor’s report should not be relied upon
114
Q

What happens if the client refuses to follow procedures with subsequent discovery of facts after report release date?

A

The auditor should notify each member of the board of directors of such refusal, and of the fact that the auditor will take additional steps to prevent further reliance on the auditor’s report and the FS

115
Q

What are the additional steps to prevent further reliance if the client refuses to follow procedures with subsequent discovery of facts after report release date?

A

“DAR” them to Fix
Disassociate - Notify the client that the auditor’s report must no longer be associated with the FS

Alert Agencies - Notify, if applicable, any regulatory agencies having jurisdiction over the client that the auditor’s report should no longer be relied on

Relying Parties - Notify persons known to be relying or likely to rely on FS that the auditor’s report should no longer be relied on

116
Q

What are the auditor’s actions on omitted audit procedures discovered after submission of the audit report?

A
  1. Auditor should determine whether other audit procedures were adequate to compensate for the omitted audit procedures. If so, no further action is necessary
  2. If the omitted audit procedures impair the auditor’s ability to support the previously issued opinion, and there are people relying on the report, the auditor should promptly undertake to apply the omitted procedures (or alt procedures)
117
Q

What are some examples the auditor would inquiry about for subsequent events?

A
  1. New commitments, borrowings or guarantees
  2. sales or acquisitions of assets
  3. Increases in capital or issuances of debt
  4. Assets appropriated by the govt or destroyed
  5. Developments regarding contingencies
  6. Unusual accting adj
  7. Events that call into question the appropriateness of the entity’s accounting policies
  8. Events relevant to the measurement of estimates or provisions
  9. Events relevant to the recoverability of assets
118
Q

What should the auditor do when subsequently discovered info is found both reliable and to have existed at the date of the auditor’s report?

A

The auditor should determine whether there are persons relying or likely to rely on the FS who would attach importance to the info

119
Q

What happens to the date of the auditor’s report when FS are adjusted without disclosure of the event in the footnotes?

A

The date should be when the sufficient appropriate audit evidence was obtained

120
Q

What happens if other information requires revision for a material inconsistency and management refuses to make the revision?

A

The auditor should communicate this matter with those charged with governance and:

  1. Include the AR on OM para describing the material inconsistency
  2. withhold the use of the report; or
  3. withdraw from the engagement and consult with legal counsel
121
Q

What is supplementary information?

A

Information presented outside the basic FS that may be presented in a doc containing the audited FS or separate from the FS

122
Q

What are the two objectives when an auditor is engaged to report on supplementary info in relation to the FS?

A
  1. To evaluate the presentation of the supp info in relation to the FS as a whole; and
  2. To report on whether the supp info is fairly state, in all material respects, n relation to the FS as a whole
123
Q

What are the audit procedures regarding supp info?

A
  1. Inquire of management - purpose and criteria used to prepare info
  2. Determine whether the form and content of the info complies with the applicable criteria
  3. Obtain an understanding of the methods used to prepare the information
  4. Compare and reconcile the info to the audited FS
  5. Inquire regarding any significant assumptions
  6. Evaluate the appropriateness and completeness of the information
  7. Obtain written representation form management regarding the info
124
Q

How is the supp info presented in the auditor’s report?

A

As an OM para in the auditor’s report on the FS or in a separate report

125
Q

What are the required procedures for supp info?

A

Limited Procedures

  1. Inquire of management
  2. Determine if the supp info is consistent with management’s responses, audited FS and other knowledge
  3. Obtain written management representations regarding the required supp info
126
Q

Even though an auditor is not required to audit required supp info. The audit report should include an OM para with language to explain the following circumstances, as applicable:

A
  • the required supp info is included and the auditor has applied the required procedures
  • the required supp info is omitted
  • some req supp info is missing and some is presented in accordance with the prescribed guidelines
  • the auditor has identified material departures fromt he prescribed guidelines
  • the auditor is not able to complete the required procedures
  • there are unresolved doubts about conformance of required supp info
127
Q

What is a reporting accountant?

A

is an accountant in public practice, other than continuing accountant, who prepares a written report (or provides oral advice) on:

  • Application of the requirements of an applicable fin reporting framework to a specific transaction; or
  • the type of report that may be rendered on a specific entity’s FS
128
Q

What should a reporting accountant’s report include?

A
  1. Brief description of the nature of the engagement
  2. Statement that the engagement was performed in accordance with AICPA standards
  3. An identification of the specific entity, a description of the specific transaction, a statement of the relevant facts, circumstances, and assumptions, and a statement of the source of info
  4. Statement describing the appropriate application of the requirements of the applicable framework to the specific transaction or type of report, and if appropriate, a description of the reasons for the reporting acct’s conclusions
  5. A statement that the preparers of the FS, who should consult with their continuing accountants are responsible for proper accounting treatment
  6. A statement that any difference in the facts, circumstances, or assumptions presented may change the report
  7. A sep para at the end of the report restricting its use to specified parties
  8. If the reporting accountant is not independent, a statement indicating the lack of independence
129
Q

Reporting on FS prepared in accordance with a Fin Reporting Framework generally accepted in another country
-Reporting – Distribution outside of US, the auditor may use either…

A
  1. The report of the other country or the report set out in the ISAs
  2. A US form of report that reflects that the FS being reported on have been prepared in accordance with a fin reporting framework generally accepted in another country
130
Q

What happens if the FS are also intended for use in the US, the auditor should report using a US Form report with an EOM that:

A
  1. Identifies the financial reporting framework
  2. Refers to the note -that describes the framework
  3. Indicates that the framework differs from GAAP
131
Q

What should happen before reporting on the FS of a US entity that have been prepared in accordance with a fin reporting framework generally accepted in another country, an auditor practicing in the US should?

A

Understand -

  • the purpose for which the FS are prepared
  • Whether the fin reporting framework is a fair presentation framework
  • The intended users of the FS
  • the steps taken by management to determine whether the applicable fin reporting framework is acceptable in the circumstances
  • Of the applicable legal responsibilities involved if the auditor pans to use the form and content of the auditor’s report of another country
132
Q

How can the auditor report - when FS are prepared in accordance with a fin reporting framework generally accepted in the parent’s country and are for use only in that country?

A

The auditor may report using either a US Style report modified to report on the fin reporting framework of the parent’s country or the report form of the parent’s country

133
Q

What type of opinion should the auditor present if management (a a govt’l body) declines to present info required by the GASB?

A

The auditor should issue an unmodified opinion with an OM para

134
Q

What should the auditor do if the supp info is materially inconsistent with the FS and the FS do not require revision

A

The auditor should request the information (in this case the letter of transmittal) be revised

135
Q

CPA is unable to obtain audited FS for an investee located in a foreign country. CPA concludes sufficient appropriate audit evidence regarding this investment cannot be obtained.
1. Assume the potential effect on the FS is immaterial.
2. Assume the potential effect on the FS is moderate
3. Assume the potential effect on the FS is high
-Opinion Type
Modify, change or omit the following para
-Intro Para
-Auditor’s Responsibility Para
-Opinion Para
Not required, insert preceding or following opinion
-Basis of Opinion para

A
  1. -Unmodified
    • No change
    • No Change
    • No Change
    • Not required
      - No change to the unmodified opinion is required
  2. -“Exept for” qualified
    • No change
    • Modify
    • Modify
    • Insert preceding opinion
    • Scope Limitation that has a material effect on the FS results in a qualified opinion
  3. -Disclaimer
    • Modify
    • Modify
    • Modify
    • Insert preceding opinion
      - Scope limitation that has a very material effect on the FS results in a disclaimer of opinion
136
Q

Does the involvement of another auditor prevent the issuance of an unmodified opinion?

A

-No. If the auditor’s opinion is qualified, but the subject of the qualification is not material in relation to the overall consolidated statements, the CPA need not make reference to the qualification in their report

137
Q

What paragraphs does the division of responsibility effect?

A

Affects the Auditor’s Responsibility and the opinion paragraph, but does not require inclusion of a basis of opinion para. If the other auditor’s opinion is qualified, but the subject of the qualification is not material in relation to the overall consolidated statements. the CPA need not make reference to the qualification in their report

138
Q

If there is a change in depreciation method and it effects the comparability of financial statements what opinion type would be issued and what report modification would happen?

A

Unmodified

Add an EOM para following the opinion para

139
Q

What type of opinion and modification would happen if the company is a defendent of a lawsuit that they are are expected to have material loss but this info is disclosed in the FS?

A

Unmodified

No Modification

140
Q

Red Barron Trucking discloses in the notes to the FS certain lease obligations. Sally smith, CPA, believes that the failure to capitalize these leases is a departure from the GAAP.

  • Opinion Type(s)
  • Report Modifications
A

-“Except for” qualified
Adverse
-Modify auditor’s responsibility and opinion para
Add a Basis for opinion para preceding the opinion para

141
Q

What does a disclaimer of opinion mean?

A

That the auditor was unable to obtain sufficient appropriate evidence to provide a reasonable basis for an opinion, thus, no opinion is expressed.

142
Q

A material change in accounting principles b/n periods is disclosed in…

A

An EOM para added to an otherwise unmodified opinion

AUDIT (7 decks)

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