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Question 1

Audit Standards

Answer 1

Public- PCAOB Auditing Standards

Private- Statements on Auditing Standards (AICPA)

Question 2

Guidance for non-audit engagements

Answer 2

Public- Statements on Standards for Attestation Engagements (AICPA)
Private- Statements on Standards for Accounting and Review services (AICPA)

Question 3

Auditor responsibilities in an engagement

Answer 3

Maintain professional skepticism
Comply with relevant ethical requirements
Excercise professional judgement
Obtain sufficient and appropriate evidence
Comply with GAAS

Question 4

Auditors obtain reasonable assurance by:

Answer 4

Plan the work and supervise assistants
Determine and apply appropriate materiality levels
Identify and assess risks of material misstatements
Obtain sufficient and appropriate audit evidence

Question 5

Audit inherent limitations

Answer 5

Subjective assessments by management on FS
Management may not provide all necessary information
Fraud may be undetectable with audit procedures
Auditors don’t have authority to investigate wrongdoing

Question 6

Common GAAP problems that would result in a qualified or adverse opinion

Answer 6

Unjustified GAAP consistency change
Inadequate disclosures, such as related party transactions, statement of cash flows
Unjustified GAAP departure
Unreasonable accounting estimates

Question 7

Examples of Scope limitations

Answer 7

Time constraints- Audit could not be performed in time
Inability to observe inventory, confirm receivables
Inability to obtain consolidated investee’s FS
Restrictions on audit procedures
Management refuses to acknowledge responsibility of fair presentation of FS

Question 8

Emphasis of Matter paragraph

Answer 8

Used when referring to a matter that is appropriately presented in the FS but is extremely important that users fully understand it.
For nonissuers.
Ex. Going concern, justified change in accounting principle

Question 9

Other Matters paragraph

Answer 9

Refers to matters not presented or disclosed in FS but are relevant to help users understand auditor’s report
For nonissuers.

Question 10

Examples of Nonrecognized Subsequent Events

Answer 10

Sale of bond or capital stock
Business combination
Changes in FV of assets, liabilities, foreign exchange rates
Entering into significant commitments

Question 11

Auditor procedures to search for subsequent events

Answer 11

Review post balance sheet transactions for cutoff
Obtain represesntation letter from management inquiring of subsequent events
Inquire of client’s legal counsel
Review shareholders minutes during subsequent period
Examine latest financial interim FS

Question 12

Required Supplementary Information Procedures

Answer 12

Inquire of management what methods were used to prepare supplementary information.
Determine if supplementary info is consistent with management’s methods and financial statements.
Obtain written representation from management on supplementary info.

Question 13

Instances that require auditor to add explanatory paragraph referring to supplementary information (Issuer)

Answer 13

Required information is omitted
There are material departures from prescribed guidelines.
Auditor is unable to complete their required procedures.
There are unresolved doubts about conformance of supplementary information.

Question 14

Emphasis of Matter paragraph- Special Purpose Frameworks

Answer 14

Indicates that the financial statements were prepared on the applicable basis.
Refers to the note that describes that basis.
States that the basis is an accounting basis other than GAAP
Used in all bases except Regulatory- General

Question 15

Other matter paragraph- Special Purpose Frameworks

Answer 15

Restricts use of the auditor’s report only to those within the entity and auditors.
Used in all bases except Regulatory- General

Question 16

Elements of Report on Special Purpose Framework

Answer 16

Title, addressee- “Independent auditor’s report”
Introductory paragraph- identifies the statements audited
Management’s responsibility- includes management’s responsiblity for determing that the framework is acceptable.
Description of purpose of financial statements being prepared.
Auditor’s responsiblity- includes opinion and reference to special purpose framework described in notes
(For Regulatory- general use) Opinion on whether special purpose FS are presented fairly in accordance with GAAP (will always be adverse)