A1- Audit Reports Flashcards
Statements on auditing standards (SAS)
1- standard setting body
2- public or private
1- AICPA auditing standards board
2- private (non-issuers)
Public company accounting oversight board auditing standards (PCAOB AS)
1- standard setting body
2- public or private
1- PCAOB
2- public (issuers)
Three levels of auditing guidance in order starting with most authoritative
1- SAS (private) PCAOB (public)
2- interpretive publications
3- other auditing publications
5 steps of audit process
1- engagement acceptance
2- assess risk and plan response
3- perform procedures and obtain evidence
4- form conclusions
5- reporting
Purpose of an audit
Provide financial statement users with an opinion on whether the financial statements are reported fairly in all material respects in accordance with the applicable financial reporting framework
3 main management responsibilities
1- preparation and fair presentation of financial statements
2- internal control
3- provide auditors with access to information
3 components of fair preparation of financial statements
1- identify proper financial reporting framework
2- prepare FS in accordance with framework
3- include description of framework in FS
3 components of fraud triangle
1- pressure
2- opportunity
3- rationalization
The auditor must remain independent unless…
1-x
2-x
- GAAS provides otherwise
- The auditor is required by law or regulation to accept engagement
4 steps to obtain reasonable assurance
1- plan the work & properly supervise any assistants
2- determine and apply appropriate materiality levels
3- identify & assess risks of material misstatement
4- obtain sufficient appropriate audit evidence
Non issuers can choose between which two types of audits
1- a financial statement audit only
2- an integrated audit
Public companies must do which type of audit
Integrated audit
2 objectives of financial statement audits
1- to obtain reasonable assurance
2- to report on the financial statements
2 objectives of the audit of internal control over financial reporting
1- expressing an opinion on effectiveness
2- perform audit to obtain reasonable assurance about whether material weaknesses exist
Departure from GAAP is permissible if
Financial statements would be otherwise misleading
The auditor relies on XXX on how to perform audit and YYY to evaluate whether transactions are recorded correctly
XXX= GAAS
YYY= GAAP
Term for clean opinion (public and private)
Unqualified (public) and unmodified (private)
The auditors report should be modified when
1-?
2-?
1- financial statements as a whole are materially misstated
OR
2- auditor is unable to obtain sufficient evidence to determine
Qualified opinion
Except for the effects of the matters the qualification relates, the financial statements are fair (GAAP or GAAS)
Adverse opinion
Financial statements are not fairly stated (GAAP)
Disclaimer of opinion
Auditor does not express an opinion on FS (GAAS)
Pervasive definition
VERY material
Contents of clean audit report for private companies (13)
1- title
2- addressee
3- auditors opinion
4- basis for opinion
5- going concern (when relevant)
6- KEY audit matters
7- management responsibility of FS
8- auditors responsibility for audit of FS
9- other information (when relevant)
10- other reporting responsibilities
11- signature of auditor
12- auditors address
13- date of auditors report (no earlier than sufficient evidence obtained)
Contents of clean audit report for public companies (issuers) (7)
1- title
2- addressee
3- opinion section
4- basis for opinion section
5- CRITICAL audit matters
6- signature, tenure, location
7- report date
For each CAM identified, the audit report should include
IPAD
I- identification of CAM
P- principal considerations leading auditor to determine CAM
A- how was CAM Addressed
D- reference to relevant Disclosure
Integrated audit definition
Additional opinion is rendered on operating effectiveness of internal control
Governing bodies for:
1-Basis for opinion section
2-Opinion on FS section
1-PCAOB
2- GAAP
What form must be filed with the PCAOB for each audit report issued and when does it need to be filed
Form AP (audit participant) … filed by 35th day after audit report is first filed with SEC or 10 days if audit report is included in registration statement
If a company issues financial statements that omits statement of cash flows what opinion will auditor usually issue
Qualified opinion
When auditor is not independent but required by law or regulation to report, what should the auditor do?
Disclaim an opinion and specifically state that the auditor is not independent, if they choose to provide reasons they must include all reasons
If FS are fraudulent or misleading and management won’t correct them the CPA should consider what
Withdrawing from engagement
Material misstatement related to uncertainty - which opinion
Qualified or adverse
Insufficient evidence (scope limitation) - which opinion
Qualified or disclaimer
What is an emphasis of matter paragraph
PRIVATE COMPANIES- When a matter is appropriately disclosed in FS and is of such importance it is fundamental to readers understanding of FS - it does not affect auditors opinions
For public companies it’s an “explanatory paragraph”
What is an other matters paragraph
PRIVATE COMPANIES- refers to matters other than those presented or disclosed in FS but are relevant to understanding of audit
Public company - explanatory paragraph
What is an explanatory paragraph
PUBLIC COMPANY- when something disclosed or not disclosed needs to be explained
Emphasis of matter, other matter, and explanatory paragraphs represent which opinion
Unmodified (unqualified)
When PY FS were not audited and CY FS are being audited, what may be required
Disclaimer of opinion
If updated opinion differs from previous audit opinion, auditors should disclose the reasons in an EOM paragraph, OM paragraph, or EXP paragraph and should disclose what??? (DORCS)
D- date of auditors previous report
O- opinion type previously issued
R- reason for prior opinion
C- changes that have occurred
S- statement that the opinion is different
Subsequent event definition
Occurs after Balance Sheet date but before financial statements are issued or available to be issued
Recognized subsequent events
Conditions that existed as of the balance sheet date
Non-recognized subsequent events
Occurred after the Balance Sheet date (footnote)
Public companies evaluate subsequent events through
Date FS are issued
Private companies evaluate subsequent events through date
FS are available to be issued
If auditor believes FS need to be revised to reflect a subsequent event and management does not make the revision what opinion should auditor express
Qualified or adverse
5 special purpose frameworks
PRIVATE COMPANIES
1- cash basis
2- tax basis
3- regulatory basis
4- contractual basis
5- other basis
Cash basis, tax basis, regulatory basis are referred to what
OCBOA - other comprehensive basis of accounting
If auditor was unable to obtain sufficient evidence then what opinion do they issue
Disclaimer of opinion
Does the auditor have to include documentation including the SAS section and paragraph numbers?
No
When expressing an unmodified opinion
1: consistent application of GAAP (explicit or implicit)
2: in accordance with GAAP in the USA (explicit or implicit)
1- implicit
2- explicit
A change in accounting principle that is inseparable from a change in estimate should be treated as
A change in estimate
If the financial statements of a prior period have been audited by a predecessor auditor whose report is not presented, what should the successor auditor do (4 things)
1- explanatory paragraph that FS of prior period were audited by predecessor
2- the type of opinion expressed by predecessor and why
3- nature of any emphasis of matter or other matter paragraphs in predecessor report
4- date of predecessors audit report
Explain a dual date
When a single item is changed in the financial statements after the original date of the auditors report, the auditor would likely return to examine the event then dual date the report
What type of report would contain restricted use language
A report on compliance
When a company omits statement of cash flows, auditor will typically express what opinion
Qualified
Group audit- when should a group engagement partner reference the component auditor
When the group component officer is unable to review their work
