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AUD > A1: Audit Reports > Flashcards

A1: Audit Reports Flashcards

1
Q

Opinion Elements/Paragraphs

A

Intro Paragraph

Management’s Responsibility

Auditor’s Responsibility

Basis for Modification/Opinion

Opinion

Emphasis of Matter Paragraph

Other Matters Paragraph

Report on Other Legal/Regulatory Responsibilities

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2
Q

Elements of Management’s Responsibility Paragraph

A

M – Management’s
R – Responsibility
(for preparation and fair presentation of financial statements)

D – Design
I – Implementation, and
M – Maintenance (of internal controls)

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3
Q

Elements of Auditor’s Responsibility Paragraph

A

R – auditor’s Responsibility
E – Express opinion on financial statements
P – Plan and perform the audit
P – Perform procedures to
O – Obtain evidence
R – assess Risks of material misstatement due to fraud or error
T – (Test) consider internal control relevant to
S – preparation and fair presentation of financial Statements
C – not for purpose of opining on Controls
R – evaluate Reasonableness of
A – Accounting estimates of
M – Management and
E – Evaluate overall financial statement presentation

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4
Q

Elements of Opinion Paragraph

A

Financial statements present fairly, in all material respects, financial position, in accordance with applicable reporting framework

Identify applicable reporting framework

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5
Q

Where reference to GAAS/other audit standard?

A

Auditor’s Responsibility Paragraph

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6
Q

Where reference to GAAP/other financial reporting framework?

A

Opinion Paragraph

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7
Q

Opinion changes if refer to other auditor?

A

Modify auditor’s responsibility

Modify Opinion

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8
Q

Opinion changes if do not?

A

None

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9
Q

When to issue qualified opinion?

A

Statements materially misstated or unable to obtain evidence to conclude statements are free from material misstatements

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10
Q

Opinion differences (Qualified)?

A

Modify Auditor’s Responsibility Paragraph (evidence supports qualified opinion)
Basis of Qualified Opinion Paragraph
Modify Opinion Paragraph (Except for…[matter in Basis of Opinion Paragraph], present fairly…)

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11
Q

When to issue adverse opinion?

A

Statements contain pervasive (very material) misstatements

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12
Q

Opinion differences (Adverse)?

A

Modify Auditor’s Responsibility Paragraph (evidence supports adverse opinion)
Basis of Adverse Opinion Paragraph
Modify Opinion Paragraph (Because of [matter in Basis of Opinion Paragraph], not presented fairly…)

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13
Q

When to issue disclaimer of opinion?

A

Unable to obtain sufficient evidence to provide basis for an opinion that no pervasive (very material/significant) material misstatement
(significant scope limitations, significant going concern uncertainty, lack of independence)

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14
Q

Opinion differences (Disclaimer)?

A

Modify Intro Paragraph (engaged to audit)
Modify Auditor’s Responsibility (Because of matters discussed in [Basis of Modification paragraph], unable to obtain sufficient evidence to provide opinion)
Basis for Disclaimer (describe why unable to obtain sufficient evidence)
Modify Opinion (Because of matters in [Basis paragraph], unable to obtain sufficient evidence and therefore does not express an opinion)

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15
Q

When use Emphasis of Matters Paragraph?

A

Required: Going Concern, Justified accounting principle change has material effect, Change prior opinion (eg, now in compliance with GAAP), use of other special purpose financial reporting framework

Maybe: uncertainty relating to litigation or regulation, major catastrophe, major related party transactions, important subsequent events

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16
Q

Going Concern Procedures?

A 
A – Analytical Procedures
D – Debt compliance
M – Minutes
I – Inquiry of legal counsel
T – Third parties (confirm support arrangements)
S – Subsequent events
17
Q

Going Concern Paragraph Language?

A

“Substantial doubt” and “going concern”
Do not say “for 1 year”

Also option to Disclaim an Opinion due to significant going concern uncertainty
Qualified or Adverse if inadequate disclosure regarding going concern issue

18
Q

Consistency/Change in Accounting Principle

A

Immaterial: no change to report

Otherwise: emphasis-of-matter paragraph until new principle applied to all periods presented

19
Q

Common GAAP Issues (Qualified or Adverse Opinion)

A
  • unjustified change in accounting principle
  • inadequate disclosure
  • unjustified departure from/violation of GAAP
  • unreasonable accounting estimates
20
Q

Withdrawal?

A

Report is false, fraudulent, deceptive or misleading

21
Q

Common GAAS Issues (Qualified or Disclaimer)

A
  • uncertainty
  • scope limitations (opinion refers to possible effect on financial statements, not the limitation itself)
  • independence
  • unaudited financials (disclaimer)
22
Q

Prior year’s financials not audited

A

Likely scope limitation – disclaimer on all statements other than Balance Sheet if unable to determine beginning year Inventory

23
Q

Update Prior Opinion – why?

A

Often when now in conformity with GAAP

24
Q

What needed in new opinion?

A 
D – Date of prior report
O – Opinion previously given
R – Reason for prior opinion
C – Changes occurred
S – Statement that opinion is different
25
Q

Prior audit by other auditors:

-predecessor reissues report?

A
  • get reps letters from new auditor and management about changes/modifications
  • reissue opinion with old date (if no changes) or dual date (if revised)
26
Q

Prior audit by other auditors:

-report not reissued?

A

-opinion only on current period and include other-matter paragraph (type of old opinion and reasons for any modification or emphasis or other matters)

27
Q

Prior year financials not audited by anyone

-were reviewed or compiled?

A

-other matter paragraph: service done previously, any modifications, statement that service was weaker than audit or didn’t provide opinion on financials

28
Q

Prior year financials not audited by anyone

-not audited, reviewed or compiled?

A

-other matter paragraph: previously not audited/reviewed and no responsibility for prior period statements

29
Q

Types of subsequent Events

A

Type I – Recognized Events – conditions on or before balance sheet date – adjustment to statements

Type II – Nonrecognized Events –conditions after balance sheet date – disclosure required

30
Q

Procedures to check for subsequent events

A 
P – Post-balance sheet transactions
R – Rep letter from management
I – Inquiries of management/attorneys
M – Minutes of meetings
E – Examine interim financials
31
Q

Auditor responsibility after original report date

A

No active responsibility
If become aware of events before report release, may be necessary to adjust financials or disclosures – if management does not, may need to issue Qualified or Adverse Opinion

32
Q

Auditor discover facts after report released

A

-if materially affects report and persons relying on statements: advise client to update statements/disclosures
-if client refuses: DAR
Dissociate report from financials
Alert regulatory agencies
Notify relying parties that report shouldn’t be relied upon

33
Q

Discover omitted audit procedures

A
  • Were omitted procedures material to report?
  • Were alternative procedures adequate to compensate for omission?
  • if people relying on report, apply omitted (or alternative procedures)
34
Q

Responsibility for other information

A
  • read for any material inconsistencies
  • if inconsistency, management refuses to revise, notify board and: describe in Other Matters Paragraph, withhold use of report, or withdraw from engagement
  • or may include Other Matter Paragraph disclaiming opinion on other information
35
Q

Engaged to Report on supplemental information

A
  • objectives: evaluate presentation of such info in relation to financials as a whole, and report whether such info is fairly stated in relation to financials
  • info must be derived from info used to prepare audited financials
  • must obtain rep letter from management
  • report in separate report or Other Matters Paragraph
36
Q

Required Supplementary Information

A
  • limited procedures required: inquiries of management, see if consistent with financials, obtains rep letter from management
  • Other Matters Paragraph: Disclaim opinion on the info, report any deficiencies/omissions/ uncertainties, or that info is included and auditor did required procedures
37
Q

Report on Application of Reporting Framework to transaction

A
  • may not report on hypothetical transaction
  • accountant need not be independent
  • must: understand transaction, review requirements of framework, consult with continuing accounting
  • report: describe engagement, performed under AICPA standards, transaction and findings, restriction of use (management, board, previous/current auditors), disclose if not independent
38
Q

Report on Financials prepared under non-GAAP (or non-IFRS)

A
  • non US distribution: use report of other country or US form
  • US distribution: use US form with emphasis-of-matter paragraph noting the relevant framework, and that it differs from GAAP

AUD (6 decks)

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