A1 - Audit Reports Flashcards
A1-M1: Professional Standards
List the Professional Standards for Audit Engagements
- Statement on Auditing Standards (or GAAS) - Non Issuers
- Public Company Accounting Oversight Board Auditing Standards (PCAOB AS) - Issuers
- Generally Accepted Government Auditing Standards (GAGAS) - Govt. Entities
A1, M1: Professional Standards
List the Professional Standards for Other Engagements
- Statement of Standards for Attestation Engagements (SSAE) - Applied to an examination, review or agreed-upon procedural report
- Statement of Standards for Accounting and Review Services (SSARS) - for unaudited financial statements
A1, M1 - Professional Standards
List the guidelines for Professional Standards
- Code of Professional Conduct - Applies to members of the AICPA
- Statements on Quality Control Standards - Guidance to CPA firms about Quality Control
A1, M1 - Professional Standards
Rank the order of which resources should be considered during an audit engagement
- Guidelines set by PCAOB & SAS
- Interperative Publications (Auditing interpretations of GAAS, Auditing guidance in AICPA guides)
- Other Audit Publications (Auditing Articles in the journal of Accountancy, textbooks, etc)
A1,M1 - Professional Standards
True or False: “Should” = presumptively mandatory
True
Must = Unconditional Requirement
A1,M2 - Audit Engagements
List out the auditing process
- Engagement Acceptance
- Assess Risk and Plan Response
- Perform Procedures and Obtain Evidence
- Form Conclusions
General Principals are the overarching umbrella for process
A1,M2 - Audit Engagements
What is the purpose of an audit?
“To provide financial statement users w/an opinion on whether financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework”
A1,M2 - Audit Engagements
List out the Management Responsibilities on an Engagement
- The preparation and fair presentation of financial statements
- The design, implementation, and maintenance of internal controls
- providing the auditor w/access to information and personnel to complete the audit
A1,M2 - Audit Engagements
List out the Auditor’s Responsibilities on an Engagement
- Maintaining Professional Skepticism
- Compling w/relevant ethical requirements
- Exercising Professional Judgement throughout planning and performance of audit
- Obtaining sufficient and appropriate audit evidence to reduce audit risk
- Compling w/GAAS
A1,M2 - Audit Engagements
What are the ways auditors can provide reasonable assurance
- Plan the work and properly supervise any assistance
- Determine and apply appropriate materiality levels
- Identify and assess risks of material misstatements
- Obtaining sufficient appropriate audit evidence
A1,M2 - Audit Engagements
What are the objectives of an audit of Internal Control over Financial Reporting?
- Express an opinion on the companies internal control over financial reporting
- plan and perform and audit to obtain sufficient appropriate evidence about whether or not material weakness exists
Required for Most Issuers; not required for non-issuers
A1,M3 - Forming an Audit Opinion
For Unqualified/Unmodified Opinions, which term relates to who?
Unqualified - Issuers
Unmodified - Non Issuers
A1,M3 - Forming an Audit Opinion
What counts as “pervasive”
- Not confined to a specific element of the financials
- If confined, represents a substantial portion of the financials
- Disclosures are fundamental to user’s understanding of financials
A1,M4 - Unmodified/Unqualified Opinion
What are the sections in an unmodified audit report?
- Title
- Addressee
- Auditor’s Opinion
- Basis for Opinion
- Substantial Doubt about the entity’s ability to continue as a going concern
- Key Audit Matters (when engaged)
- Responsibilities of Management
- Auditor’s Responsibilities
- Other Information (when relevant)
- Other Reporting Responsibilities
- Signature
- Auditor’s Address
- Date*
*Date represents the last day of auditor’s responsibility for financial statements
A1,M4 - Unmodified/Unqualified Opinion
What are the sections in an unqualified report?
- Title
- Address
- Opinion
- Basis for Opinion
- Critical Audit Matters
- Signature, Tenure, Location
- Report Date
A1,M4 - Unmodified/Unqualified Opinion
True or False: the Critical Audit Matters section is optional if there are no CAMs
False.
If there are no CAMs, you must state that there are no CAMs in that section.
A1,M4 - Unmodified/Unqualified Opinion
What are the components of each CAM?
- Principal considerations to determine CAM
- How was the CAM addressed in the audit?
- Reference to relevant financial statements or disclosures
A1,M4 - Unmodified/Unqualified Opinion
If a company is required to follow 2 sets of standards…
Add extra standard to “basis of opinion” paragraph in report
A1,M4 - Unmodified/Unqualified Opinion
What form do auditors need to fill out if auditing an issuer?
Form AP
FIled by the 35th day after audit report is filed
A1,M5 - Modified Opinions due to financial statements
Describe the nature of financial material misstatements
- Appropriateness of Accounting policies
- Application of Accounting policies
- Appropriateness of financial statement presentation
A1,M5 - Modified Opinions due to financial statements
Which sections are omitted in an audit report with an adverse/disclaimer of opinion?
Key Audit Matters (non-issuer) & Critical Audit Matters (issuer)
A1,M6 - Modified Opinions due to Audit Issues
In what instances should an auditor issue a qualified/disclaimer of opinion?
- auditor is unable to obtain sufficient, appropriate audit evidence
- when auditor is not independent
- financials are unaudited
A1,M6 - Modified Opinions due to Audit Issues
What should an auditor do if they are unable to perform a specific auditing procedure
Ask/figure out a work-around
Being unable to perform a specific auditing procedure is not enough ground to issue a opinion/disclaimer of opinion
A1,M7 - Emphasis of Matter, Other Matter, & Explanatory Paragraph
When is an Emphasis of Matter Paragraph Used?
When referring to a matter appropriately presented or disclosed in the financials
Does not affect the audtor’s opinion
A1,M7 - Emphasis of Matter, Other Matter, & Explanatory Paragraph
When is a EOM required for a report?
- to justify change in acct. principal with material affects
- subsequent facts that led to a change in audit opinion
- Special Purpose Framework is used
A1,M8 - Reporting w/Different Opinions and Other Auditors
What are the procedures auditors go through when predecessor auditor wants to reissue a previous report?
- Obtain a letter of representaiton from management @ or near date of reissuance
- obtain a letter of representation from the successor auditor
- Date report
A1,M8 - Reporting w/Different Opinions and Other Auditors
True or False: When reissuing a revised report, a dual date is not required
False - dual date is required if predecessor revises report previous report
If unrevised, the original report date is used
A1,M8 - Reporting w/Different Opinions and Other Auditors
True or False: When assuming responsibility, there should be no reference to the component auditor in the report
True
Only reference component auditor when responsibility is not assumed
A1,M8 - Reporting w/Different Opinions and Other Auditors
True or False: (issuers) Lead Auditor may divide responsibility with referred to auditor
True
A1,M9 - Subsequent Events
What is a subsequent event?
An event that occurs after the balance sheet date but before the financial statements are issued
A1,M9 - Subsequent Events
What subsequent events are considered “recognized”
- Settlements on litigations that arose before B/S date
- Loss on uncollectable receivable - effects of bankruptcy
A1,M9 - Subsequent Events
What are some non recognized subsequent events (minimum 3)
- Sale of bonds/stock
- Business Combo
- litigation (post b/s date)
- natural disasters
- change in fair value
- significant commitments/contingent liabilities
A1,M9 - Subsequent Events
When do auditors have an active responsibility for subsequent events?
During the subsequent period (time frame between b/s date and report date)
A1,M9 - Subsequent Events
What auditing procedures should auditors perform during the subsequent period?
- Post balance sheet transactions review
- Obtaining representation letter from management
- Inquiry of legal counsel
- Review of meeting minutes
- Examination of interim financials
A1,M9 - Subsequent Events
True or False: Auditor has no active responsibility for subsequent events after the report date
True
However, if an auditor is made aware of any subsequent events before the release date, they should consider its impact to the financial statements.
A1,M10 - Other Information and Supplementary Info
What’s included in “other information”?
- Reports by management
- Financial summaries or highlights
- Employment Data
- planned capital expenditures
- financial ratios
- names of officers/directors
- selected quarterly data
A1,M10 - Other Information and Supplementary Info
True or false: the auditor is generally not responsible for other information
True
However, they should read for any material inconsistencies, as this may undermine the credibility of the financials
A1,M10 - Other Information and Supplementary Info
If supplementary info is materially misstated and management refuses to change report, what are the options for the auditor?
- Modify opinion on supplementary info
- withhold supplementary info report (if separate from auditor’s report)
A1,M11 - Special Purpose Frameworks
List the types of Special Purpose Frameworks
- Cash basis
- Tax basis
- Regulatory basis
- Contractual basis
- Other basis
main difference from standard reporting: Non-GAAP Titles
