A1: Audit Reports

Question 1

What standards provide the most authoritative US auditing guidance for nonissuers?

Answer 1

SASs, issued by AICPA Auditing Standard Board

Question 2

What standards provide the most authoritative US auditing guidance for issuers?

Answer 2

ASs, issued by PCAOB

Question 3

State the primary purpose of an audit.

Answer 3

To provided financial statement users with an opinion on whether the financial statements are fairly presented, in all material respects, in accordance with the applicable financial reporting framework.

Question 4

What are the five general GAAS requirements related to the conduct of an audit?

Answer 4

SEJEC

1. Professional Skepticism
2. Ethical Requirements
3. Professional Judgement
4. Sufficient and Appropriate Audit Evidence
5. Compliance with GAAS

Question 5

Identify three inherent limitations of an audit.

Answer 5

1. The nature of financial reporting.
2. The nature of audit procedures.
3. Timeliness of financial reporting and the balance between benefit and cost.

Question 6

When should an auditor’s opinion be modified?

Answer 6

FS as a whole are materially misstated (GAAP Issue) or

unable to obtain sufficient appropriate evidence to conclude.

Question 7

List in order the primary sections of an unmodified audit opinion (nonissuer).

Answer 7

Title
Addresses
Intro:
Mgmt's responsibility 
Auditor's responsibility
Opinion
Report on other.

Question 8

What should be included in the introductory paragraph of the unmodified audit opinion (nonissuer)?

Answer 8

Entity whose FS have been audited.
A statement that the FS were audited.
title of each FS audited
Dates or periods covered by each FS.

Question 9

What should be included in the mgmt’s responsibility paragraph of the unmodified audit opinion (nonissuer)?

Answer 9

An explanation that management is responsible for the preparation and fair presentation of the FS in accordance with the applicable financial reporting framework.

A statement that this responsibility includes DIM of internal control relevant to the preparation and fair presentation of FS that are free from material misstatement, whether due to fraud or error.

Question 10

What should be included in the auditor’s responsibility paragraph of the unmodified audit opinion (nonissuers)?

Answer 10

Four statements and one desc.
Auditor’s responsibility to express opinion.
Audit was conducted in accordance with standards
Auditor obtained reasonable assurance
Evidence obtained is sufficient and appropriate.
Description of the audit.

Question 11

What should be included in the opinion paragraph of the unmodified audit opinion (nonissuer)?

Answer 11

FS are presented fairly, and

identification of the the framework

Question 12

Where in the standard unmodified opinion (nonissuer) does the auditor refer to the applicable financial reporting framework?

Answer 12

Management’s responsibility paragraph and

Opinion paragraph.

Question 13

Where in the standard unmodified opinion (nonissuer) does the the auditor refer to GAAS

Answer 13

Auditor’s responsibility paragraph.

Question 14

List in order the primary sections of an unqualified audit opinion (issuer).

Answer 14

Title
Addressee
Opinion section 
Basis for Opinion section
Signature, tenure, location
Report date

Question 15

What should be included in the opinion section of the unqualified audit opinion (issuer)?

Answer 15

Name of company being audited
identifying FS and scheduled been audited
FS and scheduled that were audited
Dates or periods covered
Opinion presented fairly with the framework.

Question 16

What should be included in the first paragraph under the basis for opinion in the unqualified audit opinion (issuer)?

Answer 16

3 Statements
FS responsbility of management
Auditor Opinion
Auditor works for a PCAOB

Question 17

Where in the standard unqualified opinion (issuer) does the auditor refer to the applicable financial reporting framework?

Answer 17

Opinion paragraph

Question 18

Where in the standard unqualified opinion (issuer) does the auditor refer to the standards of the PCAOB?

Answer 18

2nd paragraph under the basis of opinion section.

Question 19

What should be included in the second paragraph under the Basis for Opinion section in the unqualified audit opinion (issuer)?

Answer 19

Audit conducted in accordance with PCAOB.
Obtain reasonable assurance
Audit included test and procedures
reasonable basis for opinion.

Question 20

The auditor’s report should not be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence. This should include evidence that what three things have occurred?

Answer 20

1. reviewed audit documentation
2. Prepared FS
3. Mgmt takes responsibility.

Question 21

What is the definition of a CAM?

Answer 21

A matter that was communicated or required to be communicated to the audit committee and that

1. relates to material accounts or disclosures, and
2. complex auditor judgement.

Question 22

In determining CAMs, what factors should the auditor consider?

Answer 22

Assessment of the risks
Areas of significant judgement or estimates by mgmt
Nature and timing of unusal transactions,
Degree of subjectivity in audit procedures, and
Specialized skills in the matter.

Question 23

In most audits of issuers, how many CAM will an auditor normally identify?

Answer 23

at least one.

Question 24

For each CAM identified, what should the audit report of an issuer include?

Answer 24

IPAD
ID of CAM
Desc. of Principal 
How it was Addressed
Disclosures reference.

Question 25

What should the auditor of an issuer do if the auditor determines there are no CAMs?

Answer 25

State “ We determined that there are no CAMs”

Question 26

When would an auditor use professional judgement to determine whether to issue a qualified opinion?

Answer 26

Material but not pervasive to the FS.

Question 27

When would an auditor use professional judgement to determine whether to issue a adverse opinion?

Answer 27

Material and pervasive to the FS.

Question 28

Describe the circumstances in which a material misstatement of the FS may arise.

Answer 28

appropriateness of accounting policies
application of accounting policies
appropriateness of the FS presentation
appropriateness of adequacy of disclosures in the FS.

Question 29

Compared to a standard unqualifed opinion for an issuer, determine the paragraphs that are modified in an audit report when a qualified opinion are issued due to FS issues (Misstatement):

Answer 29

Opinion Section: Except for

Question 30

Compared to a standard unqualifed opinion for an issuer, determine the paragraphs that are modified in an audit report when a adverse opinion are issued due to FS issues (Misstatement):

Answer 30

Opinion Section: Do not present fairly.

Question 31

Is an auditor required to report on CAM when issuing an adverse opinion?

Answer 31

No