A1 Audit Reports A1

Question 1

State the primary purpose of an audit.

Answer 1

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

Question 2

Identify 3 inherent limitations of audit.

Answer 2

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

Question 3

Which standards provide the most authoritative US auditing guidance for nonissuers and issues, and who issues those standards?

Answer 3

Nonissuers: Statements of Auditing Standards (SASs) issued by the AICPA Auditing Standards Board

Issuers: Auditing Standards (ASs) issued by the PCAOB plus all SAS by the PCAOB.

Question 4

Describe the role of the International Auditing and Assurance Board (IAASB) and the use of International Standards of Auditing (ISA)

Answer 4

IAASB is a standard-setting board of the international Federation of Accountants (IFAC) that establishes ISAs

Question 5

What are the 5 general GAAS requirements related to the conduct of an audit?

Answer 5

1. S professional Skepticism
2. E Ethical requirement
3. J professional Judgement
4. E sufficient & appro. audit Evidence
5. C Compliance with GAAS

Question 6

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

Answer 6

1. Title: Indep Auditor’s Report
2. Addressee: Based on the circumstance of the engagement
3. Introduction: We have audited the accompany FS of…
4. Management’s Responsibility for the FS = M is responsible for the preparation and fair presentation of the FS
5. Auditor’s Responsibility: Our responsibility is to express an opinion on these FS based on our audit
6. Opinion: In our opinion, the FS referred to above present fairly, in all material respects, the financial position…
7. Report on Other legal and Regulatory Requirements: If applicable

Question 7

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

Answer 7

1. The entity whose FS have been audited
2. A statement that the FS were audited
3. The title of each FS audited
4. Dates or periods covered by each FS

Question 8

What 2 things should be included in the MR paragraph of the unmodified audit opinion?

Answer 8

1. An explanation that M is responsible for the preparation and fair presentation of the FS
2. A statement that this responsibility includes the design, implementation, and maintenance of i/c

Question 9

What should be included in the AR paragraph of the unmodified audit opinion?

Answer 9

1. A statement that the auditor’s responsibility to express an opinion of the FS based on the audit
2. A statement that the audit was conducted in accordance with auditing standards gen accepted in the USA
3. A statement that standards require the auditor plan and perform the audit to obtain reasonable assurance about whether the FS are free of MM
4. A description of the audit

Question 10

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

Answer 10

1. A statement that the FS present fairly, in all material respects, the financial position of the entity as of the BS date and the results of operations and its cash flows for the period.
2. Identification of the applicable financial reporting framework and its origin.

Question 11

Where in the standard unmodified opinion does the auditor refer to:

1. The applicable financial reporting framework (i.e. GAAP or IFRS)
2. GAAS

Answer 11

1. The applicable financial reporting framework is referred to in the management’s responsibility paragraph and opinion paragraph.
2. GAAS is referred to in the auditor’s responsibility paragraph.

Question 12

Identify the key differences in the auditor’s report under US GAAS and the ISAs

Answer 12

Requirements in the AR under ISAs (Not GAAS)
1. The introduction paragraph refers to the summary of significant acctg policies and other explanatory information

2. The report may refer to “The preparation and fair presentation of the FS” Consistent with GAAS or the “the preparation of FS that give a true and fair view” not allowed under GAAS
3. The auditor responsibility paragraph must include a stmt that the auditing standards require that the auditor compy with the ethical requirements.

Requirements in Auditor’s Report under GAAS (not ISAs)

1. Sufficiency appropriate audit evidence should include evidence that the audit documentation has been reviewed.
2. The description of MR for the FS in the Auditor’s report should not be reference to a separate statement by M if such a statement is included in a document containing the audit report.

Question 13

What is a comfort letter?

Answer 13

Letters for underwriter. When a public company wishes to issues new securities to the public, the underwriters of the securities will generally ask the company’s auditor to provide “comfort” on the financial and accounting data in the prospectus that is not covered by an accountant’s report of the some form (e.g. an audit report on the F/S).

In a comfort letter, the CPA will provide positive assurance that they are independent and that their audit followed SEC standards. They will provide negative assurance or a summary of findings on various types of accounting related matters such as the following: unaudited summary and summarized interim information, pro forma financial information, change subsequent to the balance sheet date, and on various tables of data.