(A5, S3) Communication w/Those Charged w/Governance

Question 1

An auditor should communicate to those charged with governance the effects of significant accounting policies adopted by management in emerging areas for which there is no authoritative guidance.
True or False?

Answer 1

True.

Question 2

What are some matters that the auditor is required to communicate to those charged with governance?

Answer 2

• Management’s consultation with other auditors
• Material, corrected misstatements brought to management’s attention as a result of the audit (if CWG not involved with management)
• Disagreements with management, whether or not resolved.
• The methods used to account for significant unusual transactions.
• The initial selection of and changes in significant accounting policies or their application.
• Significant audit adjustments recorded by the entity

Question 3

The maximum dollar amount of misstatements that could exist with causing the financial statements to be materially misstated is a discussion that should be initiated with those charged with governance.
True or False?

Answer 3

False, this is a matter of professional judgment and is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements.

Question 4

This communication is incidental to the audit; accordingly, it is not required to occur before the issuance of the auditor’s report as long as the communication occurs on a timely basis.
True or False?

Answer 4

True. For audits of issuers, the communication must be made before the auditor’s report is filed with the SEC.

Question 5

The auditor should not discuss the planned scope and timing of the audit with those charged with governance, since it will compromise the effectiveness of audit procedures by making them too predictable.
True or False.

Answer 5

False, these matters can be discussed with CWG, but should be careful not to compromise the effectiveness of audit procedures by making them too predictable.

Question 6

According to the SEC, members of an issuer’s audit committee may not:

Answer 6

Accept any consulting, advisory, or other compensatory fee from the registrant for services other than as a member of the board.