AUD 1 Flashcards
What the 2 most authoritative guidance?
- AICPA SAS (Non-issuers) and PCAOB (Issuers) (Most authoritative)
- Auditing publications (Exhibits + guides)
- Other auditing publications (arrticles)
Word used for presumptively mandatory = ?
Word for unconditional requirement = ?
- Should
- Must
What are auditor’s responsibilities?
a. Maintaining professional skepticism
- Examples of the application of professional skepticism: Corrobarating evidence, thrid party, support
b. complying with ethical requirements
c. Exercising professional judgment
d. obtaining sufficient appropriate audit evidence
e. Complying with GAAS
What are objectives of gaining reasonable assurance?
a. Plan the work and supervise assistance
b. Determine and apply appropriate materials
c. Identify risks of material misstatement
d. Obtain sufficient appropriate audit evidence
What is the order of an unmodified opinion (non-issuer) ? Where is the framework or GAAS referrenced?
OBRA
1. Opinion
a. intro
b. Sentence with opinion
c. Nature of engagement
d. FRAMEWORK referenced
2. Basis for opinion a. Discusses auditing standards b. GAAS referenced
3. Responsibility of management a. GAAP, design of IC b. Going concern c. FRAMEWORK referenced
4. Responsibility of auditor a. Professional Skepticism b. Risks of material misstatement c. Understanding of IC d. Significant accounting estimates + principals e. Expressing an opinion f. GAAS referenced
What is the order of an unqualified opinion (Issuer) ? Where is the framework or GAAS referrenced?
Opinion of FSs
- Framework (PCAOB + GAAP)
- Nature of the engagement
- Opinion
Basis of opinion
- Material misstatement
- Reasonable assurance
- Auditor is member of the PCAOB and is audited in accordance with the PCAOB.
- FSs are responsibility of mgmt.
- Auditor’s responsibility is to express an opinion.
- Auditor plans and performs to obtain reasonable assurance…….
When and what are CAMs used for? What is included in CAM report?
CAMs (Only for unqualified or qualified) AKA Issuer ONLY
1. Provides more visibility into complex areas or areas that require judgment.
2. Usually significant judgements, events, transactions
3. Section after “Basis for opinion”
MUST BE:
1. Matter that was communicated to audit committee
2. Relate to accounts or disclosures material to the FSs
3. Involve challenging, subjective, or complex auditor judgment
Report (IPAD)
1. Identification of CAM
2. Principal consideration of matter
3. Addressed - How it was addressed in the audit
4. Disclosures made in FSs
What are the modifications for a qualified opinion? (Non-issuer)
Opinion section
- “except for”
Basis for qualified opinion
- Add paragraph describing departure from framework and quantify effects
Basis for qualified opinion
- States the type of opinion at the end
What are the modifications for a qualified opinion? (Issuer)
Opinion section
1. “except for”
2. Add paragraph describing departure from framework and quantify effects
Additional paragraphs 1. Reasons for departure from GAAP.
What are the modifications for an adverse opinion? (Non-issuer)
Opinion section
- “because of the significance of the matter… the FSs do not present fairly”
- Reference to a separate section disclosing the basis of opinion
Basis for adverse opinion
- Add paragraph describing departure from framework and quantify effects
- Description of the matter giving rise to the modification
- Basis for adverse opinion - States the type of opinion at the end
Note: No Key Audit Matter for Adverse opinions
What are the modifications for an adverse opinion? (Issuer)
Opinion section
- “because of the significance of the matter… the FSs do not present fairly”
- Reference to a separate section disclosing the basis of opinion
Additional paragraphs
- Add paragraph describing departure from framework and quantify effects
- Description of the matter giving rise to the modification
Note: No Critical Audit Matters for Adverse opinions
What are the modifications for a disclaimer of opinion? (non-Issuer)
Opinion section
- “do not present fairly”
- Add paragraph describing departure from framework and quantify effects
Basis for disclaimer
- Reference to auditor’s report where auditor’s responsibilities are described.
- Statement on whether evidence obtained is sufficient.
- The reasons for the inability to obtain sufficient appropriate audit evidence
Auditor’s responsibilities
- To conduct in accordance with auditing standards generally excepted.
- Statement Because of Basis for disclaimer of opinion…. Auditor was not able to obtain sufficient appropriate information.
- Auditor is required to be independent.
What are the modifications for a disclaimer of opinion? (Issuer)
Opinion section
- change heading
- “We were engaged to audit”
- “Not able to obtain sufficient appropriate audit evidence”
Additional paragraphs
- All substantiative reasons for the disclaimer and reservations regarding the conformity to GAAP.
Basis for disclaimer
- Eliminate “Our responsibility” and “We conduct our audits in accordance with”
What are the modifications for a audit issues? Qualified? Disclaimer?
Qualified opinion
· Reference to basis paragraph (non-issuer)
· Reference to additional paragraph (issuer)
What opinion would you modify the auditor’s responsibility paragraph?
Disclaimer of opinion only
EOM paragraph is used when?
- Justified change in accounting principal, change in consistancy, change in reporting entity
- Change in audit opinion from subsequent events
- Special purpose framework refers to note in FS
- Going concern
Other-Matter Paragraphs is used when?
- Change in audit opinion
- Prior year FSs not presented (audited by prior auditor)
- Comparitive FSs where CY is audited and PY is not.
- Restrict the use of report
- Report on compliance in auditor’s report.
Predecessor auditor should (5)?
- Read CY comparative FSs
- Compare PY with CY
- Obtain letter of representation from successor auditor
- Obtain letter of representation from management
- Date of report (unrevised or dual date)
Successor auditor should (4)?
- Check that FSs were audited
- Check type of opinion expressed
- Check nature of “Extra” paragraphs added
- Check Date of Prior audit report (USE ORIGINAL DATE IF NOT REVISED)
In other matter paragraph, concerning differing opinions, what is the format that you should state? (DORCS)
- Date
- Opinion (previously used)
- Reason (for prior opinion)
- Changes
- Statement (for change)
Group engagement partner vs Principal auditor?
Group engagement partner (AICPA Private) or Principal auditor (PCAOB Public)
Group engagement team relies on component auditor when……
- Make no reference = take all responsibility (Option 1)
Components not significant = perform ANALYTICAL PROCEDURES
- Must be satisfied with component auditor independence and work
· Make reference to component auditor = Divide responsibility (Option 2)
Auditor Responsibility (PRIME) of Subsequent Events **
- Post-balance sheet transactions
- Representation letter of management
- Inquiry client’s legal counsel and management
- Minutes
- Examination latest interim FSs
Auditor’s responsibility for susequent events after the audit report?
Option 1. (None after the report’s release date)
Option 2: Dual Date – Extends responsibility for 1 event after report
Option 3: Use later date: Extend auditor responsibility for all events
Recognized subsequent events are?
Events before the FSs date, adjust records
Non-recognized subsequent events are?
Events after BS date, before auditor’s report. Disclose events in notes.
Client refusal to make changes. What are the steps?
- Auditor notifies each member of the BOD
- “DAR” Disassociate, Alert agencies, Relying parties
What is included in Other information?
- Report to those charged with governance
- Financial summaries
- Employment data
- Planned capital expenditures
- Financial ratios
- Officers
Auditor’s responsibility for other information?
- Read other information to determine credibility
- If management refuses other information revision then:
a. Communicate to those charged with governance.
b. Include an “other matters section” when management refuses to cover
c. Consider withdrawing from the engagement
Auditor’s responsibility for Supplementary information?
(APPLY LIMITED PROCEDURES)
- Evaluate the presentation in relation to the FSs
- Report whether supplementary information is fairly stated
- Inquiry management on purpose of sup information
- Obtain an understanding of the methods used
- Inquire regarding significant assumptions
When is a suplemental paragraph required?
Non-issuer
Add separate paragraph “Required Supplementary info”
states management is responsible for Supplementary
information
Issuer
Not required to add paragraph unless:
1. Information is omitted
2. Material departure
3. Auditor unable to complete procedure
4. Are unresolved doubts about conformance of required supplements
What basis should you use EOM paragraph for SPF?
(CT) Cash and Tax basis use EOM paragraph exclusively.
What basis should you use EOM, other-matter, and discription of purpose of SPF FSs are prepaired?
(RCO) Regulatory, contractual, other basis.
What is included in SPF EOM paragraph?
- Indicate the FSs are prepared in accordance with applicable SPF
- States that the SPF is a framework other than GAAP
- Refers to the notes in the FSs that describe the framework and HOW IT DIFFERS
- States that FSs may not be suitable for any purpose other than the stated purpose
What is included in SPF other-matter paragraph?
- Restricts the use of the stated parties
- Should not be used by anyone else
Engagement Letter Requirements contents
- Addressee
- Objectives and scope of the audit
- Responsibilities of the auditor
- Responsibilities of management
- Other relevant information
- Reporting
- Signature
Engagement Letter Requirements contents
- Addressee
- Objectives and scope of the audit
- Responsibilities of the auditor
- Responsibilities of management
- Other relevant information
- Reporting
- Signature
What parts of the auditor’s report do you modify when issuing a Adverse opinion?
Opinion
Basis
What parts of the auditor’s report do you modify when issuing a qualified opinion?
Opinion
Basis
What parts of the auditor’s report do you modify when issuing a disclaimer opinion?
Opinion
Basis
Auditor’s Responsibility Section
