AUD 1 Flashcards
What are management’s responsblitoes pertains to an audit?
1) preparation and fair presentation of F/S; 2) design, implementation and maintanance of internal control; 3) provide auditors with access to information needed to complete the audit. (3) is not explicitly stated in the report.
Inherent Limitations of an Audit? (Reasonable assurance instead of absolute assurance that F/S is free from material misstatement)
1) Subjective nature of financial reporting (estimates involved).
2) Practical and legal limit on auditor’s ability to obtain audit evidence (errors or fraud on info provided, auditor has no legal powers).
3) Timeliness constraint and cost/benefit considerations.
What’s the stantard for nonissuers? issued by? What about SEC issuers?
Statements on Auditing Standards(SAS) issued by AICPA’s Auditing Standards Board (ASB). SAS are outlined in Section AU of the AICPA Professional Standards.
For issuers: PCAOB’s Auditing Standards (AS), which must be approved by SEC.
What are the overall objecives of the auditor?
1) to obtain reasonable assurance about weather the F/S as a whole are free from MM, which enables auditor’s opinion.
2) to report on the F/S and communicate as required by GAAS based on the auditor’s findings.
Do auditors express opinion on the effectiveness of the entity’s internal control in the audit report?
Nonissuers NO. Consider IC in order to design audit procedures only. Exceptions for issuers.
Should an auditor of group F/S make reference to any component auditors in the group’s audit report?
For each component, Yes if 1) component audit is done in accordance with GAAS, or PCAOB; 2) component auditor’s report is not restricted use.
No if 1) component F/S is prepared using different financial reporting framework (e.g. GAAP vs IFRS), unless really similar and converting adjustments are appropriate.
No if group audit assumes responsibility.
When is an emphasis-of-matter paragraph used?
To emphasize an important matter that is appropriately presented or disclosed. 1) Going concern sunstantial doubt; 2) justified change of accounting principle; 3) subsequent discovery lead to change of opinion (could be other-matter paragraph); 4) the F/S are prepared under special purpose framework (but not regulatory basis F/S intended for general use); 5) other matters per auditor’s professional judgement.
What does an other-matter paragraph describe?
Other matters that are relevant to users’ understanding of the audit, but are not presented or disclosed in the F/S. Required when: 1) restricts the use of auditor’s report; 2) subsequent discovery lead to change of opinion;3) prior period audited by predessesor and not reissued; 4) comparative prior F/S are not audited; 5) material inconsistancy in other information;6) supplementary information(when not using separate report or when required) 7) restrict use when F/S prepared under contractual or regulatory basis; 8) report on compliance
How does a substantial doubt of going concern affect auditor’s opinion?
If adequately disclosed, add an emphasis-of-matter paragraph to unmodified opinion. If inadequate disclosure(GAAP issue), qualified or adverse. If significant going concern uncertainty(GAAS), disclaimer of opinion,
Which paragraphs are modified when issue a qualified, adverse, or disclaimer opinion?
Qualified and adverse–Auditor’s responsibility; Basis for qualified/ adverse opinion; and qualified/adverse opinion paragraph.
Disclaimer– all of the above, plus Introductory paragraph (state auditors were engaged to audit… instead of we have audited…)
When comparative prior F/S are presented but due to scope limitation, must disclaim opinion for that period, but current F/S present fairly, what opinion to give?
unmodified with a disclaimer of opinion parapraph for the prior year.
Different opinion for camparative F/S are allowed. Report must include both opinions.
Where to update/change prior opinions issued before?
Emphasis-of-matter or Other-matter paragraph.
Do auditors have a responsibility to investigate subsequent events after balance sheet date?
YES. GR: Auditors are responsible up to date of audit report.
Inquire management and obtain Rep letter. Read minutes, examine latest interim f/s if available, etc.
What’s dual dating?
Report date and then except…. to extend responsibility only for a particular subsequent event.
When other information (financial highlights, ratios, etc) has material inconsistency with the audited F/S, and requires revision, what should the auditor do?
Auditor is generally not responsible for other information, but if material inconsistency are observed, should 1) add an other-matter paragraph in auditor’s report; 2) withhold the use of report; or 3) withdraw from engagement.
