AUD 1 - Audit Reports Flashcards
What are GAAS?
Generally Accepted Auditing Standards that are mandatory on all audit engagements.
Who issues GAAS for the audits of nonissuers and in the form of what are they issued?
By the AICPA’s Auditing Standards Board (ASB) in the form of Statements on Auditing Standards (SAS).
What was established pursuant to SOX that establishes auditing and related professional practice standards for the audit of issuers, what are their standards, and whom are considered issuers?
The Public Company Accounting Oversight Board (PCAOB), they adopt ASB standards but also issue their own Auditing Standards (AS) that replace the ASB’s but only for issuers; Issuers consist of entities subject to the rules of the SEC (primarily public companies).
Who is the IAASB and what do they establish?
The International Auditing and Assurance Standards Board, a standard setting board of the International Federation of Accountants (IFAC), and they establish International Standards on Auditing (ISA).
What is the IESBA?
The International Ethics Standards Board for Accountant, a standard setting board of the IFAC that establishes the IFAC Code of Ethics for Accountants.
What should be included in an auditor’s report for an unmodified (clean) opinion for the audit of nonissuers, and what is the mnemonic associated wit it?
Title, Addressee, Introductory Paragraph, Management Responsibility Paragraph, Auditor’s Responsibility Paragraph, Opinion Paragraph, Report on Other Legal and Regulatory Requirements Section (as necessary), Signature of the Auditor, Auditor’s address, and the Date of the Auditor’s Report. “MR DIM REPPORTS CRAME”
What should be included in the management responsibility paragraph for an auditor’s report for an unmodified (clean) opinion for the audit of nonissuers?
MR: heading Management’s Responsibility
explanation they are responsible for prep. and fair present. of f/s in accordance with framework.
DIM: statement they are responsible for the Design, Implementation, and Maintenance of relevant IC.
What should be included in the auditor responsibility paragraph for an auditor’s report for an unmodified (clean) opinion for the audit of nonissuers?
REPPORTS CRAME:
our Responsibility is to Express an opinion…in accordance with gaas…standards require we Plan and perform to obtain reasonable assurance….audit involves Performing procedures to Obtain audit evidence…assessment of Risk….considers internal control (Test) relevant to f/S, but not for purpose of expressing opinion on the effectiveness of internal Control….evaluating Reasonableness of significant Accounting estimates made by Management, as well as Evaluating overall f/s presentation.
In an unmodified audit opinion, what difference in references should you remember between the auditor’s responsibility paragraph and the opinion paragraph?
Auditor’s responsibility paragraph should include a reference that the audit was conducted in accordance with GAAS, and the opinion paragraph should include a reference that the f/s are presented fairly in accordance with GAAP.
In addition to an unmodified opinion, what are the four other types of opinions and the basic basis for them?
- Qualified “Except For” Opinion - material GAAP problem - accounting policy, presentation, disclosures, estimates.
- Qualified “Except For” Opinion - material GAAS problem - insufficient evidence.
- Adverse Opinion - very material and pervasive GAAP problem - accounting policy, presentation, disclosures, estimates.
- Disclaimer of Opinion - very material, pervasive, significant GAAS problem - insufficient evidence, significant going concern uncertainty, lack of independence
What is an emphasis-of-matter paragraph, where is it located in an audit report, in what circumstances is it required, and in what are 4 examples of when its use may be necessary with use at the professional judgment of the auditor?
Used when referring to a matter that is appropriately presented or disclosed in the financial statements and is of such importance that it is fundamental to the users’ understanding of the financial statements but does not affect the auditor’s opinion. It is placed immediately after the opinion paragraph. It is required when (1) substantial doubt of ability to continue as a “going concern,” (2) to describe a justified change in accounting principle that has a material effect (consistency), (3) subsequently discovered facts lead to a “changing prior opinion,” or (4) the f/s are prepared in accordance with an applicable “special purpose framework.” Examples where it may be necessary for users’ understanding of f/s are an uncertainty for an outcome of an important litigation or regulatory action, effects of a major catastrophe, significant related party transactions, and unusually important subsequent events.
What is an other-matter paragraph, where is it located in the audit report, when is it required, and when may its use may be necessary?
Refers to matters other than those presented of disclosed in the f/s that are relevant to the users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report. It is place immediately after the opinion paragraph and after any emphasis-of-matter paragraph. It is required when (1) an alert in the report “restricts the use” of the auditor’s report, (2) “change in audit opinion,” (3) “f/s of prior period audited by a predecessor auditor and the report was not reissued,” (4) current f/s audited and presented in “comparative” form with “compiled or reviewed” f/s for the prior period or in comparative form with prior f/s that were “not audited, reviewed, or compiled,” (5) identified material inconsistency in other info. and mngt refuses to make revision, (6) to report on supplementary info presented, (7) to refer to required supplementary info., (8) to restrict the use when special purpose f/s are prepared in accordance with a contractual or regulatory basis of acct., and (9) a report on “compliance” is included. It may be necessary to describe the reasons why an auditor cannot withdraw from an engagement, when laws or regulation permit the auditor to provide further explanation of their responsibilities, and when the auditor has been engaged to report on more than one set of f/s when each set has been prepared in accordance with different frameworks.
When evaluating going concern, the auditor should obtain evidence from what procedures, and based on these procedures, what conditions and events may be indicative of substantial doubt?
ADMITS:
Analytical procedures, Debt compliance, Minutes, Inquiry of client’s legal counsel, Third parties, and Subsequent events review.
FINE:
Financial difficulties, Internal matters, Negative trends, and External matters.
When should an auditor withdraw from an engagement?
When the f/s are false, fraudulent, deceptive, or misleading.
For qualified or adverse opinions, what are the differences in the audit reports?
The statement that the auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for our “audit opinion” should be for our “modified audit opinion.” The basis for modification paragraph should be placed immediately before the opinion paragraph and should use the heading “Basis for Qualified/Adverse Opinion.” The opinion paragraph should also be labeled “Qualified/Adverse Opinion” rather than just “Opinion.” In the opinion paragraph for a qualified opinion add “except for….” the f/s are presented fairly, and for an adverse opinion it should state “because of….not presented fairly…”
