AUD Becker 1 Flashcards
What provides the most authoritative guidance for the auditor of a nonissuer?
General guidance provided by a statement on auditing standards
What is NOT an example of the application of professional skepticism?
Inquiring of prior year engagement personnel regarding their assessment of management’s honesty & integrity
When financial statements contain a departure from US GAAp, due to unusual circumstances, the statements would otherwise be misleading, the auditor should express an opinion that is
Unmodified
For an entity’s financial statements to be presented fairly in accordance with an applicable financial reporting framework, the framework selected should
Include adequate description of the framework in the statements
Under US auditing standards, when an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, all should be included except
Management’s conclusion regarding whether the substantial doubt remains or is alleviated.
The auditor’s report should include reference to the United States as the country of origin of both
- Accounting principles used to prepare the financial statements and
- The auditing standards the auditor followed in performing the audit.
What situation would an auditor choose between expressing a qualified or adverse opinion?
Conditions that cause the auditor to have substantial doubt about the entity’s ability to continue as a going concern are inadequately disclosed.
An auditor concludes that there is substantial doubt about an entities ability to continue as a going concern for a reasonable period of time. If the entity’s financial statements adequately disclose its financial difficulties, the auditors report is require to include an emphasis of matter that says:
1) Reasonable period of time not to exceed 1 year?
2) Going Concern?
1) Reasonable period of time not to exceed 1 year? NO
2) Going Concern? YES
How does an auditor make representations for consistent application of accounting principles and examination of evidence on a test basis when issuing the unmodified audit opinion on comparative financial statements?
Implicitly, for both.
Can an auditor issue an unmodified opinion with an emphasis of matter paragraph for an unjustified accounting change or weakness in internal control?
No, to both.
What audit procedure would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity’s ability to continue as a going concern?
Confirming with 3rd parties the details of arrangements to maintain financial support.
Which paragraph of an auditor’s report on financial statements under US Auditing Standards should refer to
1) GAAS
2) GAAP
1) GAAS - Auditor’s Responsibility
2) GAAP - Opinion
If a publicly held company issues financial statements that purport to present its financial position and results of operation but omits the statement of cash flows, the auditor would express
Qualified Opinion
Under what circumstance would a disclaimer of opinion not be appropriate?
The financial statements fail to contain adequate disclosure of related party transactions.
Which of the following situations would an auditor ordinarily issue an unmodified opinion without an emphasis of matter?
The auditor makes reference to a component auditor (which would change the opinion).
When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements and the auditor concurs with the change, the auditor should
1) Refer to the change in an emphasis-of-matter?
2) Concur explicitly with the change?
3) Issue “Except for” qualified?
1) Refer to the change in an emphasis-of-matter? YES
2) Concur explicitly with the change? NO
3) Issue “Except for” qualified? NO
An auditor concludes that there is substantial doubt about an entities ability to continue as a going concern for a reasonable period of time. If the entity’s financial statements adequately disclose its financial difficulties, the audit report may include:
1) Disclaimer of Opinion?
2) “Except for” qualified?
1) Disclaimer of Opinion? YES
2) “Except for” qualified? NO
A CPA’s report on audited financial statements under US Auditing Standards would be inappropriate if it referred to
The CPA’s assessment of sampling risk factors
Under International Standards on Auditing, the going concern period is
At least one year from the date of the financial statements being audited.
If an auditor is unable to determine whether managements estimate of the effects of future events is reasonable, and the effect of those events is believed to be material, he/she should express
Qualified or Disclaimer of Opinion
If a CPA chooses to assume responsibility
They must not make reference to the component auditor in the report
Which paragraph of the auditors report does an auditor communicate the nature of the engagement and specific financial statements covered by the audit?
Introductory
An entity has changed its depreciation for the production equipment from straight line method to a units of production method based on hours of utilization. The auditor concurs with the change although it has a material effect on comparability.
Opinion Type?
Report Modification?
Opinion Type? Unmodified
Report Modification? Emphasis-of-matter following the opinion paragraph
What statement is a basic element of the auditor’s standard report? (nonissuers)
An audit includes assessing significant estimates made by management
For a nonpublic company, which section of the audit report includes a statement that the auditor believes that the audit evidence obtained is sufficient?
Auditor’s Responsibility
What phrase would an auditor use in the auditor’s report when expressing a qualified opinion because of inadequate disclosure?
Except for the omission of the information discussed in the preceding paragraph
Comparative financial statements include financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessors report was qualified, the successor should
Indicate substantive reasons for the qualification in the predecessors audit opinion
Comparative financial statements include financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessors report was unmodified, the successor should
Indicate in an other-matter paragraph that the predecessor auditor expressed an unmodified opinion on the prior year’s financial statements
In an audito of a nonissuer company, what statement concerning required supplementary information by a designated accounting standards setter should be made
The auditor should apply certain limited procedures to the required supplementary information and report deficiencies in or omission of such information
If management declines to present supplementary information required by GASB, the auditor should issue
Unmodified with additional other-matter paragraph
An accountants review report on interim financial information of a public entity is most likely to include a
Description of the procedures for a review
What is correct concerning letters for underwriters, commonly referred to as comfort letters?
Letters for underwriters typically give negative assurance on the unaudited interim financial information
Give an example that would be structures as an attest engagement?
An engagement to issue a report addressing an entity’s compliance with requirements of specified laws
Suitable criteria in an attestation engagement may be available
1) Publicly?
2) In an CPA’s report?
1) Publicly? YES
2) In an CPA’s report? YES
An accountants compilation report on a financial forecast should include a statement that the
Compilation does not include evaluation of the support of the assumptions underlying the forecast.
An auditor should be aware of subsequent events that provide evidence concerning conditions that did not exist at year end but arose after year end. These events may be important to the auditor because they
Require disclosure to keep the financial statements from being misleading
What is NOT true regarding an engagement to provide a written report on the application of the requirements of an applicable financial reporting framework?
A reporting accountant is prohibited from providing a report on the application of the requirements of an applicable financial reporting framework to a proposed future transaction involving the facts and circumstances of a specific entity.
What is an auditor’s responsibility for supplementary information which is outside the basic financial statements but required by FASB?
The auditor should apply certain limited procedures to the required supplementary information and add an other-matter paragraph to the financial statement audit report.
A US entity prepares its financial statements in accordance with a financial reporting framework generally accepted in another country. These financial statements will be included in consolidated financial statements of a non US parent. Before reporting on the financial statements of the US entity, the auditor practicing in the US should
Obtain written representation from management of the US entity regarding the purpose and uses of the financial statements.
Should the following phrases be included in the opinion paragraph when an auditor expresses an qualified opinion
1) When read in conjunction with note X?
2) With the foregoing explanation?
1) When read in conjunction with note X? NO
2) With the foregoing explanation? NO
(A qualified opinion phrase is, “In our opinion, except for (explain) as discussed in the preceding paragraph”)
It is not appropriate to refer a reader of an auditor’s report to a financial statement footnote for details concerning
The result of confirmation of receivables
For a particular entity’s financial statements to be presented fairly in conformity with the applicable financial reporting framework, it is NOT required that the principles selected
Be applied on a basis consistent with those followed in the prior year
If an accounting change has NO material effect on the financial statements in the current year but the change is reasonable certain to have a material effect in later years, the change should be
Disclosed in the notes to the financial statements of the current year
CPA is unable to obtain audited financial statements for an investee in a foreign country. Sufficient appropriate audit evidence regarding this investment cannot be obtained. If the potential effect on the financial statement is moderate
1) What opinion?
2) What needs modification?
1)What opinion? “Except-for” Qualified
2)What needs modification?
Intro - no change
Aud Res - Modify
Opinion - Modify
Basis for opinion - insert preceding opinion
CPA is unable to obtain audited financial statements for an investee in a foreign country. Sufficient appropriate audit evidence regarding this investment cannot be obtained. If the potential effect on the financial statement is high
1) What opinion?
2) What needs modification?
1)What opinion? Disclaimer
2)What needs modification?
Intro - Modify
Aud Res - Modify
Opinion - Modify
Basis for opinion - insert preceding opinion
Logan audits Go Cars Inc. Another CPA has audited a wholly-owned subsidiary. Assets represent 9%, Revenues represent 10% of total assets and revenues. Assume Logan takes responsibility for the work who previously issued a qualified opinion on the subsidiary’s financial statements. Subject is material to subsidiary but immaterial to consolidated.
1) What opinion?
2) What needs modification?
1)What opinion? Unmodified
2)What needs modification?
Intro - No change
Aud Res - No change
Opinion - No change
Basis for opinion - None
Logan audits Go Cars Inc. Another CPA has audited a wholly-owned subsidiary. Assets represent 9%, Revenues represent 10% of total assets and revenues. Logan does not take responsibility for the work who previously issued a qualified opinion on the subsidiary’s financial statements. Subject is material to subsidiary but immaterial to consolidated.
1) What opinion?
2) What needs modification?
1)What opinion? Unmodified
2)What needs modification?
Intro - No change
Aud Res - Modify
Opinion - Modify
Basis for opinion - none
In an audit of a public company, what subsequent event audit procedures should be performed?
1) Review post balance transactions
2) Review management representation letter
3) Make inquiries of unusual adjustments
4) Review minutes of stockholder meeting
5) Examine latest interim financial statements
