AUD Deck 1 Flashcards
What is the difference between QUALIFIED and ADVERSE opinion regarding misstatements?
*QUALIFIED OPINION = MISSTATEMENT IS MATERIAL, BUT NOT PERVASIVE
*ADVERSE OPINION = MISSTATEMENT IS BOTH MATERIAL AND PERVASIVE
What results in a QUALIFIED or ADVERSE Opinion?
DEPARTURES FROM GAAP (F/S Questions)
What results in a QUALIFIED or DISCLAIMER OF OPINION?
SCOPE LIMITATIONS (mgmt type questions), LACK OF SUFFICIENT APPROPRIATE AUDIT EVIDENCE
According to GAAS, what has the most authoritative guidance for the auditor of a nonissuer?
Statement on Auditing Standards (SAS)
Which opinion uses DO NOT PRESENT FAIRLY when expressing in audit report?
ADVERSE OPINION
What is included in the OPINION Section of the auditor’s report?
NATURE OF ENGAGEMENT, F/S COVERED IN THE ENGAGEMENT, NAME OF ENTITY WHOSE F/S HAVE BEEN AUDITED, AND DATES COVERED BY EACH F/S
What is included in the BASIS FOR OPINION Section of the auditor’s report?
REFERENCES GAAS, STATES WHETHER OR NOT THE AUDITOR BELIEVES SUFFICIENT APPROPRIATE AUDIT EVIDENCE WAS OBTAINED TO PROVIDE BASIS FOR AUDITOR’S OPINION
Which opinion does this phrase correlate to: “In our opinion, except for [reference to matter giving rise to qualification] described in the Basis fro Qualification section of our report…”?
QUALIFIED OPINION
(T/F): When an auditor qualifies his opinion due to scope limitation, the opinion paragraph should indicate that the qualification pertains to the possible effects on F/S, and not scope limitation itself.
TRUE
An auditor reporting on the audit of financial statements of an issuer should indicate in the Basis for Opinion section that the engagement was conducted in accordance with ______ standards, and should refer to ____ in the Opinion on the Financial Statements section.
PCAOB; GAAP
When is an emphasis-of-matter paragraph required?
when there is a JUSTIFIED change in accounting principle that has a MATERIAL effect on the entity’s F/S
When is an other matter paragraph used?
when the auditor wants to refer to items not included on F/S
When would this be included in the audit report and in which section? the report should state “Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for X Company, is based solely on the report of the other auditors.”
when a group engagement partner decides to make reference to a component auditor’s audit; in the OPINION SECTION
When a successor auditor does not present the predecessor auditor’s report, the successor should indicate in which paragraph about the predecessor’s audit? What should the paragraph include?
other-matter paragraph (nonissuer) / explanatory paragraph (issuer). in the paragraph, it should list the following: 1) that the financial statements of the prior period were audited by another auditor, 2) the date of the previous report, 3) the type of report issued by the predecessor auditor, and if the report was modified, the substantive reasons therefor and 4) the nature of any emphasis-of-matter, other-matter, or explanatory paragraph included in the previous report. The successor auditor may name the predecessor auditor only if the predecessor auditor’s practice was acquired by or merged with that of the successor auditor.
What should a predecessor auditor do before reissuing the prior year’s audit report?
- Read the F/S of the current period
- Compare the prior-period information that the auditor reported on with the F/S to be presented for comparative purposes
- obtain a letter of representation from the successor auditor and the former client’s management.
What does the representation letter state from the successor auditor to the predecessor auditor?
whether the successor’s audit revealed any issues of material nature that may affect previous F/S
Difference between dual dating vs. choosing a later date for the audit report (due to subsequent events)
Dual Dating: the auditor’s responsibility for events after the original report date is limited to the specific event referenced. example wording would read “January 21, 20X2, except for Note 2, which is as of February 3, 20X2.”
Later Date: the auditor is taking responsibility for all subsequent events that occurred through the date of the audit report.
What is the difference between Type 1 and Type 2 Subsequent Events?
Type 1 require ADJUSTMENTS TO F/S (RECOGNIZED)
Type 2 require DISLOSURES to keep F/S from being misleading (UNRECOGNIZED)
The auditor’s responsibility to make continuing inquiries concerning F/S stops when?
the audit report is issued
When do subsequent events occur?
when the event existed at the (audit) report date and may affect the report
_______ is financial and nonfinancial information that is included in a document containing audited F/S and auditor’s report excluding required supplementary information
OTHER INFORMATION
When required supplementary information is outside the basic F/S but required by FASB, what is the auditor’s responsibility?
APPLY CERTAIN LIMITED PROCEDURES and ADD A SEPARATE SECTION called “Required Supplementary Information” to the F/S audit report.
Which section(s) of the auditor’s report is US GAAP disclosed?
Opinion and Management’s Responsibility
Which section(s) of the auditor’s report is GAAS disclosed?
Auditor’s Responsibility and Basis for Opinion
When would the auditor state the following in the auditor’s report? “the information is fairly stated in all material respects in relation to the F/S as a whole”
SUPPLEMENTARY INFORMATION
What are the differences between:
*Other Information
*Supplementary Information
*Required Supplementary Information
*OTHER INFORMATION involves READING the information
*SUPPLEMENTARY INFORMATION is a SEPARATE ENGAGEMENT. additional audit procedures to provide an opinion on supplementary information in RELATION TO F/S AS A WHOLE
*REQUIRED SUPPLEMENTARY INFORMATION involves LIMITED PROCEDURES
What is included in the section “Required Supplementary Information” ?
*the information is the responsibility of management and the auditor does not express an opinion (disclaimer of opinion)
*the section should also state that the auditor has applied required procedures and the information is fairly stated in all material respects in relation to the F/S taken as a whole
The auditor may not issue an opinion on supplementary information if an ___ or ___ opinion was issued on the F/S.
ADVERSE; DISCLAIMER OF OPINION
The auditor of a nonissuer must conduct the audit in accordance with ___ standards and NOT ___ standards.
ASB; PCAOB
Failure to disclose information that is required by GAAP is a _____ from GAAP
DEPARTURE; results in QUALIFIED or ADVERSE opinion
When an auditor is unable to obtain sufficient appropriate audit evidence to base an opinion, what opinion should be issued?
DISCLAIMER OF OPINION (scope limitation)
When using the special purpose framework required by the REGULATORY AGENCY, what would be included in the auditor’s report?
- an OPINION paragraph RE the special purpose F/S and a REFERENCE to the special purpose framework used to prepare F/S
- OTHER-MATTER PARAGRAPH RESTRICTING the USE OF THE AUDITOR’s REPORT (this is only required when F/S are prepared using REGULATORY BASIS (single opinion) or CONTRACTUAL BASIS OF ACCOUNTING
What is a Special Purpose Framework?
a financial reporting framework other than GAAP. the auditor should understand why it was used and obtain a representation letter
When using the special purpose framework using CASH/TAX Basis, what would be included in the auditor’s report?
the auditor should include an EMPHASIS-OF-MATTER paragraph that states the special purpose framework is a basis of accounting other than GAAP
The auditor’s responsibility to express an opinion on the financial statements under U.S. auditing standards is _________(explicitly/implicitly) represented in the first sentence of the Auditor’s Responsibility section of the nonissuer audit report
EXPLICITLY (clearly stated)
What term indicates a presumptively mandatory requirement?
SHOULD; presumptively mandatory requirement must be followed in all cases in which the requirement is relevant, except in rare circumstances when departure from the requirement is permitted if there is appropriate justification, performance of sufficient alternative procedures, and thorough documentation.
