AUD Deck 9-Audit Reports Flashcards
The 4 reporting standards previously associated with GAAS (and currently still associated with PCAOB’s auditing standards) are-
1) GAAP
2) Consistency
3) Disclosure
4) Opinion
GAAP-
“The auditor must state in the auditor’s report whether the financial statements are presented in accordance with GAAP.”
Consistency-
“The auditor must identify in the auditor’s report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.”
Disclosure-
“When the auditor determines that informative disclosures are not reasonably adequate must so state in the auditor’s report.”
Opinion-
“The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor’s report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases where an auditor’s name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking, in the auditor’s report.”
AU 600: “Special Considerations-Audits of Group Financial Statements. The standard states the the auditor’s objectives are to:
Determine whether to act as the auditor of the group f/s, and if so (1) to determine whether to make reference to the audit of the component auditor: (2) to communicate clearly with component auditors; and (3) to obtain sufficient appropriate audit evidence regarding the financial information of the components and the consolidation process to express an opinion on the group financial statements.
Component-
An entity for which group or component management prepares financial information that is required by the applicable financial reporting framework to be included in the group f/s.
Component Auditor-
An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit.
Group-
All the components whose financial information is included in the group financial statements. A group always has more than one component.
Group Financial Statements-
F/S that include the financial information of more than one component. This term also refers to combined f/s aggregating the financial information prepared by components that are under common control.
Group-wide controls-
Controls designed, implemented, and maintained by group management over group financial reporting.
Significant Component-
A component identified by the group engagement team that (a) is of individual financial significance to the group; or (b) due to its specific nature, is likely to include significant risks of material misstatement of the group financial statements.
Group engagement partner-
The group engagement partner is responsible for (1) the supervision & performance of the group audit engagement in compliance with professional standards & applicable regulatory requirements; and (2) determining whether the auditor’s report is appropriate in the circumstances.
The group engagement team’s audit documentation should include the following:
1) An analysis of components indicating those that are significant (and the type of work performed)
2) Written communications between the group engagement team and the component auditor’s about the group engagement team’s requirements.
3) Those components for which reference to the component auditors’ reports were made in the auditor’s report
4) The financial statements of the component and the report of the component auditor for components referenced in the auditor’s report on the group financial statements.
Emphasis-of-matter paragraph-
A paragraph that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgments, is of such importance that it is fundamental to users’ understanding of the financial statements.
Other-matter paragraph-
A paragraph that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.
AU 705: “Modifications to the Opinion in the Independent Auditor’s Report.” The standard states that the auditor’s objective is to express clearly an appropriately modified opinion when:
(1) the auditor concludes that the financial statements as a whole are misstated; or (2)the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement.
Modified opinion-
A qualified opinion, an adverse opinion, or a disclaimer of opinion.
Pervasive-
(a)Effects that are not confined to specific elements, accounts or items of the financial statements; (b)effects that, if so confined, represent or could represent a substantial proportion of the financial statements; (c)regarding disclosures, are fundamental to users’ understanding of the financial statements.
Qualified opinion-
The auditor should express a qualified opinion when the auditor is unable to obtain sufficient appropriate audit evidence, and the auditor concludes that the possible effect on the financial statements, if any, could be material, but not pervasive.
Disclaimer of Opinion-
The auditor should express a disclaimer of opinion when the auditor is unable to obtain sufficient appropriate audit evidence, and the auditor concludes that the possible effect on the financial statements, if any, could be material and pervasive.
Adverse Opinion-
The auditor should express an adverse opinion when the auditor concludes that misstatements are material and pervasive to the financial statements.
Required supplementary information-
Information that a designated accounting standard setter requires to accompany an entity’s basic financial statements (the information is not part of the basic financial statements, but authoritative guidelines for measurement and presentation have been established.)
Designated accounting standard setter-
A body designated by the AICPA council to establish GAAP pursuant to Rule 202, Compliance With Standards.
