Aud1 Flashcards
What is the auditor responsible for in an audit?
Performing an audit in accordance with generally accepted auditing standards (GAAS)
Compliance with GAAS is mandatory for all audit engagements.
What are the different standards that must be followed in audit engagements?
- GAAS
- PCAOB standards
- Generally Accepted Government Auditing Standards (GAGAS)
- Statements on Standards for Attestation Engagements (SSAE)
- Statements on Standards for Accounting and Review Services (SSARS)
GAAS includes Statements on Auditing Standards (SASs) issued by AICPA’s ASB.
What are the three levels of auditing guidance?
- SASs and PCAOB Auditing Standards
- Interpretive publications
- Other auditing publications
The first level is required compliance, the second level provides recommendations, and the third level has no authoritative status.
What are the chronological steps in the audit process?
- Accept engagement
- Assess risk and plan response
- Perform procedures and obtain evidence
- Form conclusions
- Reporting
These steps outline the audit process from start to finish.
What is the primary purpose of an audit?
To provide financial statement users with an opinion on whether the entity’s financial statements are presented fairly in all material respects
This opinion adds credibility to the financial statements.
What are the responsibilities of client management during an audit?
- Preparation of financial statements in accordance with GAAP
- Design, implementation, and maintenance of internal control relevant to financial statement preparation
- Providing access to necessary information for the audit
These responsibilities are crucial for the auditor to perform their work effectively.
What is the auditor’s responsibility regarding professional skepticism?
To maintain professional skepticism, comply with ethical requirements, exercise professional judgment, and obtain sufficient appropriate audit evidence
This is essential for ensuring the integrity of the audit process.
True or False: An external auditor can obtain absolute assurance that financial statements are free from material misstatement.
False
Inherent limitations such as subjectivity in financial reporting and practical constraints prevent absolute assurance.
What must an auditor determine when auditing nonissuers?
Whether an audit is the most appropriate engagement or if a review, compilation, or preparation would be more suitable
This decision affects the nature of the engagement.
What are the overall objectives of audit engagements?
- Obtain reasonable assurance that financial statements are free from material misstatement
- Report on the financial statements and communicate findings
These objectives guide the audit process.
What does an unmodified (unqualified) opinion indicate?
That the financial statements present fairly in accordance with the applicable financial reporting framework
Unmodified is used for nonissuers and unqualified is used for issuers.
What are the main sections of a standard nonissuer report?
- Auditor’s Opinion
- Basis for Opinion
- Substantial Doubt About the Entity’s Ability to Continue as a Going Concern (if necessary)
- Key Audit Matters (if engaged)
- Management’s Responsibility Section
- Auditor’s Responsibility Section
- Other Information (if necessary)
- Other Reporting Responsibilities (if necessary)
Each section serves a specific purpose in the audit report.
What is included in the Opinion section of an issuer report?
States that an audit was performed and indicates the individual financial statements audited
This section also states the auditor’s opinion on fair presentation.
What is a qualified opinion due to a material GAAP departure?
An opinion expressed when misstatements are material but not pervasive to the financial statements
This may result from inappropriate accounting policies or inadequate disclosures.
What does an adverse opinion indicate?
The financial statements are not presented fairly due to material misstatements
This opinion reflects serious issues with GAAP compliance.
What is a disclaimer of opinion?
No opinion is expressed due to material GAAS problems, such as significant uncertainty or lack of independence
This indicates that the auditor could not obtain sufficient appropriate audit evidence.
What are emphasis-of-matter paragraphs used for in nonissuer reports?
To refer to important matters that are appropriately presented in the financial statements and fundamental to understanding them
Inclusion does not affect the auditor’s opinion.
What is the purpose of an other-matter paragraph in nonissuer reports?
To refer to matters not presented in the financial statements but relevant to understanding the audit or auditor’s responsibilities
This provides additional context for users of the report.
What is included in an explanatory paragraph in issuer reports?
A description of the matter being emphasized and the location of relevant information
This paragraph is included at the auditor’s discretion or as required by PCAOB standards.
What are other-matter paragraphs?
Matters other than those presented in the financial statements relevant to users’ understanding of the audit, auditor’s responsibilities, or auditor’s report.
When is an explanatory paragraph included in the auditor’s report?
When required by PCAOB auditing standards or at the auditor’s discretion.
Does the inclusion of an explanatory paragraph affect the auditor’s opinion?
No, it does not affect the auditor’s opinion.
Where does the explanatory paragraph generally appear in the auditor’s report?
It generally follows the opinion paragraph when added to an unqualified report.
What does the absence of consistency issues in the auditor’s report imply?
It implies that the entity’s financial statements are comparable between reporting periods.
