Audit-1 Flashcards
What is the objective of the independent audit?
The Objective of the independent audit is to express an opinion stating whether the financial statement, taken as a whole are, Fairly presented in all material respects in conformity with accounting principles gernerally accepted in the united states of america.
Which standards provide the most authoriatative U.S. auditing guidance for noneissurers and issuers, and who issues those standards?
> Nonissuers: Statements on auditing standards (SASs), issued by the AICPA Auditing Standards Board.
Issuers: Auditing Standard (ASs), issued by the public Company Accounting oversight board (PCAOB) plus all SAS adopted by the PCAOB.
What are the three general standards?
“TIP”
> The auditor must have adequate techical TRAINING and peroficiency to perform the audit.
The auditor must maintain INEPENDENCE in mental attitude in all matters relating to the audit,
The auditor must exercise due PROFESSIONAL CARE in the planning and performance of the audit and the preparation of the report.
What are the three standards of fieldwork?
“PIE”
- The auditor must must adequately PLAN the work and must properly supervise assistants.
- The auditor must obtain a sufficient understanding of the entity and its environmont, including its INTERNAL CONTROL, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
- The auditor must obtain sufficient appropriate audit EVIDENCE by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.
What are the four standards of reporting?
“All Cpas Do Ok”
The auditor state in the audit ++++
Explain the difference between auditing standards and auditing procedures.
> Auditing standards measure the quality of the performance of the audit.
Auditing procedures are the acts to be performed during the audit.
What should be included in the introductory paragraph of the auditors standard report under U.S. Auditing standards?
The statement that:
>the financial statements identified in the report were audited.
>the financial statements are the reasonability of management.
>the auditors responsibility is to express an opinion based on the audit.
What should be included in the scope paragraph of the auditors standard report under U.S. Auditing standards.
Statement that:
>the audit
What should be included in the opinion paragraph of the auditors standard report under U.S. Auditing standards?
A statement that:
> In the auditors opinion, the financial statements identified in the introductory paragraph are presented fairly in all material respects.
>the financial statement are in conformity with accounting principle generally accepted in the United States of America
what are the three major differences between the audit report under U.S. auditing standards and the international Standards on Auditing?
- Expanded discussions of auditor and management responsibilities.
- Report should name the location in the country or jurisdiciton where the auditor practices.
- If the audit is conducted in accordance with both ISA standards and the standards of a specific jurisdiction, the audit report mey mention both sets of standards if there is no conflict between the standards and the report includes all required ISA elemnets.
What is an explanatory paragraph added to an unqualified opinion?
- Necessary and justified departure from GAAP.
- Going Concern.
- To Emphasize a matter regarding the financial Statements.
- A justified lack of consistency casued by a material change in GAAP.
- Required SEC regulation S-K quarterly financial data has been omitted or has not been reviewed.
- Supplementary information required by GAAP has been omitted or departs from guidelines, or the auditor’s work related to suck information in incomplete or insufficient.
- Other information in a document containing audited financial statement is materially inconsistent with information appearing in the financial statements.
How is a lack of consistency handled in the auditor’s report?
- An explanatory paragraph is added ( Following the opinion paragraph) describing the change and referring the reader to the appropriate note in the financial statements.
- If GAAP is followed, the opinion is unqualified. If GAAP is not followed ( NO reasonable justification, change to a principle not conforming to GAAP, or an unacceptable method of accounting for the change), either a qualified or adverse opinion, adepending on materiality, is required.
when does an auditor mention the work done by other auditors under U.S. and international auditing Standards?
U.S. Auditing standards:
-When the principal auditor does not assume responsibility for the work of the oher auditors and instead indicates a division of responsibility.
Note that the other auditors may be named only with their express permission and provided therir report is presented togther with that of the principle auditor.
INTERNATIONAL STANDARDS ON AUDITING:
-The principal auditor should not refer to the other auditor unless required by law or regulation.
Under U.S. GAAP, if an auditor chooses to mention the work done by other auditors, how is the information reported?
All three paragraphs of the report should mention the divison of responsibility. the interoductory paragraph should express the work done by the other auditors in terms of percentages, total assets, Total revenues, Other appropriate criteria.
-NOTE that, barring any additional circumstances, this would be an unqualified opinion.
How is a Justified departure from GAAP communicated in the report?
The auditor issues a modified unqualified opinion.
-An explanatory paragraph should be added before or after the opinion paragraph that contains a description of the departure, its approximate effect, and the reasons why adherence to the generally accepted accounting principle would make the financial statements misleading.
Evidence from what auditing procedures may lead the auditor to conclude that there is significant doubt about an entity’s ability to continue as a going concern? “ADMITS”
Evidence obtained from the following procedures may reveal going concern issues:
1-Analytical Procedures.
2-Debt compliance (review Compliance)
3-Minutes (read and review)
4-Inquiry fo clint’s legal counsel.
5-Third parties (review financial support arrangements)
6-Subsequent events review.
What conditions and events may indicate substantial doubt about an entity’s ability to continue as a going concern? What is the going concern period? “FINE”
The Following conditions and events may be indicative of substantial doubt.
1.Financial difficulties.
2. Internal matters, such as labor difficulties, Substantial dependence on a particular project, ect.
3-Negative trends.
4- External matters, such as legal proceedings,New legislation
What matters may be emphasized in a audit report and how is the emphasis of a matter communicated?
Examples of matters that may be emphasized include:
- Related-party transactions
- Significant subsequent events.
- The entity is a component of a larger entity.
- Accounting matters that affect comparability.
Under U.S auditing standards, an explanatory paragraph is added before or after the opinion paragraph. Under ISAs, the explanatory paragraph should preferably go after the opinion paragraph.
What types of problems would warrant a a qualified opinion due to nonconformity with GAAP?
- Non-GAAP change in accounting principle.
- Inadequate disclosure.
- unjustified departure from GAAP.
- unreasonable accounting estimate.
What types of problems would warrant a qualified opinion due to lack of adherence to GAAP?
- Uncertainty
- Scope Limitation.
