Audit 1

Question 1

What is the purpose of an audit?

Answer 1

to provide financial statement users with an opinion on whether the F/S are PRESENTED FAIRLY, in ALL MATERIAL RESPECTS, in ACCORDANCE with the applicable financial reporting framework

Question 2

What is management responsible for?

Answer 2

The financial statements and Internal Controls

Question 3

What are the inherent limitations of an audit?

Answer 3

1. The nature of financial reporting (management judgment)
2. The nature of audit procedures
3. Timeliness of financial reporting (cost/benefit)

Question 4

What standards does an accountant follow in an audit engagement?

Answer 4

1. GAAS (Generally accepted auditing standards)

Question 5

What is the difference in standards of an audit engagement between auditing issuers and non-issuers?

Answer 5

If auditing an issuer -> follow PCAOB auditing standards

If auditing an non-issuer -> follow AICPA SASs (Statements on Auditing Standards)

Question 6

What type of opinion should be issued on an audit if there are weak internal controls?

Answer 6

Trick question- weak internal controls do not lead to an adverse opinion, but rather to more work for the auditor.

Question 7

Management’s Responsibility for the Financial Statements (paragraph)

Answer 7

"MR DIM"
Management's
Responsibility
Design
Implementation
Maintenance (of internal control)

Question 8

Auditor’s Responsibility (paragraph)

Answer 8

"REPPORTS CRAME"
Responsibility
Express an opinion
Plan and perform the audit
Performing procedures
Obtain audit evidence
Risks of material misstatement
"Test" internal control
Statements (fair presentation)
Control (internal control effectiveness)
Reasonableness of significant
Accounting estimates made by
Management
Evaluating overall presentation of F/S

Question 9

What paragraph does GAAS belong in?

Answer 9

GAAS(ssss) belongs in the (ssss)scope paragraph- Auditor’s responsibility paragraph

Question 10

What paragraph does GAAP belong in?

Answer 10

GAAP(ppp) belongs in the oPinion Paragraph (and management’s responsibility paragraph)

Question 11

Requirements to make reference to a component auditor

Answer 11

1. they performed the audit in accordance with GAAS or PCAOB

2. their report is not restricted

Question 12

GAAP problems that would result in a Qualified or Adverse opinion

Answer 12

1. Accounting policy
2. Presentation
3. Disclosures
4. Estimates

Question 13

GAAS problems that would result in Qualified or Disclaimer

Answer 13

1. Insufficient Evidence
   (rest are Disclaimer only)
2. Significant going concern uncertainty
3. Lack of Independence

Question 14

When to withdraw from an engagement

Answer 14

False, Fraudulent, Deceptive or Misleading

Question 15

Basic definition of an Emphasis-of-Matter paragraph

Answer 15

The matter is APPROPRIATELY presented or disclosed in the financial statements and is of such importance that it is FUNDAMENTAL to the users’ UNDERSTANDING of the F/S. Note: the addition of this paragraph does NOT affect the opinion.

Question 16

When is an emphasis-of-matter paragraph REQUIRED?

Answer 16

1. Substantial doubt about going concern.
2. Describe justified change in accounting principle
3. Change in the audit opinion
4. F/S are prepared using special purpose framework

*for other situations use professional judgment

Question 17

Procedures to examine whether going concern is an issue

Answer 17

"ADMITS"
Analytical procedures
Debt compliance
Minutes of stockholder and BOD meetings
Inquiry of legal counsel
Third parties
Subsequent events review

Question 18

Conditions and events indicative of doubt to continue (going concern)

Answer 18

"FINE"
Financial difficulties
Internal matters
Negative trends
External matters

Question 19

Factors to mitigate a going concern

Answer 19

1. plans to borrow money or restructure debt
2. plans to sell assets
3. plans to delay or reduce expenditures
4. plans to increase ownership equity (issue more stock)

Question 20

Which paragraphs are modified when a qualified or adverse opinion is issued? (GAAP)

Answer 20

1. Auditor’s Responsibility
2. Add a “Basis for Modification” paragraph
3. Opinion paragraph

Question 21

Which paragraphs are modified when a qualified of disclaimer opinion is issued? (GAAS)

Answer 21

1. Introductory paragraph (only for disclaimer)
2. Auditor’s responsibility paragraph
3. Add a “Basis for Modification” paragraph
4. Opinion paragraph

Question 22

What should an auditor disclose when they change their previous opinion?

Answer 22

"Only DORCS change their mind"
Date of auditor's previous report
Opinion type previously issued
Reason for prior opinion
Changes that have occurred
Statement that the opinion is different

Question 23

Procedures to perform during the subsequent period to look for subsequent events

Answer 23

"PRIME"
Post balance sheet transactions
Representation letter from management
Inquiry
Minutes of meetings
Examine latest available interim F/S

Question 24

If there’s a subsequent event, but management refuses to cooperate then…

Answer 24

“DAR then to fix it”
Disassociate
Alert agencies
Relying parties notified

Question 25

What is the most important (heavily tested) audit procedure with regard to Supplementary information?

Answer 25

Obtaining written representations from management regarding the information