Audit 1

Question 1

Management Responsibilities

Answer 1

They need to adopt good accounting policies.

Question 2

U.S. Generally Accepted Accounting Principles

Answer 2

It is made up of rules and conventions that define accepted accounting principles at that time. It is an accepted framework for FS.

Question 3

What type of Audit Evidence do you need?

Answer 3

They need sufficient appropriate audit evidence.

Question 4

Where do you find guidance for a nonissuer?

Answer 4

A nonissuer is private. Guidance for the auditor can be found in the Statements on Auditing Standards.

Question 5

How must an auditor of a nonissuer conduct the audit?

Answer 5

In accordance with ASB and SAS.

Question 6

In what ways could an auditor provide professional skeptism?

Answer 6

Through using a third party to provide support for management representations, designing additional procedures to obtain more reliable evidence, or confirm management representations with a specialist.

Question 7

What is the quality control system?

Answer 7

A system that makes sure the firm complies with professional standards: leadership, ethical requirements, client acceptance, HR, engagement performance, and monitoring.

Question 8

What established the PCAOB?

Answer 8

The Sarbanes Oxley Act of 2002

Question 9

What paragraphs should be referenced in the audit report when disclaiming an opinion?

Answer 9

The disclaimer of opinion should be referenced in the auditors responsibility paragraph as well as the additional paragraph before the opinion paragraph. Titled “Basis for disclaimer of Opinion”

Question 10

How would an inadequate disclosure of the substantial doubt on an entity’s ability to continue as a going concern be classified?

Answer 10

It would be a departure from GAAP. (qualified or adverse opinion).

Question 11

What does it mean to reference a component auditor?

Answer 11

If you reference the component auditor you are not assuming responsibility for their work. (even if they have an excellent reputation).

Question 12

How is a change in accounting estimate accounted for?

Answer 12

Prospectively- meaning it does not reference consistency.

ex- change in the useful life used to calculate depreciation.

Question 13

When do you require an emphasis of matter paragraph?

Answer 13

When there is a change in accounting principal, when a special purpose framework is used, or substantial doubt about and entities ability to continue as a going concern.

Question 14

How to deal with consistency?

Answer 14

Consistency is implicitly stated. Unless inconsistency exists than there is an explicit statement.

Question 15

Auditors Responsibility

Answer 15

• responsibility to express an opinion on FS
• plan and perform audit to obtain reasonable assurance
• obtain evidence
• assessment of risk of Material misstatements
• test internal controls
• evaluating accounting policies and estimates made by management
• evaluate overral presentation

Question 16

What type of opinion would be rendered for an unjustified change in accounting principle?

Answer 16

a qualified or adverse opinion.

Question 17

What is the phrase to include in an auditors report when expressing a qualified opinion?

Answer 17

“Except for…present fairly”

Question 18

What type of report is issued when you are associated with FS of a public company you didnt audit or review?

Answer 18

Issue a disclaimer of opinion.

Question 19

What indicates division of responsibility?

Answer 19

When a group engagement partner reports that part of the audit was performed by another auditor.

Question 20

Where is GAAS mentioned in the auditor report?

Answer 20

In the auditors responsibility paragraph.

Question 21

Where is GAAP mentioned in the auditor report?

Answer 21

In the opinion paragraph

Question 22

How does the Audit report alter for a disclaimer of opinion?

Answer 22

The auditor’s responsibility paragraph mentions the disclaimer, and the opinion paragraph states that an opinion cannot be rendered.

Question 23

qualified opinion because of scope limitation is worded..?

Answer 23

by stating the possible effects on the financial statement

Question 24

What are examples of scope limitations?

Answer 24

restrictions on the audit such as timing of the work, inability to obtain audit evidence, not acceptable accounting records…

Question 25

What is included in the basis for qualified opinion paragraph and where is it located?

Answer 25

It is located before the opinion paragraph and should be titled “basis for qualified opinion” and describe reason for qualified opinion.

Question 26

What type of opinion is issued if disclosure of substantial doubt is not adequate?

Answer 26

Issue a disclaimer of opinion or unmodified opinion with emphasis of matter paragraph

Question 27

What does an audit report for an issuer have to reference?

Answer 27

It must reference the PCAOB standards and refer to GAAP in the opinion paragraph

Question 28

How long is the going concern period for international accounting?

Answer 28

at least one year from the date the financial statements are being audited.

Question 29

How long is the going concern period for US.auditing standards?

Answer 29

The going concern period cannot exceed one year from the date the FS were being audited

Question 30

When is a disclaimer of opinion issued

Answer 30

When the auditor is not independent, when the FS are not audited, or when t there is a sig. scope limitation

Question 31

What to include in a report of a predecessor auditor.

Answer 31

In an other matter paragraph include the date of previous report, the opinion, state that it was audited by a predecessor auditor, and indicate substantive reasons.

Question 32

How to reissue a previous opinion of the predecessor auditor.

Answer 32

read the CY financial statements, compare CY to PY, obtain letter of representation from management and successor auditor-this letter is asking if any previous representations should be modified.

Question 33

When do you request management to revise FS that have new information presented after the auditor report date?

Answer 33

Reissue FS when its determined that their are people relying on the financial statements.

Question 34

What is the mnemonic for subsequent events?

Answer 34

PRIME- post balance sheet transactions, representation letter, inquiry, minutes of the board, and examine latest available interim statements.

Question 35

Type 2 Subsequent event is?

Answer 35

Conditions that did not exist at year end but arose after year end, they must be disclosed to keep the financial statements from being misleading.

Question 36

Steps after the discovery of a material inconsistency

Answer 36

• discuss with management. if they refuse
• communicate with those charged with governance
• revise work to include other matter paragraph
• withhold use of report
• consider withdrawing from the engagement

Question 37

What is the auditors responsibility for supplementary information outside the basic financial statements?

Answer 37

The auditor should apply limited procedures and add an other matter paragraph.