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Auditing > Audit 1: Audit Reports > Flashcards

Audit 1: Audit Reports Flashcards

1
Q

Reasonable Assurance is..

A

High but not absolute level of assurance
NOT ABSOLUTE B/C:
-mgmt judgment
-fraud may be concealed

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2
Q

In order to obtain reasonable assurance an Auditor must…

A

1-Plan and supervise assistants

2-Determine and apply appropriate levels of materiality

3-Identify and Assess risk of material misstatement, whether fraud or error

4-Obtain sufficient appropriate evidence

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3
Q

Nature of Financial Reporting

A

Is subject to judgement

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4
Q

Public Company Accounting Oversight Board does what?

A

Part of SOX
Required in preperation and issuance of audit reports for issuers
Public Accounting firms must register with them in order to audit public companies

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5
Q

Statements on Standards for Attestation Engagements are

A

SSAEs

issued by AICPA

they are the standards set for Attestations

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6
Q

Generally Accepted Auditing Standards are issued by who

A

AICPA

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7
Q

Statements on Standards for Accounting Review Services are issued by…

A

SSARS

AICPA

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8
Q

*The GAAS Hierarchy of Auditing Guidance

A

1-AICPA Statements on Auditing Standards (SAS)

and
PCAOB Auditing Standards

2-Interpretative Publications (listed on another card)

3- Other Auditing Publications

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9
Q

Interpretative Publications include…

A

Auditing Interps of GAAS

Exhibits to GAAS

Audit Guidance in AICPA Audit and Acct Guides

AICPA Audit Statements of Position (SOP)

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10
Q

Other Audit Publications Include

A

Journal of Accountancy

Other Professional Guides

AICPA CPA Letter

textbooks etc

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11
Q

*Overall Objectives of Audit

A

1-Obtain Reasonable Assurance

2-Report on financial statements

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12
Q

Conditions that Indicate Potential Fraud

A

Pressure
Opportunity
Rationalization

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13
Q

When does an auditor not need to be independent

A

1-When GAAS provides otherwise
or
2-Required by law or regulation to perform audit

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14
Q

Professional Judgement is needed to determine

A 
Materiality
Audit Risk
Nature, Extent and Timing of Audit Procedures
When Enough Sufficient Evidence Obtained
Evaluating Mgmt in applying frameworks
Drawing a Conclusion
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15
Q

Does GAAS override laws or regulations that govern financial statements?

A

No

Can conduct audit with both GAAS and other standards

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16
Q

Unmodified Audit Opinion is

A

The cleanest opinion given

FS are presented fairly in all material respect in accordance with GAAP (or applicable fin rep. framework)

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17
Q

*Layout of Unmodified Opinion

A

Title
Addressee

Intro Paragraph
Mgmt Responsibility Para.
Auditor's Responsibility Para.
Auditor's Opinion
Other Reporting Responsibilities

Signature of Auditor
Address of Auditor
Date

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18
Q

*Intro Paragraphs need

A

Identify Entity

State Fin Stmts have been Audited

Identify Title of Each Fin Stmt

State Dates or Period covered by each Fin Stmt

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19
Q

*Manager Paragraph needs

A

Mgmt is responsible for prep and fair presentation of fin stmts

and

responsible for Design Implemmentation maintnance of Internal Controls

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20
Q

*1st Part of Auditors Paragraph aka?

Needs what?

A

Scope Paragraph

Responsibility to Express Opinion

Conducted with audit standards generally accepted in America

And that requires auditor to obtain reasonable assurance that fin stmts are free from material misstatement

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21
Q

*2nd Auditors Paragraph needs

A

Audit involves performing procedures to obtain audit evidence

Procedures depend on auditors judgement

Considers how the entity’s Internal Controls affect the prep of fin stmts

Evaluates acct polices and estimates Mgmt uses

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22
Q

Auditor’s Unmodified Opinion States

A

Fin Stmts Present Fairly

with dates and times for Fin Stmts

in accordance with “reporting framework” (ie GAAP)

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23
Q

Date of Auditor’s Report should be

A

No Earlier than the date on which Sufficient Appropriate Audit Evidence Obtained

Date shows Final Responsibility of Auditor

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24
Q

Audit of Issuers Requires what to be named

A

That GAAS and additionally PCAOB standards were used

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25
Q

GAAS in what paragraph?

GAAP in what paragraph?

A

GAAS= Auditors Responsibility Scope Paragraph
“Auditor responsibility is to conduct the audit according to GAAS”
GAAP=Opinion Paragraph
“Auditor should express his opinion based on if entity has compiled w/GAAP or NOT

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26
Q

Applicable frameworks could include

A

GAAP or IFRS

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27
Q

ISAs are

A

International Standards of Auditing

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28
Q

Requirements refered to in ISA not in GAAS audit reports

A

“true and fair view” of fin stmts

Significant accounting polices

Ethical requierments

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29
Q

Requirements referred to in GAAS not in ISAs Reports

A1-17

A

Audit documentation has been reviewed

No separate mgmt stmt

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30
Q

What should Group Auditor do if serious concerns about component auditor work?

A

Should not use work

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31
Q

GAAS for non-issuers are issued by

A

AICPA’s Auditing Standards Board ASB

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32
Q

What needs to happen in order to make reference to component auditors work?

A

1- Performed by GAAS Standards
or PCAOB when needed

2-their report is not restricted use

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33
Q

If component audit says anything less than unmodified what to do?

A

Need to determine the effect on all of the audit

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34
Q

When group assumes responsibility do you mention the component?

Why or Why not?

A

No, Because mentioning component when you take responsibility makes it seem like you are not taking that much responsibility

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35
Q

What should be done for component that is likely to be significant?

Insignificant?

A

Significant needs to be audited

Insignificant- Analytical Procedures need to be performed

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36
Q

Types of Opinions

A

Unmodified

GAAP
1-Qualified Except for
2-Adverse

GAAS
1-Qualified Except for
2-Disclaimer

Withdraw

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37
Q

When to issue Adverse opinion

A

When Very Material GAAP Issue

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38
Q

When to issue Disclaimer Opinion

A

When Very Material GAAS issues

Insufficient Evidence

Going Concern Problem

Lack of Independence

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39
Q

Emphasis of Matter Paragraphs are used when…

A

When matter appropriately disclosed but matter is fundamental to understand fin stmts

Does not affect auditor’s opinion

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40
Q

Emphasis of Matter paragraph goes where..

A

Right after Opinion paragraph

Need title

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41
Q

When must Emphasis of Matter paras be used…

A

Going Concern

Show justified change in accounting principle

Change of audit opinion

When Prepared with Special Purpose Framework

42
Q

Emphasis may be used when…

A

Uncertainty about litigation

Major catastrophe

Related party transactions

Unusal important subsequent events

43
Q

Other Matter Paragraph used when…

A

Refer to matters not presented or disclosed

44
Q

Where does Other Matter Paragraph go..

A

After Opinion and Emphasis paras

45
Q

When to use Other Matter

A

Restricted use of audit report

Change in Opinion

Predecessor Auditor stmts used but report not issued

When issued with unaudited prior period stmts

46
Q

Procedures auditor uses for Going Concern

A 
Analytical
Debt Compliance
Board Minutes
Inquire of Legal Counsel
Third Party Confirmation of $ Support
Subsequent Events
47
Q

Conditions and Events that could show substantial doubt of Going Concern

A

Financial Difficulties

Internal matters

Negative Trends

External Matters

48
Q

Mitigating factors when there is substantial doubt of Going Concern

A

Plans to

Borrow $ or redo debt
Sell Assets
Delay Expenses
Increase through equity

49
Q

When Going Concern Doubt what kind of paragraph and what does it need to say

A

Emphasis of Matter

Needs “substantial doubt” to continue as “going concern”

50
Q

ISA requires what for Going Concern issue

A

Mgmt’s plan for going forward

51
Q

Paragraph that restricts use of report is what sort of paragraph?

A

Other Matters Paragraph

52
Q

Difference between Qualified and Adverse Opinion is…

A

Adverse is PERVASIVE

Qualified are material

53
Q

What and where do changes need to be made for modified opinion?

A

Change Audit Responsibility Para to say modified

Add Basis for Modification Para before Opinion

Change language in Opinion

54
Q

What words need to be in

Qualified Opinion Para

Adverse Opinion Para

A

Qualified=

“Except for”
presented “fairly”

Adverse=

“because of”
“not presented fairly”

55
Q

Difference in Qualified and Disclaimer Opinion

A

Qualified

Unable to obtain sufficient audit evidence on which to base opinion an COULD be material misstatements but not PERVASIVE

Disclaimer= COULD be PERVASIVE material misstatements

56
Q

Scope Limitations Occur because

A

Circumstances- wernt there at beg of year for inventory

Mgmt limits you

57
Q

ISA versus GAAP difference on insufficient audit evidence?

A

ISA requires you to withdraw

GAAP wants you to consider it

58
Q

What to do when you issue Modified report on GAAS limitation?

A

Need to modify intro to say “ENGAGED” to audit financial stmts

Audit Responsibility Para changes to having enough info for qualified opinion

Or

Disclaimer “Because of”
“Not able to obtain sufficient appropriate evidence”

(more)

59
Q

What do you need to add for Modified GAAS Opinion after Auditor’s Responsibility Paragraph?

A

Basis for Modification Para

60
Q

What words do a Qualified Opinion need?

Disclaimer?

A

Qualified

=”Except For”
“Presented Fairly”

Disclaimer

=”because of”
“does not express an opinion”

61
Q

What needs to be done if Prior Period Opinion Changed?

A

Other Matter Paragraph

Date of previous report
Opinion previously issued
Reason for Prior Opinion
Changes
Say "Opinion..is different"

DORCS

62
Q

If Prior Period stmts released what does Prior Auditor need to do?

A

Read current fin stmts

Compare old and new stmts

Get Representation letter from new auditor

Get Rep letter from mgmt

Date it

63
Q

How to Date re-release of Prior Audit

A

If Unrevised use original date

If Revised Dual Date

64
Q

If Prior Period Audit not reissued what does Current Auditor need to do?

A

Report on current fin stmts only and
use Other Matter paragraph

1-Prior audit done by different guy
2-Type of opinion and why
3-Nature of Emphasis and Other Matter Paras
4-Date

65
Q

When Subsequent Events occur what needs to happen

A

Event on or Before Date= Adjust Financials

Event after Balance Sheet Date= maybe footnote

66
Q

What items should auditor review during subsequent period?

A 
Post B/S transactions, see about proper cutoff
Rep letter from Mgmt about sub events
Inquire about Mgmt if any changes
Minutes of Board Meeting to be read
Examine Interim Fin Stmts
67
Q

If auditor determines that subsequent event requires a change to Fin Stmts, and Mgmt doesnt do it.

What opinion should be given?

A

Qualified or Adverse

68
Q

How to date report with subsequent date?

A

Use dual dating
Main Report Date
and
Except for Date of Subsequent Event

69
Q

What to do if after audit report issued material items discovered?

A

Advise client to release revised Fin Stmts or Disclosures
or
If results cannot be determined DO NOT RELY on Report
Talk to SEC etc

70
Q

If client refuses to make changes to newly discovered material misstatements

What does auditor do?

A

Disassociate from your report

Alert Agencies, SEC etc

Alert Third Parties

71
Q

What to do if you discovered omitted procedures after audit?

A

Determine whether other procedures were adequate

If more procedures needed than complete them

If discover material misstatement use Subsequent procedures to make changes

72
Q

What should auditor do if Mgmt refuses to correct a material misstatement of fact?

A

Tell those in charge of Goverance

73
Q

How can an auditor report on supplementary information?

A

Either
Other Matter Paragraph
or
Separate Report

74
Q

When entity’s ability to continue to be a going concern is inadequately disclosed what kind of opinion is it?

A

Inadequate Disclosure is a GAAP issue

So Qualified or Adverse Opinion is Issued

75
Q

Issue what kind of opinion for a change in accounting principle?

A

Trick Question

Need Emphasis of Matter Paragraph

76
Q

If Auditor lacks independence what kind of opinion to issue?

A

Disclaim, cannot audit fin stmts that you are not independent of

77
Q

When you have significant transactions with related parties what kind of Opinion to issue?

A

Can do Unmodified but need an Emphasis of Matter Paragraph

78
Q

An unjustified Accounting Change would get what Opinion?

A

Qualified or Adverse

79
Q

If company’s Going Concern issue for prior year has gone away what needs to happen?

A

The Emphasis of Matter paragraph needs to go away

80
Q

Who is Audit Report Addressed to…

A

Whoever Engaged the Audit

81
Q

When CPA is associated with fin stmts but has not reviewed them, what sort of opinion is needed?

A

Disclaimer

82
Q

When auditor cant get sufficient evidence of beginning inventory what opinion to issue?

B/S and Income Stmt

A

B/S=Unmodified (ending date is B/S Date)

Income Stmt= Disclaim (cant get COGS)

83
Q

An Omission of Cash Flows would get what sort of Opinion?

A

Qualified

84
Q

If Substantial Doubt of Going Concern what would be issued?

A

An Emphasis of Matter Paragraph

85
Q

When there is a change in accounting principle that materially affects comparability of fin stmts

What to do?

A

Issue with Emphasis of Matter Paragraph

86
Q

What are the two options to Issue for Going Concern problem?

A1-27

A

Unmodified with Emphasis of Matter

or

Disclaimer

87
Q

Failure to disclose is what sort of problem?

What sort of Opinions

A

GAAP

Qualified or Adverse

88
Q

Going Concern Period for

GAAS

ISA

A

GAAS=cannot exceed 1 year

ISA=at least 1 year

89
Q

Basis of Modification Paragraphs Go where

A

Before Opinion Paragraph

90
Q

When to change a previously issued opinion on comparative Fin Stmts?

A

When they are restated to follow GAAP

91
Q

When should successor auditor mention by name the prior auditor?

A

Only when the prior auditor merged or acquired by successor

92
Q

What to do with prior year restatement that has brought it back into compliance with GAAP?

A

Issue Unmodified report

93
Q

What should Auditor do FIRST if he finds out something would have affected report occurred before Year-End?

A

Deterimine if anyone would find that information important
then
Have Mgmt reissue Fin Stmts

94
Q

What best describes GAAS?

A

Measures of the quality of the auditors performance

95
Q

What should auditor do FIRST if he finds out that some items were not audited that should have?

A

Assess the importance of the procedure

This is different than information didnt know

96
Q

When there is a significant change in accounting policy what to put in report?

A

Refer to lack of consistency in Emphasis of Matter Paragraph

97
Q

If accounting change has no material effect this year but will in later years what to put in opinion?

A

Disclose in fin stmts but dont refer to in report

98
Q

How does Intro paragraph change for disclaimer opinion?

A

Goes from Phrase “We have audited”

to

“We were engaged to audit”

99
Q

How does Auditor’s Responsibility paragraph change for disclaimer opinion?

A

Omits sentence that takes responsibility

100
Q

How does Auditor’s Responsibility paragraph change for a qualified opinion?

A

A phrase is used immediately to point to the opinion paragraph to let user know of qualified opinion

101
Q

Does an introductory paragraph need to be modified for unmodified opinion with another CPA that you are going to share responsibility with?

A

No

102
Q

If a legal uncertainty is properly disclosed what sort of opinion and what needs to change on report.

A

Unmodified

and nothing needs to change

Auditing (9 decks)

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