Audit 1 - Audited Financial Statements Flashcards
To obtain reasonable assurance, auditor must:
- Plan work and properly supervise any assistants
- Determine and apply appropriate materiality levels
- Identify and assess risks of material misstatement, whether due to fraud or error
- Obtain sufficient appropriate audit evidence
Conduct of the audit
- Professional Skepticism – recognition circumstances may exist that cause financial statements to be materially misstated
- Ethical Requirements – independence in both fact and appearance, include AICPA Code of Professional Conduct, rules of state boards of accountancy, applicable regulatory agencies
- Professional Judgment – exercise professional judgment in planning & performing audit
- Sufficient Appropriate Audit Evidence and Audit Risk – obtain and reduce audit risk to acceptably low level, draw reasonable conclusions to base opinion
- Compliance with GAAS
Explicit statements in auditor’s unmodified audit opinion
“present fairly”
“accordance with applicable financial reporting framework”
Unmodified audit opinion, location of GAAS & GAAP related content
GAAS = Auditor's Responsibility Paragraph GAAP = Opinion Paragraph
Types of Modified Opinions
Qualified Opinion = GAAP or GAAS = Material Issue - “Except For”
Adverse Opinion = GAAP = Very material issue (pervasive)
Disclaimer of Opinion = GAAS = Very material issue (pervasive/significant)
Emphasis of matter placement in report
Immediately after opinion paragraph
Indicate auditor’s opinion not modified
Required use of “Emphasis of Matter”
- Going Concern
- Consistency
- Changing Prior Opinion
- Special Purpose Framework
Can also be used based on professional judgment
Required use of “Other Matter”
- Restriction of use of auditor report
- Change in audit opinion
- Audited by predecessor auditor
- Comparative form with compiled or reviewed FS for prior period
- Material inconsistency - prior to audit report date
- Report in supplementary information
- Refer to requried supplementary information
- Report on compliance included
Wording used in opinion paragraph with scope limitation
Indicate the qualification pertains to the possible effects on the FS and not to the scope limitation itself.
Wording with Qualified Opinion due to Inadequate Disclosure
Add paragraph titled “Basis for Qualified Opinion” preceding Opinion Paragraph and modify Opinion paragraph to include “except for” statement.
Substantial doubt about going concern with entity’s disclosures adequate, what audit report may be used:
Unmodified with emphasis of matter paragraph or
Disclaimed
Must use terms “substantial doubt” and “going concern”
Where should a difference from an original opinion on previously audited FS be included?
Auditors should disclose reasons in a emphasis of matter or other matter paragraph.
D.O.R.C.S. - updated opinion differs from previous opinion, auditor discloses following:
D. Date of auditor's previous report O. Opinion type previously issued R. Reason for prior opinion C. Changes that have occurred S. Statement that "opinion...is different"
Before reissuing PY auditor’s report on FS of former client, auditor should:
- Read FS of CY
- Compare PY auditor reported on with FS to be presented for comparative purposes
- Obtain letter of representation from successor auditor
- Obtain letter of representation from former client’s management
P.R.I.M.E. - Auditor’s active responsibility for subsequent events- Review….
P. - Post balance sheet transactions
R. - Representation letter from management
I. - Inquiry of management and governance
M.- Minutes
E. - Examine latest available interim FS
