AUDIT

Question 1

Reissued Report

Answer 1

A report that is issued subsequent to the date of the original report date, but which bears the same date as the original report, indicating no additional work have been performed since that date.

Question 2

Omitted Audit Procedures

Answer 2

1. Other audit procedure were adequate to compensate for the omitted audit procedures. If so, no further action.
2. On the other hand, the omitted audit procedures impair the auditor’s ability to support the previously issued opinion, and people are relying on the report, then immediately apply the omitted procedures (or alternative procedures)
3. If facts change the auditor’s opinion/report, the auditor should proceed as described under subsequent discovery of facts.

Question 3

Dual dating

Answer 3

If adjustments or disclosures are made after the original date of the auditor’s report, the auditor may dual date the report and extend responsibility ONLY for the particular subsequent event. The original date of the report is retained for the rest of the F/S.

Question 4

Reporting accountant’s written report on the application of an applicable financial reporting framework

Answer 4

The reporting accountant’s written report should include 1. an identification of the specific entity involved; 2. a brief description of the nature of the engagement; 3. a statement that the engagement was performed in accordance with AICPA standards; a description of the specific transaction(s); a statement of the relevant facts, circumstances, assumptions and source of the information; a statement describing the appropriate application of the requirements of the applicable financial reporting framework to the specific transaction or type of report; 5. a statement that the preparers of the financial statements are responsible for proper accounting treatment; 6. a statement that any difference in facts, circumstances or assumptions presented may change the report; 7. a separate paragraph restricting its use to specified parties; and 8. a statement indicating that the reporting accountant is not independent (if appropriate).

Question 5

Reporting on F/S prepared in accordance with a financial reporting framework generally accepted in another country.

Answer 5

The auditor should obtain an understanding of

1. the purpose for which the F/S are prepared;
2. whether the financial reporting framework is a fair presentation framework;
3. the intended users of the F/S.
4. the steps taken by management to determine whether the applicable financial reporting framework is acceptable in the circumstances.

The auditor should also obtain an understanding of the applicable legal responsibilities involved if the auditor plans to use the form and content of the auditor’s report of another country.

Question 6

Material inconsistency in the “other information” containing audited financial statements. The auditor believes that the financial statements do not require revision, but the client is unwilling to revise or eliminate the material inconsistency in the other information. Under these circumstances, what action would the auditor most likely take next?

Answer 6

If the auditor discovers a material inconsistency in other information accompanying the audited financial statements, the financial statements do not require revision, and the client refuses to eliminate or revise the inconsistency, the auditor should communicate the matter with those charged with governance and then consider 1) revising the report to include an other-matter paragraph describing the material inconsistency, 2) withholding the use of the report, or 3) withdrawing from the engagement and consulting with legal counsel.

Question 7

Reporting on REQUIRED Supplementary Information

Answer 7

Opinion is not required:
Auditor is not required to audit “required supplementary information.” However, the audit report on the F/S should include an “other-matter paragraph” with language to explain the following circumstances (as applicable):
a. required supplementary info is included and auditor has applied the required procedures;

report deficiencies and omissions such as:

b. required supplementary info is omitted;
c. some req supplementary info is missing, some presented in accordance w/ the prescribed guidance;
d. the auditor has identified material departures from the prescribed guidelines;
e. auditor is not able to complete the required procedures, or
f. there are unresolved doubts about conformance of required supplementary info.

If the auditor determined that the req information has not been presented as prescribed, and management refuses to make revisions, the auditor should describe the departure and the “other-matter” paragraph should include a disclaimer of opinion.

Opinion Permitted
If engaged to report on whether required supplementary info is fairly stated, in all material respects, in relation to the F/S as a whole.

Question 8

Reporting on F/S prepared in accordance w financial reporting framework generally accepted in ANOTHER COUNTRY

Answer 8

For distribution outside the U.S. only -

1. Use a modified U.S. style report
2. Report of the other country or report set out in the ISAs

For distribution within the U.S. -
1. Use a standard U.S. report with an emphasis-of-matter paragraph that identifies the financial reporting framework

Question 9

Reporting on Supplementary Information in relation to the FS as a WHOLE

Answer 9

The auditors 2 objectives

1. evaluate the presentation of the supplementary info in relation to the F/S as whole, and
2. report whether the supplementary info is fairly stated, in all material respects, in relation to the FS as a whole,

In order to achieve #2, the auditor must determine that the following conditions are met:

i. info derived from/related to the info used to prepare the FS;
ii. info relates to the same period as the FS;
iii. FS were audited and an audit report was issued (no adverse or disclaimer of opinion of the issued FS)
iv. supplementary info will accompany the audited FS, or the audited FS will be made readily available by the entity.

Question 10

Piecemeal opinions

Answer 10

Piecemeal opinions (opinions on parts of the financial statements, when those parts constitute a major portion of the financial statements) are not appropriate if the auditor has disclaimed an opinion or issued an adverse opinion, because they may overshadow the auditor’s opinion on the financial statements taken as a whole.

An opinion on specified elements that does not constitute a piecemeal opinion may be expressed, but should not accompany the Disclaimer of opinion or the Adverse opinion.

Question 11

Auditor Reporting on Summary Financial Statements

Answer 11

An auditor may report on summary financial statements that are derived from financial statements that he or she has audited, indicating

(1) that he or she has audited and expressed an opinion on the complete financial statements,
(2) the date of the auditor’s report,
(3) the type of opinion expressed, and
(4) that the information contained in the summary financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.

Question 12

Scope limitation in an AUDIT

Answer 12

When an auditor qualifies his opinion because of a scope limitation, the wording in the opinion paragraph should indicate that the qualification pertains to the possible effects on the financial statements and not to the scope limitation itself.

Question 13

Projected financial statement report

Answer 13

Financial projections are not appropriate for general use, and therefore should not be included in an offering statement of the entity’s initial public offering of common stock.

A compilation of a financial projection report describes the limitations on the usefulness of the projection by including a caveat that the prospective results may not be achieved.

Question 14

Piecemeal opinion on specific elements

Answer 14

When a auditor expresses an adverse or disclaimer of opinion on the complete FS, an unmodified opinion on the specific element would contradict the adverse or disclaimer of opinion. However, in the case an unmodified opinion on the specific element is appropriate, then the auditor should do so ONLY IF:

1) the opinion on the specific element does not accompany the auditor’s report on the complete FS, AND
2) the specific element DOES NOT constitute a major portion of the complete FS, or is not based on equity or net income.

Question 15

Audits of Single FS, and Specific Elements, Accounts, or Items of a FS

Answer 15

An audit may be performed as a separate engagement or in conjunction with an audit of an entity’s complete set of FS.

Question 16

Emphasis-of-Matter Paragraph

Answer 16

Emphasis required if

• Going concern
• Consistency - justified change in the accounting principles
• Change in prior opinion- subsequently discovered facts lead to a change in opinion (auditor may also use “other matter” paragraph)
• Special purpose framework - FS prepared in special purpose framework (other than regulatory basis for general use).

Question 17

Written representations

Answer 17

• Written representations should be addressed to the accountant.
• The letter should be signed by members of management whom the accountant believes are responsible for and knowledgeable about the matters covered in the representation letter.
• Written representations from the current management are required for all periods being reported on, even if the current management was not present during all such periods.

Question 18

When SSARS does not apply:

Answer 18

• accountant prepares personal financial statements for inclusion in written personal financial plans,
• solely for submission to taxing authorities,
• in conjunction with litigation services that involve pending or potential legal or regulatory proceedings, or
• in conjunction with business valuation services.

Question 19

Considerations in a CHANGE IN ENGAGEMENT requested by the client. The accountant should do the following:

Answer 19

1. reason for request, especially if there are scope limitations;
2. effort required to complete the engagement; and
3. estimated additional cost to complete the engagement.

If the change is justifiable, no mention in the appropriate issued report reference to original engagement, procedures performed in previous engagement, or any scope limitation.

Question 20

Reporting When one period is AUDITED

Answer 20

When unaudited FS (i.e. compiled or reviewed) are presented in comparative form with audited FS, the unaudited FS should be clearly marked and the accountant should EITHER:

1. Reissue the PY report; OR
2. Include an “other-matter” in the CY report describing the responsibility assumed for the PY statements.

Question 21

For issuers: If unaudited FS are presented in comparative form with audited FS in documents filed with the SEC…

Answer 21

Such statements should be marked “unaudited”, but not referred in the auditor’s report.

Question 22

CY unaudited and PY audited (downgrade in service). The accountant in the CY report (i.e. compilation, review report) should:

Answer 22

Add an “other-matter” paragraph, which includes

• that the PY FS were audited;
• date of the previous report;
• the opinions expressed, and, if other than unmodified, the reasons for the modification; and
• that no auditing procedures have been performed since the previous report date.

Question 23

Capsule Financial information

Answer 23

Unaudited summarized interim information for subsequent periods.

Question 24

SSAE

Answer 24

Statements on Standards for Attestation Engagements
-Standards issued by senior technical bodies of the AICPA regarding attest engagements, including agreed-upon procedures engagements, financial forecast and projections; pro forma FS, IC over financial reporting; compliance; and management’s discussion and analysis (MD&A).

Question 25

SSARS

Answer 25

Statements on Standards for Accounting and Review Services

- Standards established by the AICPA to regulate the provision of services to non-issuers NOT seeking audited FS

Question 26

Pro forma FS

Answer 26

FS used to demonstrate the effect of proposed transaction or event showing effects on the historical financial statements, if it had occurred during the period covered by those statements.

Question 27

Examination of a financial forecast (Examination of prospective financial statements)

Answer 27

Involves:

1. Evaluating the preparation of the prospective financial statements,
2. Evaluating the support underlying the assumptions,
3. Evaluating the presentation of the prospective financial statements in conformity with AICPA guidelines, and
4. Issuing an examination report

Question 28

Financial projections

Answer 28

A financial statement the reflects the financial results of a future period based on hypothetical assumptions (‘what-if’s”).

Question 29

Financial forecast

Answer 29

A financial statement that reflects the expected financial results of a future period based on expected conditions and expected courses of action.

Question 30

Prospective financial statements include:

Answer 30

Two types:

1. Financial forecasts
2. Financial projections

Question 31

“Partial presentations” of prospective financial statements…

Answer 31

1. Are not appropriate for general use
2. Because it omits one or more essential elements; (a) sales or gross revenue, (b) gross profit or cost of sales, (c) unusual or infrequent items, (d) provision for income taxes, (e) discontinued operations or extraordinary items, (f) income form continuing operations, (g) net income, (h) earnings per share, and (I) significant changes in financial position.

Question 32

Examination of Prospective FS-Modifications to the Opinion

Answer 32

The following should required the auditor to modify the opinion:

1. AICPA presentation guidelines are not followed (qualified or adverse opinion)
2. Significant assumptions are not disclosed (adverse opinion)
3. Basis not reasonable: one or more significant assumptions do not provide a reasonable basis for the FS (adverse opinion).
4. Scope limitation (disclaimer).

Question 33

Auditor’s report

Answer 33

• Consistency is implicit in the auditor’s report, and will be explicitly mentioned in an emphasis-of-a-matter paragraph only if there are issues with consistency.
• There is no explicit reference to “test basis.” The report says “An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.”

Question 34

Review report -Must haves

Answer 34

Intro Paragraph

• We have reviewed
• A review includes primarily applying analytical procedure, and making inquiries, etc
• Review is substantially less in scope than an audit.
• Accordingly we do not express such an opinion

Management’s responsibility for the FS-Paragraph
-Management is responsible for the presentation and fair presentation…, and includes the design, implementation, and maintenance of internal control.

Accountant’s responsibility

• Our responsibility is to conduct the review in accordance with SSARS by the Accounting and review services committee of the AICPA.
• limited assurance as a basis…

Accountant’s conclusion
-Based on our review, we are not aware of any material modification

Question 35

No cash flow means

Answer 35

-Qualified or adverse opinion (relates to GAAP)

Question 36

ISA about going concern

Answer 36

Under ISAs, the going concern period must be “at least, but not limited to, twelve months from the date of the financial statements being audited”.
Under U.S. auditing standards, the going concern period cannot exceed one year from the date of the financial statements being audited