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AUD > Audit 6 - Audit Reports > Flashcards

Audit 6 - Audit Reports Flashcards

1
Q

Unmodified Opinion

A

<p>Unmodified Opinion - If an entity is presenting only single-year financial statements and the prior year was audited by other audtors, there is no need to modify the current year report for information not accompanying the current year report.</p>

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2
Q

<p>Unmodified Opinion -</p>

A

<p>Unmodified Opinion - When single-year financial statements are presented, an auditor ordinarily would express an unmodified opinion in an unmodified report if the...Prior year's financial statements were audited by another CPA whose report, which express an unmodified opinion, is not presented.</p>

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3
Q

<p>Scope Limitation </p>

A

<p>Scope Limitation - Not obtaining audited financial statements of a foreign affiliate is a scope limitation that would result in a qualified or discliamer of opinion.</p>

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4
Q

<p>Qualified -</p>

A

<p>Qualified - Not presenting the statement of cash flows is a departure from GAAP that would result in a qualified report.</p>

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5
Q

<p>Emphasis of Matter </p>

A

<p>Emphasis of Matter - If the auditor wishes to emphasize a matter, an emphasis of matter paragraph would be added after the opinion paragraph.</p>

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6
Q

Audit Risk -

A

Audit Risk - The existence of audit risk is recognized by the statement in the auditor’s standard report that the auditor…Obtains reasonable assurance about whether the financial statements are free of material misstatement.

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7
Q

<p>Audit Risk .</p>

A

<p>Audit Risk - Audit risk is the risk that the auditor will issue an unmodified report despite the fact that the financial statements are materially misstated.</p>

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8
Q

Inadequate Disclosure

A

Inadequate Disclosure - Under a PCAOB audit for an issuer, in a qualified report due to inadequate disclosures (disagreement), the auditor isseus a standard introductory paragraph and would not modify the scope because inadequate disclosure is a depature from GAAP, not GAAS.

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9
Q

Inadaquate Disclosure

A

Inadaquate Disclosure - The auditor would modify the opinion paragraph to an “except for” qualified opinion in a qualified report due to inadequate disclosure.

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10
Q

Inadquate Disclosure

A

Inadquate Disclosure - When an auditor qualifies an opinion in an audit of an issuesr under PCAOB because of inadequate disclosure, the auditor should describe the nature of the ommission in a separate explanatory paragraph and modify the…opinion paragraph.

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11
Q

Basis for Adverse Opinion

A

Basis for Adverse Opinion - Whenever a qualified, adverse, or disclaimer of opinion report is issued, the reasons for the report modification is included in a “basis for” paragraph, immediately preceding the opinion paragraph.

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12
Q

Consisitency (Implicit)

A

Consisitency (Implicit) - If an auditor concurs with the change in accounting method or principle, the auditor would issue an UNMODIFIED opinoin and an EMPHASIS OF MATTER paragraph AFTER the opinion paragraph to draw attention to the lack of consistency.

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13
Q

Addressee

A

Addressee - Although an audit report is most frequently addressed to those charged with governance of the audited entity, the report is normally addressed to those for whom the report is prepared.

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14
Q

Addressee

A

Addressee - When retained to audit an entity that is not the client, the report would be addressed to the client rather than governance of the audited entity.

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15
Q

Presented Fairly with GAAP

A

Presented Fairly with GAAP - To be in conformity with GAAP, an entity must account for events and transactions that will provide outcomes that are reasonably close to, or with an acceptable range of, wha tis prescribed.

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16
Q

Presented Fairly with GAAP

A

Presented Fairly with GAAP - For an entity’s F/S to be presented fairly in conformity with GAAP, the principles selected should…Reflect transactions in a manner that presents the F?S within a range of acceptable limits.

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17
Q

Inadequate Disclosure

A

Inadequate Disclosure - Inadequate disclosure is a violation of GAAP which, depending on materiality, would require the issuance of a qualified or adverse opinion.

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18
Q

Inadequate Disclosure

A

Inadequate Disclosure - A qualified opinion would indicate that the financial statements are presented fairly “except for” the information ommitted.

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19
Q

Uncertainty

A

Uncertainty - A phrase including the words “subject to” would relate to uncertainty and is an inappropriate form of reporting.

20
Q

Condensed F/S -

A

Condensed F/S - Condensed F/S do not conform to GAAP, but also are not prepared in accordance with OCBOA.

21
Q

Condensed F/S -

A

Condensed F/S - The condensed financial statments are a supplementary filing and would not be compared to themselves to determine if they are fairly presented.

22
Q

Condensed F/S -

A

Condensed F/S - An auditor reporting on condensed F/S for an annual period that derived from the audited financial statements of a publicly held entity, the auditor’s opinion should indicate whether the information in the condensed F/S is fairly stated in all material respects…In relation to the complete financial statements.

23
Q

Piecemeal opinion

A

Piecemeal opinion - An auditor may not issue a piecemeal opinion which is created by issuing an adverse or disclaimer of opinion on the financial statements taken as a whole yet claiming that a particular balance is fairly presented. It is appropriate to express an opinion on just one financial statement.

24
Q

Piecemeal opinion

A

Piecemeal opinion - Due to a scope limitation, an auditor disclaimed an opinion on the F/S taken as a whole, but the auditor’s report included a statement that the current asset portion of the entity’s balance sheet was fairly presented. The inclusion of this statement is…Not appropriate because it may tend to overshadow the auditor’s discliamer of opinion.

25
Q

Mitigating Factors to Going Concern

A

Mitigating Factors to Going Concern - An entity’s ability to generate cash flow is the most essential factor to the auditor in assessing the ability to continue as a going concern. Paying lower amounts of future dividends would be an example that represents a mitigating factor about whether there is “substantial doubt” about the going concern.

26
Q

Mitigating Factors to Going Concern -

A

Mitigating Factors to Going Concern - Accelerating R&D expenditures, accumulating treasury stock, and purchasing equipment, are all examples of spending money in the immediate future, which would not mitigate an immediate goinjg concern problem.

27
Q

Group Auditor -

A

Group Auditor - If a group auditor decides not to refer to the work of a COMPONENT auditor who audited a client’s subsidiary, the primary auditor is taking responsibility fo rthe work fo the other CDPA. Therefore, the group auditor must be satisfied as to the independence and professional reputation of the other CPA.

28
Q

Group Auditor .

A

Group Auditor - The opinion of the group auditor is not affected by whether or not reference is made to a component auditor and the fact that the component auditor issued an unmodified opinion does not affect whether or not the group auditor will make reference in the report.

29
Q

Group Auditor -

A

Group Auditor - If the group auditor is not able to obtain satisfaction as to the nature and qualify of work of a component auditor, as may be the case when the group auditor is unable to review the work of the component auditor, the group auditor will decide among completing more work as to the subsidiary to enable the formulation of an opinion, or a qualified or disclaimer of opinion, depending on materiality.

30
Q

Going Concern

A

Going Concern - The auditor is not required to issue a modified report when there are signs that an entity will not be able to continue as a going concern as long as the circumstances are appropriately accounted for and disclosed

31
Q

Going Concern

A

Going Concern - A modified report would be required by an auditor with a going concern problem if the circumstances - such as imminent bankruptcy filing, no plans for delaying expenditures, or negative trends/recurring losses - are not adequately disclosed, which would be a departure from GAAP.

32
Q

Group/Component Auditor

A

Group/Component Auditor - When an auditor is auditing Group financial statements (division of responsibility) and the Group auditor decides to share responsibility with the component auditor, then the dollar amount or percent audited by the other auditor is included in the auditor’s responsibility paragraph.

33
Q

Group/Component Auditor

A

Group/Component Auditor - The opinion paragraph would also be adjusted to include the words, “based on our audit and the report of the other auditors”.

34
Q

Reviewed/Compiled Statements

A

Reviewed/Compiled Statements - When reviewed or compiled financial statements are presented in comparative form with audited financial information in the subsequent year, the unaudited financial statements should be clearly marked as such.

35
Q

Reviewed/Compiled Statements -

A

Reviewed/Compiled Statements - When reviewed or compiled financial statements are presented in comparative form with audited financial information in subsequent year, either the prior period should be reissued or an other-matter paragraph should be added to the audit report stating 1) the service performed in the prior period, 2) the report’s date, 3) a description of any material modifications noted in the report, 4) and a statement that the service was less in scope than an audit and does not provide the bais for the expression of an opinion on the financial statements.

36
Q

Reissue Report Date

A

Reissue Report Date- if an auditor reissues a report in a subsequent year and there are no restatements to the F/S or rewording to the report, the ORIGINAL date of the report, which is the last day of fieldwork in the prior year, would be appropriate.

37
Q

Reissue Report Date

A

Reissue Report Date - If the auditor were to change the date of the original report, it would imply that the auditor had extended the audit beyond the last day of fieldwork and would increase potential liability.

38
Q

Adjustment to F/S -

A

Adjustment to F/S - When a customer declares bankruptcy, it may be an indication that it was insolvent as of the end of the period, in which case the receivable should have been written off. If bankruptcy is declared before the F/S are issued, a determination will be made as to whether the receivable was collectible at year end, and, if not, an adjustment will be proposed to write off.

39
Q

Adjustment to F/S

A

Adjustment to F/S - An adjustment to the financial statements ending December 31, year 1 would most likely occur if a loss on an uncollectible receivable was recorded in year 1 from a customer that declared bankruptcy in year 2.

40
Q

Except for/Qualified Opinion -

A

Except for/Qualified Opinion - A significant scope limitation precludes the auditor from issuing an unmodified opinion, requiring an “except for” qualified opinion or disclaimer, depending on materiality.

41
Q

Except for/Qualified Opinion

A

Except for/Qualified Opinion - An unjustified accounting change is a departure from GAAP, which will require either an “except for” qualified or adverse opinion, depending on materiality.

42
Q

Consistency (Implicit) -

A

Consistency (Implicit) - Inconsistencies relate to changing accounting principles between accounting periods, not using different methods of accounting for different balances, such as FIFO for international inventory and LIFO for domestic.

43
Q

Letter of Representation

A

Letter of Representation - When a predecessor auditor reissues his or her report on a prior period, there are no modifications to that report unless circumstances areise subsequent to the date of the report that affect the previous year.

44
Q

Letter of Representation

A

Letter of Representation - In order to determine if subsequent events have occured, the predecessor auditor would receive a letter of representation from the succesor auditor stating that the successor auditor is not aware of any current year information that would affect the prior year report.

45
Q

First Year Audit

A

First Year Audit - When an auditor is performing a first year audit of a client, sufficient evidence must be gathered about the application of accounting principles in the prior year and about the balance sheet and about the balance sheet amounts as of the beginning of the year.

46
Q

First Year Audit

A

First Year Audit - Since amounts included in the beginning balance sheet affect the current period’s statement of cash flows and results of operations, and there was no prior year financial statements provided, the auditor would not be able to express an opinion on either of those statements

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