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Audit > Audit Reports > Flashcards

Audit Reports Flashcards

1
Q

When can you make reference to a component auditor?

A

Only make reference if all of the following are met: ● Component auditor has performed an audit in accordance with GAAS or the PCAOB ● Component auditor’s report is not restricted use

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2
Q

If component’s F/Ss are prepared using a diff financial reporting framework from the group F/Ss, reference to the component auditor should not be made in the auditor’s report on the group F/Ss unless…

A

● 1) criteria in framework is similar to criteria in framework used by the group ● 2) group engagement team has obtained sufficient appropriate audit evidence to evaluate the appropriateness of the adjustments needed

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3
Q

The auditor’s report on the group F/Ss should indicate what?

A

● that the component was not audited by the auditor of the group F/Ss but was audited by the component auditor ● the portion of the F/Ss audited by the component auditor ● if different reporting framework: ○ the financial reporting framework used by component ○ and that the auditor of the group F/S is taking responsibility for evaluating a the appropriateness of the adjustments to convert the component’s F/Ss to the group financial reporting framework

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4
Q

Do ISAs let auditor’s report on group F/Ss make reference to a component auditor?

A

No, unless required by law.

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5
Q

Should auditor add component auditor’s reference modified opionion or EOM paragraph by component auditor?

A

● if component auditor’s opinion is modified or the report has an emphasis-of matter or other-matter paragraph, the group auditor should determine the effect on the auditor’s report on the group F/S

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6
Q

If auditor takes responsibility for component auditor, do you reference?

A

don’t make reference to component auditor

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7
Q

When group auditor assumes responsibility for work of component auditor, group engagement team should determine the type of work to be performed:

A

● a component significant cuz of individual financial significance should be audited by the group engagement team or component auditor ● if a component is significant cuz it’s likely to include signif risks of material misstatement to the group F/Ss, the group engagement team or component auditor should perform an audit of the financial info ● group engagement team should perform analytical procedures for components that are not significant

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8
Q

What are the Audit opinions?

A
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9
Q

What is the difference between qualified “except for” and adverse opinion?

A

Qualified “except for” = material

Adverse = very material/pervasive

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10
Q

Can you have a EOM or OM paragraph with a unmodified opinion?

A

Yes, they don’t affect the opinion.

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11
Q

What are the GAAP modified opinions?

A

Qualified

Adverse

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12
Q

What are the GAAS modified opinions?

A

Qualified

Disclaimer

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13
Q

Is a disclaimer really an opinion?

A

Not really. It means that you don’t express an opinion on F/S because you were not able to obtain sufficient appropriate audit evidence. to provide a basis for an opinion…. so you “disclaim” the opinion because there was a scope limitation.

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14
Q

When would you disclaim an opinion rather than issue an qualified opinion?

A

can do either for insignificant evidence.

Disclaimer though because of:

Significant Going Concern Uncertainty

Lack of Independence

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15
Q

What is the paragraph order for an unmodified opinion?

A
  1. Title
  2. Addressee
  3. Intro para
  4. Managements responsibility para (GAAP)
  5. Auditor’s responsibility (GAAS)
  6. Opinion
  7. (report on other legal and regulatory requirements
  8. Auditor’s Signature
  9. Audtor’s City and State
  10. Date of Auditor’s report
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16
Q

If company is an issuer, what must auditor comply with?

A

Audits of Issuers = public company = PCAOB (SEC)

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

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17
Q

What is does pervasive mean?

A
  1. Not confined to specific elements
  2. substantial portion of F/S
  3. fundatmental to user’s understanding of F/S
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18
Q

When is EOM paragraph used?

A

When matter is appropriated presented or disclosed an and fundamental to users of F/S.

It does NOT affect audit opinion.

19
Q

What is the order of the Opinion, EOM, and OM Paragraphs?

A
  1. Opinion
  2. EOM
  3. OM
20
Q

When to use an EOM Paragraph?

A
  • Goes right after Opinion paragraph
  • Title = Emphasis of Matter
  • Describe matter being emphsized and where relevelant disclosures are located
  • Indicate that Auditor’s opinion is not modified with respect to matter emphasized

Required:

  1. Substantal doubt of Going Concern for reasonable period of time (only if presented fairly)?
  2. Describe justified change in Accounting principle that is material
  3. Subsequently discovered fact leads to change in audit opinion
  4. F/S prepared under special purpose framework (other than general purpose regulatory basis that is for general use)

May be necessary - professional judgement

  1. Uncertainty of litigation or rugulatory action
  2. major catastrophy with material F/S effect
  3. Significant Related Party trasnactions
  4. Unusually important subsequent events
21
Q

When to use an OM Paragraph?

A

Refer to matters NOT presented in F/S, but necessary to understand F/S

  • Goes right after Opinion paragraph
  • Title = Other Matter
  • Describe matter being emphsized and where located relevant disclosures
  • DO NOT Indicate that Auditor’s opinion is not modified with respect to matter emphasized

Use Required:

  • when auditor includes an alert in the report that restricts the use of the report
  • subsequently discovered facts lead to a change in audit opinion
  • F/Ss of prior period were audited by a predecessor auditor & the predecessor’s audit report is not reissued
  • Current period F/Ss are audited and presented in comparative form w/ complied or reviewed F/Ss for the prior period, OR in comparative form w/ prior period F/Ss that were not audited, reviewed/compiled
  • auditor identifies a material inconsistency in other info b4 audit report date
  • when the auditor reports on supplementary info presentedwith the F/Ss in the auditor’s report rather than in a separate report
  • to refer to required supplementary info that a designated actg standards setter requires to accompany an entity’s basic F/Ss
  • to restrict use of the auditor’s report when special purpose F/Ss are prepared in accordance w/ a contractual or regulatory basis of actg
  • a report on compliance is included in the report on the F/Ss

May be Necessary

  • to describe reasons why the auditor can’t withdraw from an engagement when the auditor is unable to obtain sufficient appropriate evidence cuz of a management-imposed scope limitation
  • laws require or permit auditor to provide more explanation of auditor’s responsibilities
  • auditor has been engaged to report on more than one set of F/Ss when each set of F/Ss has been prepared with a diff framework
22
Q

Procedures to identify going concern

A
  • Procedures - “ADMITS”; examine evidence obtained from:
    • Analytical Procedures
    • Debt Compliance
    • Inquiry of client’s legal counsel
    • Third Parties
    • Subsequent events review
    • ISAs: auditor should consider going concern throughout the engagement; US doesn’t require specific procedures related to going concern
23
Q

What do ISAs additionally have to get from management about going concern?

A

written representation regarding plans for future action.

24
Q

Going Concern discosures/opinions

A
  1. Adequate Dsiclosure = Unmodified with EOM para
  2. Inadequate disclosure (GAAP issue) = Qualified or Adverse
  3. Significany Going concern Uncertainty (GAAS) = Disclaimer
    4.
25
Q

If Accounting Principle change is ok, what must auditor do?

A

Add EOM para

26
Q

Accounting Principal change disclosures

A
  • unless auditor’s report explicitly states otherwise, the auditor’s report implies that the F/Ss are comparable b/t periods
  • acceptable change → emphasis of matter paragraph
  • not acceptable change → if material then modify opinion
  • if effect of change is immaterial → no revision to report
  • emphasis of matter paragraph is included in the auditor’s report until the new accounting principle is applied to all periods presented
  • if change is accounted for retroactively, then the paragraph is only needed in period of change
  • other changes in accounting estimates/corrections of errors (math errors) DON’T affect consistency so they don’t affect the auditor’s report
  • corrections of errors in actg principle do affect consistency so need emphasis
  • Change in reporting entity = EOM
  • Investment in Investee Change in accounting method = EOM
  • Material Mistatement in previous F/S fixed = EOM

*

27
Q

What Paragraph Restricts use of auditor report?

A

Other Matter paragraph

28
Q

When audit report is modified include another paragraph where?

A
  1. No change to Intro or Management Responsibility para
  2. Auditor’s Responsibility paragraph has another sentence saying “We believe that the audit evidence we have obtained is sufficnetnt and approopriate to provide a baisi for our qualified/adverse opinion.”
  3. Basis for Qualified/Adverse Opinion
    1. description and quantity of financial effects of misstatement
    2. explain how disclosures are misstated if related to narrative disclosure
    3. describe nature of omitted info and include omitted info when practicable (info is reasonably obtainable from management’s records)
  4. Opinion paragraph
29
Q

Qualified Opinion wording (GAAP)

A

“except for the effects of the matters described in the basis for qualified opinion paragraph, the F/Ss are presented fairly, in all material aspects, in accordance w/ the applicable framework”

30
Q

Adverse opinion (GAAP) paragraph

A

because of the significance of the matters described in the basis for adverse opinion paragraph, the F/Ss are not presented fairly in accordance with the applicable financial reporting framework”

31
Q

Does auditor change prior report if auditor becomes aware of evidence that affects the prior statements and the opinion that was expressed?

A

Yes - the auditor should update the opinion in current year’s report.

●Format - only “DORCS” change their mind → emphasis or _other matte_paragraph

○Date of auditor’s previous report

○Opinion type previously issued

○Reason for the prior opinion

○Changes that have occurred

○Statement that the opinion is different

32
Q

When successor auditor doesn’t issue prior year report, predecessor auditor must state

A

○F/Ss of prior period were audited by a predecessor auditor

○type of opinion expressed by the predecessor auditor and reasons for modification (if modified)

○nature of any emphasis or other paragraph included in the predecessor auditor’s report

○date of predecessor auditor’s report

33
Q

○If predecessor auditor wants to reissue their audit report, they can if it’s still appropriate. To determine this, they must:

A

○read the statements for the current period

○compare the statements audited with current period statements

○obtain a letter of representation from the successor auditor

○inquire of and obtain a letter of representation from management

○Date the report as appropriate

■unrevised = use original report date in reissue

■revised = dual date

34
Q

If prior period F/S not audited, but reviewed or compiled, and prior report not issued…

A

Include Other Matter para stating

  • service (review or compilation) performed in the prior period
  • date of the prior period report
  • description of any material modifications described in report
  • statement that the service was less in scope than an audit and doesn’t provide the basis for expressing an opinion
35
Q

●Prior Period Statements Not Audited, Reviewed, or Compiled

A

○include an other matter paragraph to indicate that the auditor did not audit, review or compile the prior per F/Ss and that the auditor assumes NO responsibility

36
Q

Events Occurring after Year-End

Events - conditions existing on or before B/S date

conditions existing after B/S date

A
  • Recognized (Type I) Events - conditions existing on or before B/S date
    • requires a F/S adjustment
  • Nonrecognized (Type II) Events - conditions existing after B/S date
    • may require Footnote
37
Q

Does auditor have active responsibility responsibility to perform any further auditing procedures after the Original Date of the Auditor’s Report?

A

No, but if auditor becomes aware of any info relating to subsequent events b4 the report release date then he should consider if it’s necessary to adjust F/Ss

  • if management won’t make revision → qualified or adverse opinion
  • report date
    • if adjustments/disclosures are made after original date of auditor’s report, auditor can dual date the report to extend responsibility only for the particular event
    • auditor can also use a later date but this extends responsibility for all subsequent events to this date
38
Q

○Material inconsistency in Other Information in Documents Containing Audited F/Ss

A

■if revision required for other info but management refuses, then communicate this matter with those charged w/ governance and:

●include in the auditor’s report an other-matter paragraph to describe the inconsistency

●withhold use of report

●or withdraw

39
Q

if auditor becomes aware of evidence that affects the prior statements and the opinion that was expressed, the auditor should

A

update the opinion in current year’s report

40
Q

What paragraph is added to aduit report when auditor changes opionion previously issued? What is pneumonic of paragraph?

A

Format - only “DORCS” change their mind → emphasis or other matter paragraph

Date of auditor’s previous report
Opinion type previously issued
Reason for the prior opinion
Changes that have occurred
Statement that the opinion is different

41
Q

When Report of Predecessor Auditor not Reissued in Current period report, CY auditor should…

A
  • successor auditor should express an opinion on the current period F/Ss only and indicate in an other matter paragraph:
    • F/Ss of prior period were audited by a predecessor auditor
    • type of opinion expressed by the predecessor auditor and reasons for modification (if modified)
    • nature of any emphasis or other paragraph included in the predecessor auditor’s report
    • date of predecessor auditor’s report
42
Q

Events after year end:

what to do?

A

If existed BEFORE B/S date: -> Adjust F/S

If existed AFTER B/S date -> May requre Disclosure

  1. Review F/S for cuttoff
  2. Ask management if there were any sig events after B/S
  3. Ask legal counsel avout litigation, etc
  4. Review Stockholder meeting minutes
  5. Examine Interime F/S
43
Q

What is a reporting accountant?

A
  • Reporting Accountant - an accountant in public practice, other than the continuing accountant, who prepares a written report/oral advice on:
    • application of the requirements of a financial reporting framework to a specific transaction
    • or the type of report that may be rendered on a specific entity’s F/Ss
    • may not report on the application of actg principles to a hypothetical transaction
    • not required to be independent of the entity

Audit (3 decks)

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