Audit Reports Flashcards
The AICPA replaced the former 10 criteria known as “GAAS” with 7 non-authoritative principles to be used as a framework for audit standard setting. What specific topics did the 4 “Reporting Standards” under the now-superseded GAAS address?
[tippicANOE]
Accounting principles in conformity w/ GAAP (explicit)
No new acct principles applied (implicit)
Omitted information disclosures (adequate unless stated)
Expression of an opinion (explicit)
What 2 topics of responsibility are addressed in the “Management’s Responsibility” section of the auditor’s report?
1-Management’s responsibility for the fair presentation of the financial statements; and
2-Management’s responsibility for the design, implementation, and maintenance of internal control related to financial reporting.
When the group engagement partner decides to assume responsibility for the component auditor’s work, what is the effect on the auditor’s report?
There should be no reference to the component auditor in the auditor’s report under those circumstances.
Identify the 3 issues for which an emphasis-of-matter paragraph is required.
When there is substantial doubt about the entity’s ability to continue as a going concern.
When there is an inconsistency in accounting principles used.
When the financial statements are prepared in accordance with special purpose frameworks (such as cash basis, tax basis, regulatory basis, or contractual basis).
What is the one underlying cause for an adverse opinion?
The auditor concludes that misstatements are material and pervasive to the financial statements.
What is the effect of an adverse opinion on the auditor’s report?
- No effect on introductory paragraph or management’s responsibility section;
- Modify last sentence of auditor’s responsibility section to refer to “…basis for our adverse audit opinion”;
- Add a Basis for Adverse Opinion paragraph before the opinion paragraph to describe the effects of the misstatement;
- Modify the opinion paragraph to express the adverse opinion.
What conclusion is expressed by a disclaimer of opinion?
No conclusion (no assurance) is expressed, since sufficient appropriate audit evidence has not been obtained.
What is the fundamental reason for a disclaimer of opinion?
The auditor is unable to obtain sufficient appropriate audit evidence, and the auditor concludes that the possible effect on the financial statements could be material and pervasive.
When a material change in accounting principle has been properly accounted for by the entity’s financial statements (with adequate disclosure and justification that the adopted principle is preferable), what is the effect on the auditor’s report?
The auditor’s report should include an emphasis-of-matter paragraph to describe the change and reference the footnote that discusses the change. The auditor should also state that the auditor’s opinion is not modified with respect to the matter.
What 4 specific matters should the auditor evaluate when the entity’s financial statements include a material change in accounting principle?
- Whether the adopted principle is in accordance with the applicable reporting framework;
- Whether the method of accounting for the effect of the change is in accordance with the applicable reporting framework;
- Whether the disclosures about the change are adequate; and
- Whether the entity has justified that the alternative adopted is preferable.
What 2 general circumstances may affect the comparability of an entity’s financial statements between periods?
A change in accounting principle; or
A material restatement of the financial statements (to correct a previous material misstatement).
Auditors Responsibility (Unmodified Opinion)
Express opinion in accordance w/ GAAS, obtain reasonable assurance that FS free of MM
Definition of an audit
Consider IC but don’t express opinion on its effectiveness
We have obtained sufficient appropriate evidence to base opinion
If management is unwilling to make changes to correct material inconsistencies identified prior to the report release date, how should the auditor’s report address the issue.
The auditor should include an other-matter paragraph to the auditor’s report. (Other possibilities would be to withhold the auditor’s report or withdraw from the engagement.)
If the auditor has expressed an adverse opinion or disclaimer of opinion on the financial statements taken as a whole, how would that affect the engagement to report on whether supplementary information is fairly stated in relationship to the financial statements?
The auditor would be prohibited from reporting on the supplementary information if the auditor’s report on the financial statements contained an adverse opinion or disclaimer of opinion.
Identify the only 2 opinion choices for the auditor’s report on summary financial statements.
Only an unmodified or adverse opinion is permitted. That is, the summary financial statements are either consistent or not consistent with the audited financial statements.
