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CPA AUDIT > Audit Reports > Flashcards

Audit Reports Flashcards

1
Q

What should be included for the Auditor’s address?

A

The City and State where located

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2
Q

What is Management Responsible for in regards to the Financial Statements?

A

Preparation and Fair Presentation of Financial Statements in accordance with the Applicable Financial Reporting Framework

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3
Q

What is Management Responsible for in regards to Internal Control?

A

Internal Control Design, Implementation, Maintenance

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4
Q

What are the headings in the Audit Report for an Unmodified Opinion?

A

(TIM-AA) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion

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5
Q

What are the headings in the Audit Report for an Modified Opinion?

A

(TIMA-BA) Title; Introduction; Management Responsibility; Auditor Responsibility; Basis for (Modified) Opinion; Audit Opinion

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6
Q

In an Unmodified Opinion with Emphasis-of-Matter / Other-Matter sections, what is the order of the headings?

A

(TIM-AA EMO) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion; Emphasis-of-Matter; Other-Matter

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7
Q

What are the requirements for referencing a Component Auditor in the Audit Report?

A

This is when the auditor does not assume responsibility. Component Financial Statements must be prepared using same Financial Reporting Framework as the Group Financial Statements; Component Auditor must have performed audit in accordance with GAAS or PCAOB Standards.

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8
Q

What are the requirements for referencing a Component Auditor in the Audit Report?

A

Component Financial Statements must be prepared using same Financial Reporting Framework as the Group Financial Statements; Component Auditor must have performed audit in accordance with GAAS or PCAOB Standards.

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9
Q

What must the Group Engagement Partner do if they assume responsibility for the Component Auditor’s work?

A

Perform additional audit procedures; Be involved in Component Auditors work; Perform Risk Assessment procedures; Assess Risk of Material Misstatement

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10
Q

What standards govern SSARS engagements?

A

Compilations are governed by SSARS (Statements on Standards for Accounting and Review Services)

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11
Q

What is a Compilation?

A

Accountant puts together financial statements with information PROVIDED BY MANAGEMENT.

No Opinion Expressed > No Assurance Given > No Independence Required.

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12
Q

Which clients can have compilation engagements?

A

Non-SEC (non-public) registrants only.

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13
Q

What disclosures are required for Compilation engagements?

A

Disclosures not necessary must state that they are not included

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14
Q

What standards govern Review engagements?

A

SSARS (Statements on Standards for Accounting and Review Services)

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15
Q

What is a Review engagement?

A

Financial statements are presented with no opinion expressed- and limited assurances are given. Independence is required for a review engagement.

No Opinion Expressed > Limited Assurance Given > Independence Required.

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16
Q

What is a Forecast?

A

A prospective financial statement that uses normal circumstances. General and limited use allowed.

Disclaimer: Forecast results may not be achieved

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17
Q

What is a Projection?

A

A prospective financial statement using hypothetical situations. Only limited use by the client is allowed.

Disclaimer: Limitation of scope/usefulness

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18
Q

What type of assurance is given in a Review engagement?

A

Reviews give limited assurance.

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19
Q

What procedures are required for Review engagements?

A

Analytical procedures are required for reviews. Compare results to documented predictions.

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20
Q

What is a Review engagement?

A

Financial statements are presented with no opinion expressed- and limited assurances are given. Independence is required for a review engagement.

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21
Q

What is a Forecast?

A

A prospective financial statement that uses normal circumstances. General and limited use allowed.

22
Q

What is a Projection?

A

A prospective financial statement using hypothetical situations. Only limited use by the client is allowed.

23
Q

What are the requirements for Agreed Upon Procedures?

A

Independence is required; Only limited use by the client is allowed.

The practitioner(auditor) provides neither positive nor limited assurance.

24
Q

What disclosures are required for remote likelihood of losses?

A

No disclosure required.

25
Q

How do GAS standards compare to GAAS?

A

GAS is more strict than GAAS.

Its focus is on Compliance and Regulation

26
Q

What is required under the Single Audit Act?

A

An audit performed under governmental auditing standards (GAS). A report on internal control is required, FS must follow GAAP. GAAS and GAS don’t require the I/C report.

27
Q

What disclosure is required for a probable loss contingency?

A

Accrue if estimable. Emphasis-of-Matter paragraph if not estimable.

28
Q

What disclosure is made if a loss contingency is reasonably possible?

A

Auditor assesses need for Emphasis-of-Matter paragraph based on loss likelihood.

29
Q

How is a gain contingency reported?

A

Gain contingencies are not reported.

30
Q

How does an immaterial GAAP issue affect the audit opinion?

A

It doesn’t. Opinion is Unmodified.

31
Q

How does a very material GAAP issue affect the Audit Report?

A

Modified-Adverse Opinion is issued. Emphasis-of-Matter paragraph is added after Opinion paragraph.

32
Q

How do GAS standards compare to GAAS?

A

GAS is more strict than GAAS.

33
Q

What is required under the Single Audit Act?

A

An audit performed under governmental auditing standards (GAS). A report on internal control is required. GAAS and GAS don’t require the I/C report.

34
Q

What does unmodified opinion: emphasis of matter / other matter cover?

A

*Auditor wants to bring attention to something:
*Going Concern
*Updated report from a prior period
*Catastrophe that could affect financials
*Litigation uncertainty
*Significant Related-Party Transaction
*Unusual Subsequent events
>This does not affect audit opinion
>Auditor must communicate to those in charge with governance

35
Q

What if: Auditor wants to express opinion on A/R even though they Disclaimed an Opinion on the Financial Statements taken as a whole?

A

OK if report on A/R is presented separately

36
Q

Compilation vs Review vs Procedures

A

Compilation
> No Assurance > No Independence

Review
> Limited Assurance > Independence

Procedures (agreed upon)
> Limited Use > Independence

37
Q

What do Pro-Forma Financial Information show?

A

Shows “what the significant effects on historical financial information would have been had a consummated or proposed transaction (or event) occurred at an earlier date.

*An independent account may examine or review.

38
Q

What is in an Compliance Attestation?

A
  • Hired to determine AND give opinion, if company is compliant with specific requirements or effectiveness of entity’s internal control over compliance.
  • Also, can perform an agreed upon procedures engagement but not a review engagement.
39
Q

What should an audit of internal control over financial reporting test?

A

1) Design Effectiveness

2) Operating Effectiveness

40
Q

What are Service Organizations?

A

A services organization’s services and controls are part of the client’s information system relevant to financial reporting if they have an effect on:

1) Significant classes of transactions
2) System, both IT and manual
3) Process used to prepare statements

41
Q

How can the user auditor obtain information from the service organization?

A

1) reading service auditor’s report
2) contacting service organization, through the user entity
3) Performing procedures at svc org. to provide necessary info about its internal controls.
4) using another auditor to perform procedures to provide the necessary infor about the relevant controls at svc org.

42
Q

Service Organizations definitions.

A

User Entity: Trilogy
User Auditor: PWC
Service Organization: Eirtight
Service Auditor: McGregor.

43
Q

What is a User Auditor Type 1 Report?

A

It expresses an opinion on fair representation of mgmt description whether controls are suitably designed at a specified date (design)

44
Q

What is a user auditor Type 2 Report?

A

It expresses an opinion on fair representation of mgmt description whether controls are suitably designed at a specified date AND and opinion on whether the controls were operating effectively (throughout a period of time.

45
Q

What is an unmodified opinion?

A

it is the conclusion that the financial statements are presented fairly, in all material respects, in accordance with the framework.

46
Q

What is a qualified opinion?

A

It is the conclusion that, except, for the matters described in the basis for qualified opinion paragraph, the financial statements are presented fairly, in all material respects, in accordance with the framework.

> if auditor has obtained sufficient appropriate audit evidence, misstatements are material but not pervasive.
if auditor has NOT obtained sufficient appropriate audit evidence, the possible effects of undetected misstatements are material but not pervasive.

47
Q

What is an adverse opinion?

A

it is the conclusion that, because of the significance of the matters described in the basis for adverse opinion paragraph, the financial statements are not prepared fairly.
>the auditor has obtained sufficient appropriate evidence, but the misstatements are material and pervasive.

48
Q

What is a disclaimer of opinion?

A

It is the conclusion that, because of the significance of the matters described in the basis for disclaimer of opinion paragraph, the auditor has not been able to obtain sufficient appropriate evidence. Accordingly, the auditor does not express an opinion on the financial statements.

> the possible effects of undetected misstatements are material and pervasive.
Possible reasons for insufficient evidence:
a. circumstances not controlled by entity (destruction)
b. circumstances due to timing (late to appt to observe inventory)
c. limitations imposed by mgmt

49
Q

What are the pervasive effects on the statements?

A

1) Are not confined to specific elements, accounts or items of the statements.
2) Represent or could represent a substantial proportion of the statements if confined to specific elements, account, or items.
3) Are, with regard to disclosures, fundamental to users’ understanding of the statements.

50
Q

What is a misstatement on the financial statements?

A

it arises from fraud or error. it is the difference between 1) the amount, classification, presentation, or disclosure of a FS item and 2) the amount, etc, required for it to be presented fairly.

Examples:

  • Inappropriate selection of acctg principles
  • Inappropriate application of acctg principles
  • Unjustified change in acctg principles
  • Inadequate disclosure
  • Failure to provide a basic FS.
51
Q

What is a piecemeal opinion?

A

It is an expression of opinion on a specific element in the financial statements when the auditor has disclaimed an opinion or expressed an adverse opinion on the statements as a whole. This is not allowed and inappropriate bc it would contradict the disclaimer or adverse opinion.

CPA AUDIT (8 decks)

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