Audit Reports

Question 1

What should be included for the Auditor’s address?

Answer 1

The City and State where located

Question 2

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

Answer 2

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

Question 3

What is Management Responsible for in regards to Internal Control?

Answer 3

Internal Control Design, Implementation, Maintenance

Question 4

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

Answer 4

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

Question 5

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

Answer 5

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

Question 6

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

Answer 6

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

Question 7

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

Answer 7

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.

Question 8

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

Answer 8

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

Question 9

What standards govern SSARS engagements?

Answer 9

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

Question 10

Which clients can have compilation engagements?

Answer 10

Non-SEC (non-public) registrants only.

Question 11

What is a Compilation?

Answer 11

Accountant puts together financial statements with information PROVIDED BY MANAGEMENT. No opinion is expressed and no assurances are given. Independence is not required.

Question 12

What disclosures are required for Compilation engagements?

Answer 12

Disclosures not necessary must state that they are not included

Question 13

What standards govern Review engagements?

Answer 13

SSARS (Statements on Standards for Accounting and Review Services)

Question 14

What type of assurance is given in a Review engagement?

Answer 14

Reviews give limited assurance.

Question 15

What procedures are required for Review engagements?

Answer 15

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

Question 16

What is a Review engagement?

Answer 16

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

Question 17

What is a Forecast?

Answer 17

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

Question 18

What is a Projection?

Answer 18

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

Question 19

What are the requirements for Agreed Upon Procedures?

Answer 19

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

Question 20

What disclosures are required for remote likelihood of losses?

Answer 20

No disclosure required.

Question 21

What disclosure is required for a probable loss contingency?

Answer 21

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

Question 22

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

Answer 22

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

Question 23

How is a gain contingency reported?

Answer 23

Gain contingencies are not reported.

Question 24

How does an immaterial GAAP issue affect the audit opinion?

Answer 24

It doesn’t. Opinion is Unmodified.

Question 25

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

Answer 25

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

Question 26

How do GAS standards compare to GAAS?

Answer 26

GAS is more strict than GAAS.

Question 27

What is required under the Single Audit Act?

Answer 27

Funding Threshold is $750,000. 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.

Question 28

Applicable Financial Reporting Framework

Answer 28

• financial statement adequately disclose the significant accounting policies selected & applied
• the accounting policy is consistent
• accounting estimates made by mgmt. is reasonable
• the information in the FS is relevant, reliable, comparable, and understandable
• there are adequate disclosures for the user to understand the effect of transactions and events
• terminology used is appropriate
• overall structure and content is fairly presented
• the FS and notes represents transactions and events that achieve fair presentation

Question 29

Introductory Paragraph of Auditor’s Report

Answer 29

• identify the entity
• state that the FS has been audited
• identify the title of each FS
• specify the date(s) or period(s) covered by each financial statement.

Question 30

Emphasis of the Matter Paragraph

Answer 30

• used when required by GAAS or at the auditor’s discretion
• used when it is fundamental to the users’ understanding of the FS
• it does not affect the auditor’s opinion

Question 31

When is Emphasis of the Matter paragraph required?

Answer 31

It is required when there is a going concern situation, to describe a justified change in accounting principle, subsequently discovered facts lead to a change in audit opinion, FS prepared in a special purpose framework

Question 32

Other Matters Paragraph

Answer 32

-used when other than those presented or disclosed in the FS are relevant to the users’ understanding

Question 33

When is Other Matters Paragraph required?

Answer 33

• Restrictions of use;
• facts leading to change of opinion;
• FS audited in prior period was performed by a predecessor and that report is not reissued;
• current period FS presented in comparative view with less than an audit engagement in prior period or that was not audited, reviewed or compiled;
• material inconsistency;
• report on supplementary information rather than in a separate report
• restriction of use when using special purpose framework with a contractual or regulatory basis of accounting
• report on compliance

Question 34

Changing Prior Period Opinion

Answer 34

If there is a change - the auditor should disclose the reason in an emphasis of the matter or other matter paragraph

Question 35

Prior Period Audit Report of a Predecessor

Answer 35

• if successor does not present prior period - express opinion on current period only and indicate in other matter paragraph - prior period audited by someone else (don’t name them), type of opinion expressed and reasons for modification, what’s in the emphasis and other matter paragraph in the pred’s auditor report and the date of the pred’s report
• If the prior period were restated and the pred decide to reissue, the successor should express opinion on current period

Question 36

Subsequent Event

Answer 36

Events that occurred after the balance sheet date but before the financials statements are issued.
Type 1 - Conditions existing on or before the balance sheet date (ex - patient AR that was there on 12/31 but on 1/15 it was decided it was uncollectible- requires adjustment entry)
Type 2 - Conditions existing after the balance sheet date (may require a footnote disclosure)