Audit Reports

Question 1

Unmodified Opinion

Answer 1

Represents clean audit opinion.

Question 2

Emphasis of Matter Paragraph

Answer 2

Add after the opinion paragraph, usually regarding the following:

1) Auditor has doubt about the entity’s ability to continue as a going concern.
2) Special accounting framework used
3) Change in accounting principle (consistency)

Question 3

Other Matter Paragraph

Answer 3

Add after opinion paragraph or after the emphasis of matter paragraph. Usually something the auditor considers relevant but not crucial to the user’s understanding of the financial statements.

Question 4

Qualified Opinion

Answer 4

Reasons for a qualified opinion:

1) Presentation- the financial statements are misstated (GAAP departure)
2) Scope Limitation

Question 5

Adverse Opinion

Answer 5

Reasons for adverse opinion:

Financial Misstatements are both material and pervasive.

Question 6

Disclaimer Opinion

Answer 6

Unable to obtain sufficient appropriate audit evidence and the effects can be material and pervasive.

Question 7

Supplementary Information

Answer 7

1) Should include that the information is fairly stated in all material aspects in relation to the financial statements as a whole.
2) If auditing, should use some materiality as audited financial statements.

Question 8

Special Purpose Framework Report

Answer 8

1) Should describe the purpose of the financials or refers to the note in the financials that describes the reporting framework (why they are using this framework as opposed to GAAP)
2) Should disclose reservations in report if schedules are not properly labeled.

Question 9

Audit of Single Financial Statement

Answer 9

Allowed to opinion to opinion on single statement as long as information is not limited.

Question 10

Comfort Letters

Answer 10

Prepared for underwriters as part of the due dillegence process to ensure there are no material omissions related to a securities offering.

Question 11

Single Audits Under Government Auditing Standards

Answer 11

1) Audit of state and local agencies that spend at least $750,000 in federal funding.
2) Purpose of audit is to verify that federal funds have been spent according to the programs the funds were received for

Question 12

Governmental Audit

Answer 12

Contains the following three reports:

1) An audit report
2) A report on internal control
3) A report on any applicable compliance

Question 13

Fraud in Government Audit

Answer 13

Fraud is to be reported if managements fails to report the information as required by law, OR, if management fails to take timely action in response.

Question 14

Review Engagement

Answer 14

1) Provides limited assurance that there are no material modifications to financial statements
2) Record to obtain an engagement letter
3) Report should include reference “See Accountant’s Review Report”.

Question 15

Compilation Engagement

Answer 15

1) Does not provide any level of assurance
2) Does not require independence, but should be disclosed if not independent.
3) Only inquiry is performed

Question 16

Preparation of Financial Statements

Answer 16

1) Account does not have to be independent
2) Should be an engagement letter
3) Each page should included statement no assurance is provided.

Question 17

Structure of Opinion

Answer 17

1) Title
2) Addresse
3) Introductory Paragraph
4) Management Responsibility for the Financial Statements
5) Auditors Responsibility
6) Auditor’s Opinion
7) Signature of auditor

Question 18

Difference between IFRS and GAAS Opinion

Answer 18

1) True and Fair view in Opinion paragraph for IFRS
2) IFRS requires intro paragraph to refer to accounting policies.
3) IFRS requires in auditor responsibiliities paragraph acknowledgement of ethical requirements met.
4) GAAP requires note of “significant appropriate audit evidence”.

Question 19

Going Concern

Answer 19

Required on every audit to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern not to exceed the period of 1 year.
.

Question 20

Types of Going Concern Opinions

Answer 20

Adequate Disclosure-Unmodified with Emphasis of Matter
Inadequate Disclosure-Qualified or Adverse
Significant Going Concern Uncertainity-Disclaimer

Question 21

Prior Period Financial Statements Audited by Predecessor Auditor is Presented with Comparative FS

Answer 21

1) Read the statements for the current period.
2) Compare the statements audited with the current period statements
3) Obtain rep letter from successor auditor.
4) Obtain rep letter from management if reissued
5) Dual date if report is revised.

Question 22

Prior Period Financial Statements Audited by Predecessor Auditor is not Presented with Comparative FS

Answer 22

1) Indicate FS were audited by a predecessor auditor
2) Type of opinion expressed
3) Nature of emphasis of matter
4) Date of Predecessor Report

Question 23

Prior Period Financial Statements not Audited when presented with comparative FS

Answer 23

In other matter paragraph:

1) service performed in prior period
2) Date of other report
3) Description of any modifications
4) Statement that service was less in scope than an audit

Question 24

Facts Discovered After Report Release Date

Answer 24

Advise client to make necessary adjustments. If effect on FS is not readily determined, advise client to no longer rely on FS. If client does not make changes, begin process of distancing the firm from the financial statements and notify persons relying on financial statements that they can no longer be relied on.