Audit Reports

Question 1

What are the 4 paragraphs of a standard audit report?

Answer 1

Intro
Management Responsibility
Auditor Responsibility
Opinion

Question 2

What is included in Intro paragraph?

Answer 2

Identifies entity whose F/S are being audited
State that F/S have been audited
Identify title of each F/S
Specify date covered by each F/S

Question 3

What is included in Management Responsibility paragraph?

Answer 3

Preparation and fair presentation of F/S

Design, Implementation, and Maintenance (DIM) of I/C

Question 4

What is included in Auditor Responsibility paragraph?

Answer 4

Auditor responsibility to express opinion
States audit conducted in accordance with GAAS
Describes an audit

Question 5

What is included in Opinion paragraph?

Answer 5

Opinion

In accordance with AFRF

Question 6

What is an emphasis of matter paragraph?

Answer 6

When auditor wants to emphasize matter that is properly disclosed but include matters that are of such importance that they are fundamental to the users understanding of the F/S
Goes after opinion paragraph

Question 7

When would an emphasis of matter paragraph be used as an option?

Answer 7

Significant related party transactions
Material uncertainties
Important subsequent events
Lack of consistency in accounting principles

Question 8

When is an emphasis of matter paragraph mandatory?

Answer 8

Auditor’s opinion on revised F/s is different from before
Substantial going concern doubt
Justified change in accounting principles affecting consistency
F/S prepared with special purpose framework
F/S prepared with regulatory basis for general use

Question 9

What is an other matter paragraph?

Answer 9

When auditor wants to communicate matters that are appropriately disclosed but would enhance users ability to understand audit

Question 10

What are factors that can produce substantial doubt for going concern status?

Answer 10

Several years of operating losses
Negative working capital
Defaults or restructuring of debts
Losses of key customers
Denial or losses of licenses or patents

Question 11

What are mitigating factors that can reduce going concern issue?

Answer 11

Increase ownership equity through stock issuance for cash
Dispose of marketable assets
Delay or reduce optional expenditures

Question 12

What tests would auditor apply for going concern issue?

Answer 12

Review of debt agreements and 3rd party commitments
Read minutes of board of directors
Inquiries of legal counsel
Analytical procedure