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Audit > Audit Reports - Pre-Clarity > Flashcards

Audit Reports - Pre-Clarity Flashcards

1
Q

What are the requirements for an Audit Report?

A

Must conform to GAAP

Consistency with prior period reporting is implied (must state if inconsistent)

Adequacy of disclosure is implied (must state if disclosures are lacking)

Opinion is provided - provides assurance

Must be signed by the auditor and dated.

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2
Q

How should an Audit Report be adjusted if reporting is not consistent with the prior period?

A

If inconsistent- an Unqualified Opinion is OK

EOM paragraph after Opinion is added

Otherwise - Qualified Opinion issued

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3
Q

When is consistency not violated with respect to changes in reporting between years?

A

Accounting Errors

Reclassifications

Prospective treatment of a new principle

Accounting Estimate Change

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4
Q

What assurance is provided in an audit opinion?

A

The opinion states that the financial statements are fairly presented in all material respects

The opinion states if the financials are in conformity with GAAP.

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5
Q

What are the sections of the Audit Report?

A

Title - States that the auditor is independent

Address - whomever hired the auditor

Introduction Paragraph

Management Responsibility Paragraph

Auditor Responsibility Paragraph

Opinion Paragraph

Signed and Dated by Author

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6
Q

Which statements are included in Auditor’s responsibility in Audit Report?

A

Responsibility of Auditor to express opinion on financial statements.

Conducted in accordance to PCAOB or GAAS.

Standards require that auditor plan and perform audit to obtain reasonable assurance statements free from material misstatement.

Audit involves performing procedures to obtain evidence about amounts and disclosures in financial statements.

Procedures selected depend on auditor’s judgment, including assessment of RMM of financial statements, due to fraud or error.

In making risk assessment, auditor considers IC relevant to prep and fair presentation of financial statements. Purpose is to design audit procedures appropriate in the circumstances, NOT to express an opinion on internal control. Accordingly, no such opinion is expressed.

Audit includes evaluating appropriateness of accounting policies use, reasonableness of significant accounting estimates made by management, and overall presentation of financial statements.

Auditor believes audit evidence obtained is sufficient and appropriate to provide basis for opinion.

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7
Q

For an unqualified opinion to be issued- what must be the case with all periods presented?

A

Prior year’s Financial Statement used for comparative purposes must also meet criteria for an Unqualified Opinion

If an exception arises- the Explanatory and Opinion paragraphs will address the issue

If a prior year’s issue has been corrected - issue an Unqualified opinion and ignore the past issue

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8
Q

What is included in an unqualified opinion paragraph with an emphasis?

A

Includes:

Immaterial GAAP issues
Going Concern worries
Auditor shares responsibility
Emphasizing a particular aspect of Financial Statements
Unqualified Opinion/Assurances not affected

EOM paragraph added after opinion

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9
Q

What is the effect of a qualified opinion?

A

Qualified opinion creates reduced assurances.

Results from scope limitations or major inconsistencies.

Includes material problems with GAAP- disclosures- or segment reporting.

If issue that causes a Qualified Opinion- Basis for qualified opinion paragraph goes after the Scope and before the Opinion paragraphs and the Opinion paragraph refers to the issue as well.

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10
Q

How is the Audit Report changed if there is Scope Limitation and effects are material but not pervasive?

A

Qualified opinion is issued.

Auditor’s Responsibility paragraph modified

Basis for Qualified Opinion paragraph before Opinion paragraph

Opinion paragraph states except for possible effects described in Basis of Opinion paragraph…

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11
Q

How is the Audit Report modified for major inconsistencies found during the audit?

A

Qualified opinion is issued.

Scope paragraph remains unchanged

Explanatory paragraph between Scope and Opinion paragraphs

Opinion paragraph points out inconsistency

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12
Q

How does a Disclaimer of Opinion affect the Audit Report?

A

States that an opinion cannot be issued.

Includes severe Scope limitation

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13
Q

What would cause an Adverse Opinion?

A

Very material GAAP and Disclosure issues.

Auditor’s responsibility section changed to “We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for adverse opinion.”

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14
Q

How is division of auditor responsibility disclosed?

A

Disclosed in Introductory Paragraph.

Doesn’t name the other auditor without permission.

Referenced in Opinion paragraph and division of responsibility indicated

If other auditor is not referenced- then you take responsibility for their conclusions- so consideration of independence- experience- credentials- etc required

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15
Q

What standards govern SSARS engagements?

A

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

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16
Q

Which clients can have compilation engagements?

A

Non-SEC (non-public) registrants only.

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17
Q

What is a compilation?

A

Accountant puts together financial statements with information PROVIDED BY MANAGEMENT.

No opinion is expressed- and no assurances are given.

Independence is not required.

18
Q

What disclosures are required for Compilation engagements?

A

Disclosures not necessary must state that they are not included

19
Q

What standards govern Review engagements?

A

SSARS (Statements on Standards for Accounting and Review Services)

20
Q

What type of assurance is given in a Review engagement?

A

Reviews give limited assurance.

21
Q

What procedures are required for Review engagements?

A

Analytical procedures are required for reviews.

Inquiries of management and others

Obtain management representation letter

22
Q

What is a Review engagement?

A

Financial statements are presented with no opinion expressed- and limited assurances are given that no material modifications should be made to conform with GAAP

Independence is required for a review engagement.

23
Q

What is a Forecast?

A

A prospective financial statement that uses normal circumstances.

General and limited use allowed.

24
Q

What is a Projection?

A

A prospective financial statement using hypothetical situations.

Inappropriate for shareholders, offering statement.

Only limited use by the client is allowed.

25
Q

What are the requirements for Agreed Upon Procedures?

A

Independence is required

Only limited use by the client is allowed.

26
Q

What disclosures are required for remote likelihood of losses?

A

No disclosure required.

27
Q

What disclosure is required for a probable loss contingency?

A

Accrue if estimable.

Explanatory paragraph if not estimable.

28
Q

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

A

Auditor assesses need for explanatory 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 Unqualifed.

31
Q

How does a material GAAP issue affect the audit opinion?

A

Qualified Opinion is issued.

Similar to Scope Limitation.

Explanatory paragraph after Scope Paragraph.

Opinion refers to GAAP issue.

32
Q

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

A

Adverse opinion is issued.

Same paragraph structure as a Qualified opinion.

33
Q

How does a Going Concern issue affect the Audit Report?

A

Unqualified opinion with an Emphasis is OK

Explanatory paragraph is added after Opinion paragraph.

34
Q

What is a Yellow Book audit?

A

An audit performed under governmental auditing standards (GAS).

35
Q

How do GAS standards compare to GAAS?

A

GAS is more strict that GAAS.

36
Q

What is required under the Single Audit Act?

A

A report on internal control is required.

GAAS and GAS don’t require the I/C report.

37
Q

What are the three conditions for an accountant to examine or review PFFI?

A

Document containing PFFI includes/refers to complete historical statement for most recent year.

If PFFI has been examined, the historical financial statements on which it is based have been audited.
If PFFI has been reviewed, the historical financial statements have been audited or reviewed

Accountant is knowledgeable about accounting and financial reporting practices for each significant part of the combined entity.

38
Q

What should the report on an examination of PFFI include?

A

Unmodified, qualified or adverse opinion.

If scope limitation, disclaimer

39
Q

What should the separate paragraph include when p/y was audit, and c/y is review and prior year is being reissued? (reporting on comparative financial statements)

A

that the prior-period statements were audited

the date of the previous report

the type of opinion expressed

the substantive reasons if the opinion was not unmodified

that no audit procedures were performed after the date of the previous report

40
Q

What type of assurance does Agreed Upon Procedures provide?

A

None, neither an opinion nor negative assurance should be provided.

The report is in the form of procedures and findings.

41
Q

How is the Audit Report changed if there is Scope Limitation and effects are material and pervasive?

A

Intro paragraph changed to state: “We were engaged to audit…”

Disclaimer of opinion is issued.

Auditor’s Responsibility paragraph modified

Basis for Disclaimer of Opinion paragraph before Opinion paragraph

Opinion paragraph states “because of significance of the matters described in the Basis for Disclaimer…”

Audit (9 decks)

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