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Audit > Audit Reports - Pre-Clarity > Flashcards

Audit Reports - Pre-Clarity Flashcards

1
Q

Audit

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

Audit

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

A

If inconsistent- an Unqualified Opinion is OK

Explanatory paragraph after Opinion is added

Otherwise - Qualified Opinion issued

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3
Q

Audit

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

Audit

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

Audit

What are the sections of the Audit Report?

A

Title - States that the auditor is independent

Address - whomever hired the auditor

Introduction Paragraph

Scope Paragraph

Opinion Paragraph

Signed and Dated by Author

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6
Q

Audit

Which statements are included in the Scope Paragraph of the Audit Report?

A

GAAS was followed (IF SEC company- uses the standard of the PCAOB)
Reasonable assurance about material misstatements was obtained.
Financial statements and disclosures are supported by evidence.
Management estimates evaluated
Accounting principles evaluated
Financial Statement presentation evaluated
Reasonable basis exists for an opinion

If any scope limitations exist- the auditor tries to work around them and still issue an unqualified opinion if possible.

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7
Q

Audit

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

A

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

Audit

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

Explanatory paragraph added after opinion

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9
Q

Audit

What is the effect of a qualified opinion?

A

A qualified opinion creates reduced assurances.

It results from scope limitations or major inconsistencies.

It includes material problems with GAAP- disclosures- or segment reporting.

If there is an issue that causes a Qualified Opinion- the explanatory 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

Audit

How is the Audit Report changed if there is Scope Limitation?

A

Qualified opinion is issued.

Scope paragraph modified

Explanatory paragraph between Scope and Opinion paragraphs

Opinion paragraph points out scope limitation

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11
Q

Audit

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

Audit

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

Audit

What would cause an Adverse Opinion?

A

Very material GAAP and Disclosure issues would cause an Adverse Opinion.

If there is an issue that causes an Adverse Opinion- the explanatory paragraph goes after
the Scope and Before the Opinion paragraphs and the Opinion paragraph refers to the issue as well

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14
Q

Audit

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

Audit

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

Audit

Which clients can have compilation engagements?

A

Non-SEC (non-public) registrants only.

17
Q

Audit

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

Audit

What disclosures are required for Compilation engagements?

A

Disclosures not necessary must state that they are not included

19
Q

Audit

What standards govern Review engagements?

A

SSARS (Statements on Standards for Accounting and Review Services)

20
Q

Audit

What type of assurance is given in a Review engagement?

A

Reviews give limited assurance.

21
Q

Audit

What procedures are required for Review engagements?

A

Analytical procedures are required for reviews.

Compare results to documented predictions.

22
Q

Audit

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.

23
Q

Audit

What is a Forecast?

A

A prospective financial statement that uses normal circumstances.

General and limited use allowed.

24
Q

Audit

What is a Projection?

A

A prospective financial statement using hypothetical situations.

Only limited use by the client is allowed.

25
Q

Audit

What are the requirements for Agreed Upon Procedures?

A

Independence is required

Only limited use by the client is allowed.

26
Q

Audit

What disclosures are required for remote likelihood of losses?

A

No disclosure required.

27
Q

Audit

What disclosure is required for a probable loss contingency?

A

Accrue if estimable.

Explanatory paragraph if not estimable.

28
Q

Audit

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

A

Auditor assesses need for explanatory paragraph based on loss likelihood.

29
Q

Audit

How is a gain contingency reported?

A

Gain contingencies are not reported.

30
Q

Audit

How does an immaterial GAAP issue affect the audit opinion?

A

It doesn’t. Opinion is Unqualifed.

31
Q

Audit

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

Audit

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

Audit

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

Audit

What is a Yellow Book audit?

A

An audit performed under governmental auditing standards (GAS).

35
Q

Audit

How do GAS standards compare to GAAS?

A

GAS is more strict that GAAS.

36
Q

Audit

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.

Audit (9 decks)

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