Auditing 1 (2) - REPORTS ON AUDITED FINANCIAL STATEMENTS

Question 1

AUDITOR’S STANDARD REPORT

Answer 1

1- Title
2- Addressee
3- Introductory Paragraph
4- Scope Paragraph
5- Opinion Paragraph
6- Firm Name
7- Report Date

Question 2

AUDITOR’S STANDARD REPORT - Report Date

Answer 2

1- The report should be dated on or after the date on which appropriate audit evidence,sufficient to support the opinion, has been obtained. Sufficient appropriate audit evidence includes evidence that:

    a. Audit documentation has been reviewed,
    b. FSs have been prepared, and
    c. Management has taken responsibility for FS .

2. The report date shows the final date of the auditor’s responsibility.

Question 3

TYPES OF OPINIONS

Answer 3

A. Unqualified (Clean) Opinion
B. Qualified Opinion (except for)
C. Adverse Opinion
D. Disclaimer of Opinion

Question 4

BRIEF SUMMARY OF WHEN TO USE DIFFERENT OPINIONS

Answer 4

Ref W/P A1.1

Question 5

Unqualified (Clean) Opinion - A. Uncertainty

Answer 5

An uncertainty involves a matter for which conclusive audit evidence concerning its outcome is not currently available and will not be available until such time in the future when the matter is resolved.

Management’s Responsibility:-
1- Estimate the effect of future events on the financial statements and record and present this estimate, or
2- Determine that a reasonable estimate cannot be made and make the required disclosures to that effect.

Auditor’s Responsibility
1- an Unqualified :- Auditor agree with the management after (GAAP - Evidence)
2- Qualified (GAAS) or Disclaimer :- Auditor unable to obtain evidence
3- Qualified (GAAP) or Adverse :- Auditor disagree with the management

Question 6

Unqualified (Clean) Opinion - B. Modified

Answer 6

1- Modified Wording in Division of responsibility
2- Necessary and justified departure from GAAP
3- Going concern
4- emphasize a matter
5-A justified lack of consistency
6- Required SEC regulation S-K quarterly financial data

7- Supplementary information required by GAAP has been omitted or departs materially from GAAP

8. Other information in a document containing audited financial statements is materially inconsistent with information appearing in the financial statements.

Question 7

Unqualified (Clean) Opinion - General Rule on Position of Explanatory Paragraph

Answer 7

Follow the opinion paragraph Except the following issues may be placed either before or after the opinion paragraph

   a. Justified GAAP departure
   b. Emphasis of a matter

Question 8

Unqualified (Clean) Opinion -Reliance on Work of Other Auditors

Answer 8

1. Responsibilities - The principal auditor must always be satisfied regarding the reputation and independence

2- Division of Responsibility (reference in report)- The work done by the other auditors is expressed in terms of percentages, total assets, total revenue, etc.

3- Assumption of Responsibility (no reference to other CPA) - Additional Investigation of the Other Auditor Step

Question 9

Unqualified Opinion - Necessary/Justified Departure from GAAP

Answer 9

Add explanatory that contain a description ,effects, and the reasons

Question 10

Unqualified Opinion - Going Concern Procedures

Answer 10

1- Analytical procedures
2- Debt compliance-terms of debt and loan agreements
3- Minutes-
4- Inquiry of client’s legal counsel
5- Third parties - confirm the details of financial support
6- Subsequent events review

Question 11

Unqualified Opinion - Going Concern Conditions and Events.

Answer 11

1- Financial difficulties
2- Internal matters
3- Negative trends
4- External matters

Question 12

Unqualified Opinion - Going Concern Mitigating Factors

Answer 12

1- Plans to borrow money or restructure debt

2. Plans to sell assets
3. Plans to delay or reduce expenditures
4. Plans to Increase ownership equity

Question 13

Unqualified Opinion - Going Concern (Alleviation of Doubt)

Answer 13

Alleviation of Doubt - the auditor should still consider the need for disclosure of the conditions and events that initially gave rise to the substantial doubt.

Question 14

Unqualified Opinion - Going Concern Documentation Requirements.

Answer 14

1-. The conditions or events for substantial doubt,
2-. Material mitigating factors
3-. Audit work for evaluating management’s plans,
4-. The auditor’s conclusion
5-. The effect of the auditor’s conclusion on FS or report.

Question 15

Unqualified Opinion - Emphasis of a Matter.

Answer 15

1.- A related-party transaction
2- A significant subsequent event
3- The entity is a component of a larger business enterprise
4-. Accounting matters (other than changes in accounting principles) that affect the comparability of the financial statements
e. Material uncertainties disclosed in the footnotes

Question 16

Unqualified Opinion - Lack of Consistency

Answer 16

Unqualified opinion with an explanatory paragraph.
1- The change is to an acceptable principle,
2. The method of accounting for the acceptable
3. Management is justified in the change.

Question 17

if effect of a change in GAAP is immaterial

Answer 17

no revision to the report is necessary.

Question 18

Changes in accounting estimates or corrections of errors (i.e., mathematical mistakes, oversights, etc.)

Answer 18

not affect the consistency standard and would not affect the auditor’s report

changes in depreciation method do require the addition of an explanatory paragraph.

If the year in which the change occurred is presented, the explanatory paragraph is required in subsequent years’ reports. If the change was treated as a retroactive restatement, then the explanatory paragraph is not needed in subsequent years.

Question 19

Corrections of an error in principle (e.g., from cash method to accrual method)

Answer 19

Affect consistency and would require a consistency modification.

Question 20

If a material misstatement in the previously issued financial statements of an issuer is corrected,

Answer 20

PCAOB standards require the addition of an explanatory
paragraph (following the opinion paragraph) describing the situation and referring to the company’s disclosure of the matter

Question 21

OTHER TYPES OF OPINIONS

Answer 21

Ref W/P A1.2